<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 1997
REGISTRATION NO. 333-13171
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
RENAISSANCE COSMETICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2844 06-1396287
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
955 MASSACHUSETTS AVENUE
CAMBRIDGE, MASSACHUSETTS 02139
(617) 497-5584
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN R. JACKSON, ESQ.
955 MASSACHUSETTS AVENUE
CAMBRIDGE, MASSACHUSETTS 02139
(617) 497-5584
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
PAUL D. GINSBERG, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 373-3000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the Securities registered on this Form are to be offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
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14.0% Senior Redeemable
Preferred Stock, Series
C.......................... 119,008 shares(2) $1,000 $119,008,000 $36,063.03(3)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) The maximum number of shares of Series C Preferred Stock that may be issued
pursuant to this Registration Statement. This Registration Statement also
relates to an indeterminate number of shares of Series C Preferred Stock
that may be issued as dividends payable on shares of Series C Preferred
Stock pursuant to the terms thereof.
(3) The Registrant has received a credit balance of $3,591.97 from the
registration fee of $39,655 that was paid upon the original filing of the
Registration Statement on October 1, 1996 as a result of a decrease in the
registration fee from 1/29th of one per cent to 1/33rd of one percent,
effective as of October 1, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS IS SUBJECT TO
COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO
THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS
SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY OR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 31, 1997
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING SHARES OF
14.0% SENIOR REDEEMABLE PREFERRED STOCK, SERIES B
FOR SHARES OF
14.0% SENIOR REDEEMABLE PREFERRED STOCK, SERIES C
OF
RENAISSANCE COSMETICS, INC.
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED
------------------------
Renaissance Cosmetics, Inc., a Delaware corporation ("RCI" or the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the "Letter
of Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange shares of its 14.0% Senior Redeemable Preferred Stock, Series C, par
value $0.01 per share (the "Series C Preferred Stock"), for any and all of the
outstanding shares of 14.0% Senior Redeemable Preferred Stock, Series B, par
value $0.01 per share (the "Series B Preferred Stock"), of the Company. The
terms of the Series C Preferred Stock are substantially identical to the terms
of the Series B Preferred Stock, except that the shares of Series C Preferred
Stock will have been registered under the Securities Act of 1933, as amended
(the "Securities Act") and will not contain terms restricting the transfer of
such shares.
The Company will accept for exchange any and all shares of Series B
Preferred Stock that are validly tendered on or prior to 5:00 p.m., New York
City time, on the date the Exchange Offer expires, which will be ,
1997, unless the Exchange Offer is extended (the "Expiration Date"). Tenders of
shares of Series B Preferred Stock may be withdrawn at any time prior to 5:00
p.m., New York City time, on the business day prior to the Expiration Date. The
Exchange Offer is not conditioned upon any minimum number of shares of Series B
Preferred Stock being tendered for exchange. However, the Exchange Offer is
subject to certain conditions which may be waived by the Company and to the
terms and provisions of the Registration Rights Agreement (as defined herein).
See "Exchange Offer." The Company has agreed to pay the expenses of the Exchange
Offer.
Holders of shares of Series B Preferred Stock whose shares of Series B
Preferred Stock are not tendered and accepted in the Exchange Offer will
continue to hold such shares of Series B Preferred Stock. Following consummation
of the Exchange Offer, the holders of shares of Series B Preferred Stock will
continue to be subject to the existing restrictions upon transfer thereof and,
except as provided herein, the Company will have no further obligation to such
holders to provide for the registration under the Securities Act of the shares
of Series B Preferred Stock held by them.
(cover continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN RISKS
ASSOCIATED WITH AN INVESTMENT IN THE SERIES C PREFERRED STOCK.
The Company will not receive any proceeds from this Exchange Offer and no
underwriter is being utilized in connection with the Exchange Offer.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is February , 1997.
<PAGE> 3
115,000 shares of the Series B Preferred Stock were issued and sold on
August 15, 1996, September 16, 1996 and September 27, 1996 in transactions not
registered under the Securities Act, in reliance upon the exemption provided in
Section 4(2) of the Securities Act and 4,008 shares were issued on November 15,
1996 as dividends in respect of such 115,000 shares. Accordingly, the Series B
Preferred Stock may not be offered, resold or otherwise pledged, hypothecated or
transferred in the United States unless so registered or unless an applicable
exemption from the registration requirements of the Securities Act is available.
Shares of Series C Preferred Stock are being offered hereby in order to satisfy
the obligations of the Company under the registration rights agreement relating
to the Series B Preferred Stock (the "Registration Rights Agreement"). See "The
Exchange Offer -- Purpose of the Exchange Offer." Based on no-action letters
issued by the staff of the Securities and Exchange Commission (the "Commission")
to third parties, the Company believes shares of Series C Preferred Stock to be
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by holders thereof (other than (i) a broker-dealer who
purchases such shares of Series C Preferred Stock directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such shares of Series C Preferred Stock are acquired in the ordinary course
of such holders' business and such holders have no arrangements with any person
to participate in the distribution of such shares of Series C Preferred Stock.
Eligible holders wishing to accept the Exchange Offer must represent to the
Company that such conditions have been met. Each broker-dealer that receives
shares of Series C Preferred Stock for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a prospectus in connection with any
resale of such shares of Series C Preferred Stock. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
shares of Series C Preferred Stock received in exchange for shares of Series B
Preferred Stock where such shares of Series B Preferred Stock were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. For a period of 90 days following the consummation of the Exchange
Offer, the Company has agreed to use its best efforts to make this Prospectus
available to broker-dealers who have identified themselves as such for use in
connection with resales by such broker-dealers of shares of Series C Preferred
Stock received in exchange for shares of Series B Preferred Stock acquired by
such broker-dealers for their own accounts as a result of market-making or other
trading activities. See "Plan of Distribution."
Dividends on the Series C Preferred Stock, at the rate of 14.0% per annum,
are payable quarterly in arrears on February 15, May 15, August 15 and November
15 of each year (each, a "Dividend Payment Date"), commencing on
, 1997 (the "First Dividend Payment Date"). Holders of Series B
Preferred Stock whose shares of Series B Preferred Stock are accepted for
exchange will be deemed to have waived the right to receive any payment in
respect of any unpaid dividends on the Series B Preferred Stock that have
accumulated or accrued to the date of the issuance of the Series C Preferred
Stock. Consequently, holders who exchange their shares of Series B Preferred
Stock for Series C Preferred Stock will receive the same dividends on the Series
C Preferred Stock that holders of the Series B Preferred Stock who do not accept
the Exchange Offer will receive on the Series B Preferred Stock. Dividends on
the Series C Preferred Stock may be paid in cash or by issuing fully paid and
nonassessable shares of Series C Preferred Stock as described herein.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF SERIES B PREFERRED STOCK IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE
IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
2
<PAGE> 4
There can be no assurance that an active public or private market for the
Series C Preferred Stock will develop. Whether or not a market for the Series C
Preferred Stock should develop, the shares of Series C Preferred Stock could
trade at a discount from their aggregate liquidation preference. The Company
does not intend to list the Series C Preferred Stock on a national securities
exchange or to apply for quotation of the Series C Preferred Stock through the
National Association of Securities Dealers Automated Quotation System. To the
extent shares of Series B Preferred Stock are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
shares of Series B Preferred Stock could be adversely affected.
The Company has been advised by CIBC Wood Gundy Securities Corp. (the
"Initial Purchaser") that it intends to make a market in the Series C Preferred
Stock; however, it is under no obligation to do so and any market making
activities with respect to the Series C Preferred Stock may be discontinued at
any time.
3
<PAGE> 5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports and other information with the Commission. Reports and
other information filed by the Company with the Commission pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048; and Northwestern Atrium Center, 500 West Madison Street (Suite 1400),
Chicago, Illinois 60661; and copies of such material may be obtained from the
Public Reference Section of the Commission, at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission also maintains
an Internet Web Site at http://www.sec.gov that contains reports and other
information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus all
documents and reports filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering made hereby.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other document subsequently filed with the Commission which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
OF ANY OR ALL OF THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN (NOT INCLUDING
THE EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS). REQUESTS FOR SUCH COPIES SHOULD BE
DIRECTED TO: JOHN R. JACKSON AT 955 MASSACHUSETTS AVENUE, CAMBRIDGE,
MASSACHUSETTS 02139, TELEPHONE NUMBER (617) 497-5584.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements under the captions "Prospectus Summary," "Recent
Developments," "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere in this
Prospectus and the documents incorporated herein by reference constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, levels of activity, performance or achievements of the Company,
or industry results, to be materially different from any future results, levels
of activity, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions; the ability of the Company to
implement its business and acquisition strategy, including the ability to
integrate recently acquired businesses into the Company; the ability of the
Company to obtain financing for general corporate purposes; changes in the
retail industry; changes in consumer preferences; competition; availability of
key personnel; foreign currency exchange rates; industry capacity; and changes
in, or the failure to comply with, government regulations (especially
environmental laws and regulations). See "Risk Factors." As a result of the
foregoing and other factors, no assurance can be given as to future results,
levels of activity and achievements and neither the Company nor any other person
assumes responsibility for the accuracy and completeness of these statements.
Chantilly(R), White Chantilly(TM), Tabu(R), DREAMS BY TABU(TM), Lutece(R),
Raffinee(R), Demi-Jour(TM), Monsieur Musk(R), French Garden Flowers(TM), English
Waterlilys(TM), French Vanilla by Dana(TM), Ambush(R), Canoe(R), Canoe-Sport(R),
Herbissimo(R), Navigator(TM), English Leather(R), British Sterling(R),
Love's(R), Heaven Sent(R), NaVy(R), Toujours Moi(R), NaVy for Men(TM),
Insignia(R), California for Men(R), le Jardin(TM), LaJoie(R), PRO(10)(R), Press
& Go(R), Petite Press & Go(TM), Sport Press & Go(TM), Quik Fit(R), Sculpture
Quik(TM), Sculpture Quik II(TM), UltraGel(TM), Nail Fetish(TM), Wrap Quik(R),
Quikfile(TM), Quikshine(R), Filepro(R), Nat Robbins(R), Lip Lacquer(TM), Ever
Sheer(TM)and Color Intense 24(R) are trademarks and brands owned by or licensed
to the Company. All other trademarks or service marks referred to in this
Prospectus are the property of their respective owners and are not the property
of the Company.
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by reference
to the more detailed information and financial statements (including the notes
thereto) appearing elsewhere in this Prospectus and the documents incorporated
by reference in this Prospectus. References contained in this Prospectus to
"Fiscal 1994," "Fiscal 1995" and "Fiscal 1996" mean the fiscal years ended March
31, 1995 and March 31, 1996 and the fiscal year ending March 31, 1997,
respectively. Unless otherwise indicated, (i) all industry and market share data
set forth in this Prospectus are based upon information supplied by Information
Resources, Inc., an independent market research firm ("IRI"), and reflect actual
U.S. sales data for the 52 week period ended November 3, 1996 scanned by IRI's
InfoScan service through retailers' store registers in the drug store and mass
merchandiser segments of the mass market, which, according to IRI, accounted for
approximately 87% of the entire mass market during that period; (ii) all
InfoScan data with respect to the Company include sales of GAC, MEM and the P&G
Brands (each as defined herein) for the 52 week period ended November 3, 1996;
and (iii) references to the mass market or segments thereof refer to the
domestic mass market. Unless the context otherwise requires, references in this
Prospectus to the "Company" refer to Renaissance Cosmetics, Inc. and its
subsidiaries.
THE COMPANY
The Company is a leading manufacturer and marketer of mass-market
fragrances, artificial nail care products, mid-priced lip and eye make-up, nail
polish and related products that are sold by more than 1,000 retailers in
approximately 25,000 locations in the United States and in 45 foreign countries.
The Company sells its products principally through the mass-market distribution
channel which includes drug stores (such as Walgreen and Revco), mass
merchandisers (such as Wal-Mart and Kmart) and supermarkets and combination
supermarket/drug stores (such as Kroger and Albertson's). In Fiscal 1995 and for
the six months ended September 30, 1996, the Company generated net sales of
$131.3 million and $77.7 million, respectively, and EBITDA of $16.5 million and
$9.9 million, respectively.(1)
Through its wholly-owned Dana Perfumes Corp. subsidiary ("Dana"), the
Company sells women's and men's fragrances designed to appeal to a broad range
of consumers within the mass market, including several classic brands such as
Chantilly and Tabu for women and English Leather and Canoe for men, each of
which has enjoyed widespread sales and consumer loyalty for more than 30 years.
The Company has an 11.1% share and a 6.5% share of the women's and men's
mass-market fragrance categories, respectively, and is the third and fifth
largest marketer of women's and men's fragrances, respectively, in the mass
market.
The Company's women's fragrance brands represent two of the top seven and
14 of the top 100 women's fragrance brands sold through the drug store channel,
which represents approximately 50% of mass-market sales. The Company's men's
fragrance brands represent three of the top 20 men's fragrance brands sold
through the drug store channel. The Company's fragrance and related products are
marketed under established brand names including Chantilly, White Chantilly,
Tabu, DREAMS BY TABU, Ambush, NaVy, Insignia, Toujours Moi, le Jardin, Love's,
Heaven Sent, French Vanilla by Dana, Raffinee, Lutece, Canoe, English Leather,
British Sterling, NaVy for Men, California for Men and Herbissimo.
Through its wholly-owned Cosmar Corporation subsidiary ("Cosmar"), the
Company is the largest domestic manufacturer and marketer of artificial nail
care products and related accessories sold through the mass market. Cosmar has
the leading share in five of the top seven artificial nail care segments, and
its 33% share in the mass market is more than twice the share of its nearest
competitor. In 1995, the Company successfully entered the $300+ million nail
polish category with its line of PRO(10) nail lacquers. In just one year after
its introduction, PRO(10) ranked as the ninth best-selling nail lacquer brand in
the United States. The Company's artificial nail care products and related
accessories are marketed under the brand names LaJoie, Press & Go, Sculpture
Quik, Quik Fit, PRO(10), UltraGel and Nail Fetish.
- ---------------
(1) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization. EBITDA should not be considered as an alternative to net
income or cash flow and is not a measure of performance under generally
accepted accounting principles but provides additional information for
evaluating the Company.
5
<PAGE> 7
Through its wholly-owned Great American Cosmetics, Inc. subsidiary ("GAC"),
which the Company acquired on August 21, 1996 (the "GAC Acquisition"), the
Company markets a leading brand of high quality, mid-priced lip, eye and nail
products sold in the mass market under the Nat Robbins name. These color
cosmetics products include lipliner pencils, lipsticks, eyeliner pencils, eye
shadow, mascara, nail enamel, make-up brushes and assorted accessories. In
addition to the Nat Robbins brand name, which appears on all packaging, products
are marketed under the brand names Lip Lacquer, Stay Put and Color Intense 24.
On December 4, 1996, the Company acquired MEM Company, Inc. ("MEM"), which
manufactures mass-market fragrances (the "MEM Acquisition"). MEM's fragrance
brands include classic men's brands, such as English Leather and British
Sterling, and established women's brands such as Love's and Heaven Sent. A
division of MEM manufactures and markets a line of children's cosmetics and
accessories, principally under the trademark Tinkerbell.
On December 6, 1996, the Company acquired certain of the mass-market
fragrance brands (the "P&G Brands") marketed by The Procter & Gamble Company
("P&G"). As a result of this acquisition (the "P&G Acquisition"), the Company
added several well-known brands to its fragrance portfolio, including NaVy,
Insignia and NaVy for Men. Concurrent with the P&G Acquisition, the Company
entered into transition agreements with P&G under which P&G will continue the
foreign marketing of the P&G Brands through June 30, 1997. The GAC Acquisition,
MEM Acquisition and P&G Acquisition are referred to collectively herein as the
"Acquisitions."
The Company's principal executive offices are located at 955 Massachusetts
Avenue, Cambridge, Massachusetts 02139, and its telephone number is (617)
497-5584.
BUSINESS STRATEGY
The Company's management team intends to continue to capitalize on
opportunities in the mass-market segment of the fragrance and cosmetics
industry, through both internal growth and acquisitions, and to maximize sales
and EBITDA by implementing a strategy based on the following elements:
- Acquisition and Reinvigoration of Underperforming and/or Undermarketed
Brands. The Company intends to continue to selectively acquire and
subsequently reinvigorate underperforming and/or undermarketed
established brands by: (i) reestablishing trust and reliability with
retail accounts that may have been lacking under previous ownership; (ii)
restoring the quality and brand franchise of acquired fragrances by using
original formulations and applying advanced technology to improve
acquired cosmetics products; (iii) redesigning the packaging and
advertising of certain acquired brands to modernize their images and
refocus them toward their target markets; and (iv) initiating or
expanding focused advertising and promotional programs. Advertising and
marketing support is particularly important in the mass market due to
minimal in-store sales support by store personnel or manufacturer
representatives. Management believes that the Company provides the
broad-based consumer advertising necessary to support new product
introductions and to motivate consumers to "pull" the Company's products
off of the shelf.
- Integration of Acquired Businesses into Existing Company
Infrastructure. Following its acquisition of brands or companies, the
Company reduces the operating costs of such acquired brands or companies
by: (i) eliminating redundant overhead; (ii) consolidating plants (such
as the planned closing of MEM's facilities); (iii) selling the acquired
brands through the Company's existing sales force; and (iv) using common
components (e.g., the same type of bottle for several brands) to reduce
manufacturing costs.
- Focused Flanking of Established Fragrance Brand Equities. Rather than
introduce completely new products into the mass market, the Company has
specialized in the launch of new products that leverage off of the strong
name recognition and brand equity ("trust") of the Company's portfolio of
classic fragrance brands. These new products, known as "focused
flankers," draw on the consumer recognition and heritage of the Company's
existing brand equities while simultaneously enhancing and revitalizing
the "parent" products being flanked. The Company's flanker introductions
are strongly
6
<PAGE> 8
related to their "parents" but are targeted toward a different consumer
segment, enabling the Company to increase shelf space allocated to, and
revenues generated by, the expanded brand family. To date, the Company
has successfully launched White Chantilly as a flanker of the classic
Chantilly brand in the fall of 1995, DREAMS BY TABU as a flanker of the
classic Tabu brand in February 1996 and Navigator from Canoe as a flanker
of the classic Canoe brand in September 1996. In addition, the Company
has identified several opportunities to launch focused flankers of its
newly acquired MEM and P&G fragrance brands. Management believes that the
reinvigoration of existing brands and the launch of focused flanker
products typically generate more predictable sales and require less
advertising and promotional expenditures than "cold" launches of
completely new products.
- Introduction of Complementary Products. Similar to its focused flanker
approach to fragrances, the Company also introduces complementary new
cosmetics products. For example, the Company enhanced its leadership
position in the artificial nail care market in Fiscal 1995 through the
introduction of products targeting new segments of the market, including
UltraGel (patented gel nails with built-in color targeting salon users)
and Nail Fetish (a line of artificial nail care products targeting
teenage consumers). In addition, in 1995 the Company successfully entered
the $300+ million nail polish category with the launch of its PRO(10)
line of nail lacquers, which ranked as the ninth best-selling nail
lacquer brand in the United States one year after its introduction. In
the upcoming year, Cosmar plans to introduce three innovative artificial
nail sculpture kits that management believes will address the growing
consumer interest in do-it-yourself home manicures.
- Use of Category Management Techniques to Increase the Company's Sales by
Increasing its Allocation of Shelf Space and Enhancing Relationships with
Retailers. Due to the consolidation in the mass-market retail industry,
the allocation of retail shelf space has become increasingly important.
To increase shelf space allocated to the Company's products and to build
stronger relationships with retailers, the Company purchases consumer
sales data derived from in-store checkout scanners in order to
mathematically quantify sales results for its own products (as well as
those of its competitors). The Company engages in account-specific
category management by offering to be a retailer's category advisor or
"category captain," a role that most retailers fill by electing one
manufacturer per category. The category captain assists the retailer in
deciding which products it will sell within the shelf space dedicated to
a specific category. Management believes that because the Company has
made a significant investment in data, systems and employee resources for
its category management program, the Company should maintain a
significant competitive advantage in this area that will be difficult for
its competitors to overcome.
- Expansion into Additional Retail Outlets and Alternative Distribution
Channels. The Company continually seeks to expand its sales and
distribution network (currently over 1,000 retailers with approximately
25,000 locations) for its existing and acquired products. Due to the
Company's long-standing relationships with retail buyers, extensive
domestic retailer network, ability to reinvigorate brands and category
management expertise, the Company has been able to significantly increase
the sales of its acquired brands by integrating them into its existing
distribution network. For example, under Cosmar's management, the Nat
Robbins line has increased its retail store door distribution ("doors")
from approximately 6,000 doors at the closing of the GAC Acquisition to
approximately 7,200 doors as of December 1996 as the Company introduced
the Nat Robbins line to a number of the Company's major accounts. The
Company continually explores alternative distribution channels (such as
the home shopping channel QVC) through which to sell its products. In
addition, the Company is increasing its worldwide doors by expanding the
number of foreign countries (currently 45) in which it sells its
products.
The Company intends to continue to capitalize upon the success of its
previous fragrance and cosmetics product launches, market share gains and close
working relationships with mass-market retailers to launch additional focused
flanker fragrance products and new artificial nail care and cosmetics products.
Management believes that the Company has the management talent and corporate
infrastructure in place to continue to implement its proven growth strategy and
effectively manage future growth. See "Special Note Regarding Forward-Looking
Information."
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THE EXCHANGE OFFER
Securities Offered............... 119,008 shares of 14.0% Senior Redeemable
Preferred Stock, Series C. The terms of the
Series C Preferred Stock are substantially
identical to the terms of the Series B
Preferred Stock except that the Series C
Preferred Stock will have been registered
under the Securities Act and will not
contain terms restricting the transfer of
such stock. See "Description of Series C
Preferred Stock."
The Exchange Offer............... Shares of Series C Preferred Stock are
being offered in exchange for any and all
of the outstanding shares of Series B
Preferred Stock (on a share for share
basis). As of November 15, 1996, the last
dividend payment date for the Series B
Preferred Stock, 119,008 shares of Series B
Preferred Stock with an aggregate
liquidation preference of $119.008 million
were issued and outstanding. The Company
has agreed to make the Exchange Offer in
order to satisfy its obligations under the
Registration Rights Agreement. For a
description of the procedures for
tendering, see "Exchange Offer --
Procedures for Tendering Series B Preferred
Stock."
Expiration Date; Withdrawal...... The Exchange Offer will expire at 5:00
p.m., New York City time, on ,
1997, or such later date and time to which
it may be extended in the sole discretion
of the Company (the "Expiration Date").
Shares of Series B Preferred Stock tendered
pursuant to the Exchange Offer may be
withdrawn at any time prior to the
Expiration Date. Any shares of Series B
Preferred Stock not accepted for exchange
for any reason will be returned without
expense to the tendering holders thereof as
promptly as practicable after the
expiration or termination of the Exchange
Offer. See "Exchange Offer -- Expiration
Date; Extensions; Termination; Amendments;
and Withdrawal Rights."
Conditions to Exchange Offer..... The Exchange Offer is subject to certain
conditions. See "Exchange Offer -- Certain
Conditions to the Exchange Offer." The
Exchange Offer is not conditioned upon any
minimum number of shares of Series B
Preferred Stock being tendered for
exchange.
Certain Federal Income Tax
Considerations................... The exchange of the Series B Preferred
Stock for the Series C Preferred Stock
should not be a taxable event to the holder
for federal income tax purposes, and the
holder should not recognize any taxable
gain or loss as a result of such exchange.
See "Certain Federal Income Tax
Considerations."
Untendered Series B Preferred
Stock............................ Upon consummation of the Exchange Offer,
the holders of Series B Preferred Stock, if
any, will have no further registration or
other rights under the Registration Rights
Agreement, except as provided herein.
Holders of shares of Series B Preferred
Stock who do not tender their shares of
Series B Preferred Stock in the Exchange
Offer or whose shares of Series B Preferred
Stock are not accepted for exchange will
continue to hold such shares of Series B
Preferred Stock and will be entitled to all
the rights and
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<PAGE> 10
preferences thereof and will be subject to
all the limitations applicable thereto,
except for any such rights or limitations
which, by their terms, terminate or cease
to be effective as a result of this
Exchange Offer. All untendered and tendered
but unaccepted shares of Series B Preferred
Stock will continue to be subject to the
restrictions on transfer provided therein.
To the extent that shares of Series B
Preferred Stock are tendered and accepted
in the Exchange Offer, the trading market
for untendered and tendered but unaccepted
shares of Series B Preferred Stock could be
adversely affected.
TERMS OF THE SERIES C PREFERRED STOCK
The terms of the Series C Preferred Stock are substantially identical to the
terms of the Series B Preferred Stock.
Dividends........................ Holders of the Series C Preferred Stock are
entitled, when, as and if declared by the
Board of Directors of RCI (the "Board of
Directors") out of funds legally available
therefor, to receive dividends on each
outstanding share of Series C Preferred
Stock, at the rate of 14.0% per annum.
Dividends on the Series C Preferred Stock
issued in exchange for the Series B
Preferred Stock are payable quarterly in
arrears on February 15, May 15, August 15
and November 15 of each year, commencing on
the First Dividend Payment Date to holders
of record 15 days preceding the Dividend
Payment Date. Dividends on the Series C
Preferred Stock issued in exchange for the
Series B Preferred Stock will be cumulative
(whether or not earned or declared) from
the later of (a) the last Dividend Payment
Date on which dividends were paid on the
Series B Preferred Stock surrendered in
exchange therefor or (b) if no dividends
have been paid on such Series B Preferred
Stock, from the date of issuance of the
Series B Preferred Stock. Dividends which
are not declared and paid when due will
compound quarterly at the dividend rate.
Dividends may, at the option of the
Company, be paid on any Dividend Payment
Date in cash or by issuing fully paid and
nonassessable shares of Series C 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
(as defined herein) are redeemed, dividends
shall be paid in cash on the first Dividend
Payment Date following the earlier of one
year from the date of such redemption or
August 31, 2002. If the Company does not
pay cash dividends after August 15, 1999 or
at any time that it is required to do so,
the per annum dividend rate will be
increased by 0.25% during each quarter
ended on each Dividend Payment Date on
which such non-cash payment occurs, unless
such non-cash payment has occurred during
more than four quarters, in which case the
per annum dividend rate will be increased
by 0.5% in each additional
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<PAGE> 11
quarter in which such non-cash payment
occurs, with a maximum rate of 17% per
annum.
Liquidation Preference........... $1,000 per share.
Board Representation............. Holders of Series C Preferred Stock (acting
together with the holders of the Series B
Preferred Stock, as a single class) will
have the right to nominate three candidates
for consideration for the Board of
Directors. The Company shall use all
reasonable commercial efforts to cause the
election of one of such nominees selected
by the Company.
Voting........................... Holders of the Series C Preferred Stock
have no general voting rights except as
provided by law.
Optional Redemption.............. The Series C Preferred Stock may be
redeemed at the option of the Company, in
whole or in part, at any time on or after
September 1, 1999, initially at 108% of the
liquidation preference, declining ratably
to 100% of the liquidation preference on or
after September 1, 2003, in each case plus
accrued and unpaid dividends thereon. In
addition, at any time prior to September 1,
1999, the Company may redeem (pursuant to
one or more redemptions) up to 35% of the
aggregate liquidation preference of the
Series C Preferred Stock (and the Series B
Preferred Stock, taken together) with net
proceeds received by the Company from one
or more public offerings of equity
securities of the Company at a redemption
price equal to 110% of the liquidation
preference thereof, plus accrued and unpaid
dividends thereon to the date of
redemption. The Company's ability to effect
an optional redemption is subject to the
legal availability at the Company of funds
therefor.
Mandatory Redemption............. The Company is required to redeem all
outstanding shares of Series C Preferred
Stock on August 31, 2006, at a redemption
price equal to the liquidation preference
of $1,000 per share, plus accrued and
unpaid dividends thereon. The Company's
obligation to redeem the Series C Preferred
Stock is subject to the legal availability
at the Company of funds therefor.
Change of Control................ Upon a Change of Control (as defined
herein), the Company shall, only if, and
only to the extent permitted by the Senior
Notes, the Old Credit Facility (as defined
herein), the Senior Secured Credit Facility
(as defined herein) and any other long-term
indebtedness then outstanding, offer to
redeem the outstanding shares of Series C
Preferred Stock at a redemption price equal
to 101% of the liquidation preference
thereof, plus accrued and unpaid dividends
thereon; provided that such offer will not
result in the Series C Preferred Stock
being deemed to be Disqualified Stock (as
defined herein) under the Indenture (as
defined herein). If the Company does not
for any reason make an offer to purchase
the Series C Preferred Stock upon a Change
of Control, the dividend rate will increase
to a rate of 17.0% per annum. The Company's
obligation to redeem the Series C Preferred
Stock is subject to the legal availability
of funds therefor.
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<PAGE> 12
Ranking.......................... The Series C Preferred Stock will rank
senior to (a) all classes of Common Stock
of the Company, (b) the Cumulative
Exchangeable Preferred Stock (as defined
herein) and (c) each other class of capital
stock issued by the Company after the
Exchange Offer. The Series C Preferred
Stock will rank pari passu with the Series
B Preferred Stock.
Covenants........................ The Certificate of Designation (as defined
herein) imposes certain restrictions on the
ability of the Company to (i) declare and
pay dividends or make any other
distributions or payments with respect to
the capital stock of the Company or its
subsidiaries or purchase, redeem, acquire
or retire any capital stock of the Company
or any of its subsidiaries (other than
certain enumerated exceptions) and (ii)
exercise its option to exchange either in
whole or in part, the Cumulative
Exchangeable Preferred Stock for notes of
the Company.
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<PAGE> 13
RISK FACTORS
Prospective investors in the Series C Preferred Stock should consider
carefully the following risk factors as well as the other information set forth
elsewhere in this Prospectus in connection with an investment in the Series C
Preferred Stock.
HIGH LEVEL OF INDEBTEDNESS AND LEVERAGE
The Company is, and will continue to be, highly leveraged due to the
substantial indebtedness it has incurred and intends to incur primarily to
finance acquisitions and expand its operations. As of September 30, 1996, the
Company had $121.7 million of total debt and $185.0 million of total debt on a
pro forma basis after giving effect to the MEM Acquisition, borrowings under the
Senior Secured Credit Agreement, dated as of December 4, 1996, among Cosmar, as
borrower, the Company and all of the Company's material domestic and Canadian
subsidiaries, as guarantors, and the lenders named therein (the "Senior Secured
Credit Facility") and the repayment of all indebtedness under the Company's
then-existing credit facility (the "Old Credit Facility") with Nomura Holding
America, Inc. ("Nomura"). Subject to the restrictions that may be in existence
on its outstanding indebtedness from time to time, the Company expects to incur
additional indebtedness from time to time to finance acquisitions or capital
expenditures or for other corporate purposes.
The Company experienced net losses applicable to common stockholders of
$10.4 million, $13.4 million and $6.2 million in the six months ended September
30, 1996, Fiscal 1995 and Fiscal 1994, respectively, although it has generated
cash flow from operations in excess of debt service requirements. There can be
no assurance, however, that the Company will continue to generate cash flow at
levels sufficient to meet these requirements. The Company's ability to meet its
debt service obligations in the long term will be dependent upon its future
performance (including the performance of any acquired business) which, in turn,
will be subject to general economic conditions and to financial, business and
other factors affecting the operations of the Company, many of which are beyond
its control. If the Company is unable to generate sufficient cash flow to
service its indebtedness, it may be forced to adopt an alternative strategy that
may include actions such as slowing down or stopping the Company's acquisition
program, reducing or delaying capital expenditures, selling assets, refinancing
all or a portion of its existing indebtedness or obtaining additional financing.
There can be no assurance that such actions would be possible or successful.
The level of the Company's indebtedness could have important consequences
to holders of the securities offered hereby including: (i) a substantial part of
the Company's cash flow from operations must be dedicated to debt service and
will not be available for other purposes (including paying cash dividends on the
Series C Preferred Stock); (ii) the Company's ability to obtain needed
additional financing in the future may be limited; (iii) the Company's leveraged
position and covenants contained in the Senior Secured Credit Facility (or any
replacement thereof) and in the Indenture, dated as of August 18, 1994, as
amended (the "Indenture"), pursuant to which the Company's outstanding $65.0
million principal amount of 13.75% Senior Notes due 2001, Series A and B, and
13.75% Senior Notes due 2002 (collectively, the "Senior Notes") were issued (or
any replacement thereof) could limit its ability to expand and make capital
improvements and acquisitions; and (iv) the Company's level of indebtedness
could make it more vulnerable to economic downturns, limit its ability to
withstand competitive pressures, and limit its flexibility in reacting to
changes in its industry and economic conditions generally. Certain of the
Company's competitors currently operate on a less leveraged basis and have
significantly greater operating and financing flexibility than the Company.
Although the Company has entered into a letter of intent with a major
institutional lender with respect to a proposed revolving credit facility under
which such institutional lender and other lenders would agree to provide Dana
with a senior secured revolving credit facility (the "New Revolving Credit
Facility"), there can be no assurance that the Company will be able to secure
such a facility. The failure of the Company to obtain such a facility would have
a material adverse effect on the Company's ability to implement its current
business plan. See "Recent Developments -- New Revolving Credit Facility."
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<PAGE> 14
NEED TO REFINANCE SENIOR SECURED CREDIT FACILITY
The Senior Secured Credit Facility severely limits the Company's ability to
incur additional indebtedness, including indebtedness incurred for capital
expenditures and for working capital and debt service requirements. Moreover,
the borrowings under the Senior Secured Credit Facility effectively constitute
the Company's entire permissible borrowings under the Indenture. Accordingly,
the Company currently does not have, and the Senior Secured Credit Facility and
the Indenture effectively do not permit, a revolving credit facility for working
capital needs. The Company expects to generate cash flow that, together with the
Company's cash on hand (including unused proceeds from borrowings under the
Senior Secured Credit Facility), should be sufficient to meet the Company's
current working capital needs (including debt service requirements) through
August 1997, although there can be no assurance that this will be the case. The
failure of the Company to refinance the Senior Secured Credit Facility and the
Senior Notes and to obtain a revolving credit facility for working capital needs
prior to such time would have a material adverse effect on the Company's ability
to implement its business plan. In addition, if the Company does not have
sufficient cash to meet its debt service requirements, such failure would result
in a default under the Indenture and the Senior Secured Credit Facility, which
would enable the lenders thereunder to declare all amounts borrowed thereunder,
together with accrued interest thereon, to be immediately due and payable. The
acceleration of such indebtedness would have a material adverse effect on the
Company.
Amounts borrowed under the Senior Secured Credit Facility bear interest at
an initial rate of 11.5% per annum, increasing to 12.5% on June 4, 1997 and by
an additional 0.5% at the end of each 90-day period thereafter, subject to a
maximum rate per annum of 20%. The Senior Secured Credit Facility also requires
Cosmar to pay each lender an extension fee in an amount equal to 0.5% of the
Senior Secured Credit Facility outstanding on March 5, 1997.
On December 24, 1996, the Company commenced an offer to purchase all of the
Senior Notes at a price of $1,165 for each $1,000 principal amount thereof (plus
accrued interest thereon), subject to certain conditions (the "Senior Notes
Offer") including obtaining financing in an amount sufficient to enable it to
complete the Senior Notes Offer and permit it to repay the $117.5 million
aggregate principal amount of indebtedness outstanding under the Senior Secured
Credit Facility, together with accrued and unpaid interest thereon. There can be
no assurance that the Company will be successful either in completing the Senior
Notes Offer or in obtaining the financing necessary to complete the Senior Notes
Offer and the repayment of the Senior Secured Credit Facility.
HOLDING COMPANY STRUCTURE
The Company is a holding company and its assets consist primarily of
investments in its subsidiaries. The Company's ability to pay dividends on the
Series C Preferred Stock and redeem the Series C Preferred Stock is dependent
primarily upon the earnings of its subsidiaries, and the distribution or other
payment of such earnings to the Company. The Company's subsidiaries are
currently subject to agreements, including the Senior Secured Credit Facility,
and likely will become subject to additional agreements, such as the New
Revolving Credit Facility, that restrict their ability to pay dividends to the
Company. The Company's rights and the rights of its stockholders and creditors,
including holders of the Series C Preferred Stock, to participate in the
distribution of assets of any person in which the Company owns an equity
interest upon such person's liquidation or reorganization will be subject to
prior claims of such person's creditors, including trade creditors, except to
the extent that the Company may itself be a creditor with recognized claims
against such person (in which case the claims of the Company would still be
subject to the prior claims of any secured creditor of such person, including
the lenders under the Senior Secured Credit Facility (and any replacement
thereof), and of any holder of indebtedness of such person that is senior to
that held by the Company, including the lenders under the Senior Secured Credit
Facility (and any replacement thereof)). Accordingly, the rights of holders of
the Series C Preferred Stock will be effectively subordinated to such claims.
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<PAGE> 15
RESTRICTIONS ON THE COMPANY'S ABILITY TO PAY DIVIDENDS
Certain of the Company's debt instruments, including the Senior Secured
Credit Facility and the Senior Notes, contain covenants that restrict the
Company's ability to pay, or prevent the payment of, dividends on the Series C
Preferred Stock. In addition, under Delaware law, dividends on capital stock may
only be paid from "surplus" or, if there is no surplus, from the corporation's
net profits for the then current or the preceding fiscal year. The Company does
not anticipate having net profits for the foreseeable future and its ability to
pay dividends on the Series C Preferred Stock will require the availability of
adequate "surplus," which is defined as the excess, if any, of the Company's net
assets (total assets less total liabilities) over its capital (generally the par
value of its issued capital stock). There can be no assurance that adequate
surplus will be available to pay dividends on the Series C Preferred Stock.
DEPENDENCE ON SUCCESSFUL COMPLETION OF ACQUISITIONS AND INTEGRATION OF ACQUIRED
BUSINESSES
The Company's success has been, and will continue to be, dependent upon the
availability, successful completion and integration of acquisitions. There can
be no assurance that the Company will find suitable acquisitions. Increased
competition for acquisitions may increase purchase prices above levels
considered appropriate by management, in which case the Company would be
required to rely primarily on growth by its existing businesses rather than
through acquisitions. In addition, the Company may be subject to agreements that
restrict or effectively prevent the Company from incurring indebtedness to
complete acquisitions. Under the terms of the Indenture and the Senior Secured
Credit Facility, the Company currently does not have the ability to incur
additional indebtedness to make acquisitions. If the Company is unsuccessful in
implementing its acquisition strategy, the Company's ability to compete with
other manufacturers and marketers of fragrance and cosmetics products could be
adversely affected, especially if the industry continues to move toward further
consolidation. Furthermore, other factors resulting from the completion of
additional acquisitions, such as increasing leverage and debt service
requirements, diversion of management time and attention and combining disparate
company cultures and facilities, could adversely affect the Company's operating
results.
The success of any completed acquisition, including the recently completed
Acquisitions, will depend in part on the Company's ability to effectively
integrate the acquired businesses into the Company and on the Company's ability
to revitalize underperforming and/or undermarketed fragrance and cosmetics
brands. The process of integrating such acquired businesses may involve
unforeseen difficulties and may utilize a substantial portion of the Company's
financial and other resources. Also, the Company may have difficulty
revitalizing the acquired fragrance and cosmetics brands, such as the P&G
Brands, sales of which have declined significantly over the past five years. Net
sales for MEM and the P&G Brands have continued to decline since the periods
presented in the financial statements and data included herein. See "Recent
Developments -- Acquisition of MEM Company, Inc.; and -- Acquisition of the P&G
Brands." Since inception in 1994, the Company has acquired seven companies
and/or licenses in the fragrance and cosmetics industry for cash purchase prices
aggregating approximately $199.4 million. No assurance can be given that the
recently completed Acquisitions will be successful or that future acquisitions
will be completed or, if completed, will be successful.
The size, timing and integration of possible future acquisitions may cause
substantial fluctuations in operating results from quarter to quarter. As a
result, operating results for any quarter may not be indicative of results that
may be achieved for any subsequent quarter or for a full fiscal year.
RESTRICTIVE DEBT COVENANTS
The Indenture and the Senior Secured Credit Facility contain (and any
indebtedness incurred to refinance the Senior Notes and the Senior Secured
Credit Facility or to provide for working capital or other needs likely will
contain) a number of covenants that, among other things, limit the Company's and
its subsidiaries' ability to incur additional indebtedness, pay certain
dividends, prepay indebtedness, dispose of certain assets, create liens, make
capital expenditures, make certain investments or acquisitions and otherwise
restrict corporate activities. The Indenture and the Senior Secured Credit
Facility also contain (and any
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<PAGE> 16
indebtedness incurred to refinance the Senior Notes and the Senior Secured
Credit Facility or to provide for working capital or other needs likely will
contain) provisions relating to a change of control of the Company. The Senior
Secured Credit Facility requires the Company to comply with certain financial
ratios and tests, under which the Company is required to achieve certain
financial and operating results. The ability of the Company to comply with such
provisions may be affected by events beyond its control including events such as
prevailing economic conditions, changes in consumer preferences and changes in
the competitive environment, which could impair the Company's operating
performance. A breach of any of these covenants would result in a default under
the Senior Secured Credit Facility and a cross default under the Senior Notes.
In the event of any such default and cross default, the lenders under the Senior
Secured Credit Facility could elect to declare all amounts borrowed thereunder,
together with accrued interest, to be due and payable and the holders of the
Company's existing Senior Notes could likewise accelerate payment thereof.
Acceleration of such indebtedness would have a material adverse effect on the
Company.
DEPENDENCE ON RESULTS OF OPERATIONS FOR FOURTH QUARTER OF FISCAL 1996
The Company's current business plan for the fourth quarter of Fiscal 1996
calls for several new product launches or relaunches and various promotional
programs, as well as the continuing integration of the assets and operations
acquired in recent acquisitions, which will require the Company to dedicate a
considerable amount of its resources and involve various degrees of risk. The
Company is relying on its results of operations for the fourth quarter of Fiscal
1996 in order to achieve results of operations for Fiscal 1996 that will compare
favorably to its results of operations for Fiscal 1995. As a result of the
uncertainties involved, there can be no assurance that the Company will achieve
its business plan for the fourth quarter of Fiscal 1996 or for Fiscal 1996. See
"Special Note Regarding Forward-Looking Statements."
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends upon the efforts, abilities and
expertise of its executive officers and other key employees, including in
particular, Thomas V. Bonoma, Chairman, Chief Executive Officer and President of
the Company. The loss of the services of Dr. Bonoma and/or certain other key
individuals could have a material adverse effect on the Company's operations and
could trigger a change of control under the Indenture requiring the Company to
offer to purchase all of the Senior Notes if any remain outstanding after the
Senior Notes Offer, at 101% of the principal amount thereof, plus accrued and
unpaid interest thereon, and could result in a cross default under the Senior
Secured Credit Facility. Dr. Bonoma's current employment contract, as amended,
expires on August 18, 2000. Dr. Bonoma's employment agreement will automatically
terminate in the event of a change of control of the Company resulting in a sale
of all, or substantially all, of the stock or assets of the Company in which the
shareholders of the Company liquidate all or substantially all their equity
interest in the Company. See "Management -- Employment and Non-Compete
Agreements." The Company currently has key man life insurance on Dr. Bonoma.
However, no assurance can be made that such insurance will be adequate.
CONTROL BY KIDD KAMM
Kidd Kamm Equity Partners, L.P. ("KKEP"), an affiliate of Kidd, Kamm &
Company ("Kidd Kamm"), owns approximately 73.4% of the Company's outstanding
common stock and 39.3% of the Company's common stock on a fully diluted basis.
As a result, KKEP will effectively be able to control the outcome of matters
requiring a stockholder vote, including the election of directors, adopting or
amending provisions of the Company's Certificate of Incorporation and bylaws,
and approving certain mergers or other similar transactions, such as a sale of
substantially all of the Company's assets. In addition, a change of control
under the Indenture would be triggered if, for among other reasons, KKEP and the
Company's executive officers own less than 35% of the voting power of the
Company, thereby requiring the Company to offer to repurchase the Senior Notes
at a purchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest thereon. Also, a change of control under the Senior Secured
Credit Facility would be triggered if, for among other reasons, any person,
other than KKEP and certain other permitted holders, owns more than 35% of the
voting power of the Company and the permitted holders, together with officers
and
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<PAGE> 17
employees of the Company, own a lesser percentage of the total voting power of
the Company and do not have the right to elect a majority of the board of
directors of the Company, thereby requiring the Company to offer to repurchase
the notes issued under the Senior Secured Credit Facility at a purchase price
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
thereon. See "Description of Outstanding Indebtedness."
COMPETITION
The markets for the Company's products are highly competitive and sensitive
to changes in consumer preferences and demands. These markets are characterized
by the frequent introduction of competitive products, typically accompanied by
advertising and promotional campaigns, and in the overall fragrance and
cosmetics market, by the potential entry of other manufacturers as new
competitors. The Company competes against a number of companies, some of which
have substantially greater resources than the Company and many of which sell
their products through broader distribution channels than the Company. See
"Business -- Competition."
DEPENDENCE ON LICENSE AGREEMENTS; LICENSE AND ROYALTY OBLIGATIONS
Certain of the Company's key products incorporate intellectual property
rights, such as trademarks or brand names, that are proprietary to third
parties. In each instance, the Company typically enters into a long-term
exclusive license agreement to manufacture, distribute and sell fragrance and
cosmetics products covered by the trademark, use the trademark in conjunction
with the products in all advertising and letter heads and other promotional
material and use and exploit the know-how of the licensor in the manufacture of
the products in a given territory.
The Company's license agreements typically provide for the retention of
ownership of the trade name, know-how or other intellectual property by the
licensor and the payment of a royalty to the licensor. Such royalty payments
generally are based on the net sales of the licensed product for the duration of
the license and, depending on the revenues generated from the sale of the
licensed product, may be substantial. In addition, such agreements often provide
for a minimum level of royalties that may exceed the actual royalties generated
from net sales of the licensed product. Certain licenses also provide for
minimum net sales requirements.
Most of these licenses have fixed terms and are automatically renewable for
one or several additional terms. Some of these licenses may need to be renewed
or renegotiated prior to their expirations in order for the Company to continue
to sell the licensed product. The termination or non-renewal of a key license
would materially adversely affect the Company's operating results and financial
condition. The Company intends to continue to rely on third-party licenses in
connection with the development of its new products. There can be no assurance
that the Company will be able to obtain additional licenses or renew existing
licenses for trade names or trademarks on commercially reasonable terms. The
inability of the Company to obtain such licenses on commercially reasonable
terms could have a material adverse effect on the Company's operating results
and financial condition.
The Company, through its subsidiaries, has entered into three license
agreements, which were amended during July 1996 (the "Houbigant License
Agreements"), with Houbigant, Inc., a Delaware corporation ("Houbigant"), that
has filed a petition for reorganization under Chapter 11 of the Federal
Bankruptcy Code (the "Bankruptcy Code"). Houbigant has been authorized and
empowered by federal bankruptcy court orders to enter into each of the Houbigant
License Agreements. Except for the Houbigant License Agreement covering Canada,
the licenses provide, and the shareholders of Houbigant agreed, that in the
event that Houbigant determines to file a subsequent voluntary petition under
Chapter 11 of the Bankruptcy Code, the Company will be entitled to nominate a
person to act as its representative on the board of directors of Houbigant and
serve in meetings of the board of directors, including, without limitation, in
connection with any consideration by the board of directors of Houbigant to
authorize the rejection and disaffirmance of the Houbigant License Agreements
pursuant to Section 365 of the Bankruptcy Code. The Company's representative may
also be granted a veto right in certain circumstances. There can be no assurance
that these rights will be adequate to protect the Company in the case of a new
petition under Chapter 11 of the Bankruptcy Code.
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Further, should Houbigant or any other licensor go bankrupt, there is a risk
that the affected license may be rejected in bankruptcy as an executory
contract, which could have material adverse effect on the Company. The loss of
any of the Houbigant License Agreements would have a material adverse effect on
the Company. See "Business -- Intellectual Property; and Legal Matters."
CHANGES IN THE RETAIL INDUSTRY
The retail industry has periodically experienced consolidation and other
ownership changes. Major retailers in the United States and in foreign markets
may in the future consolidate, undergo restructurings or realign their
affiliations, which could decrease the number of stores that sell the Company's
products or increase the ownership concentration within the retail industry.
While such changes in the retail industry to date have not had a material
adverse effect on the Company's business or financial condition, there can be no
assurance as to the future effect of any such changes.
SEASONALITY
Sales of fragrances, which for Fiscal 1995 and for the six months ended
September 30, 1996 represented 63.4% and 66.8%, respectively, of the Company's
net sales, are highly seasonal at retail, with the majority of retail sales
occurring during the calendar year-end holiday season. Accordingly, the Company
expects that its operating results will vary significantly from quarter to
quarter, particularly in the third and fourth calendar quarters, when the
majority of holiday products are shipped, and the first calendar quarter, when a
disproportionate amount of receivables are collected and trade credits are
negotiated. In addition, although indications of interest are provided by
retailers earlier in the year for product shipments for the calendar year-end
holiday season, committed orders are not placed until later in the year and,
even when placed, such orders generally can be cancelled at any time without
penalty. Thus, the Company's working capital and liquidity, including its
ability to pay cash dividends, may fluctuate during the year. In addition, lower
than expected sales during the calendar year-end holiday season would have a
material adverse effect upon the Company. Sales of the Company's cosmetics
products are relatively stable throughout the year.
FOREIGN OPERATIONS
The Company has manufacturing operations in five foreign countries and
sells its products in 45 foreign countries. In Fiscal 1995 and for the six month
period ended September 30, 1996, net sales from the Company's products sold
abroad accounted for approximately 17.5% and 25.3%, respectively, of its total
net sales. Risks inherent in foreign operations include changes in social,
political and economic conditions. Changes in currency exchange rates may affect
the relative prices at which the Company and foreign competitors purchase and
sell their products in the same market. The Company does not hedge its exposure
to foreign currency exchange rate changes. The Company is also exposed to risks
associated with changes in the laws and policies that govern foreign investments
in countries where it has operations as well as, to a lesser extent, changes in
United States laws and regulations relating to foreign trade and investment.
While such changes in laws, regulations and conditions to date have not had a
material adverse effect on the Company's business or financial condition, there
can be no assurance as to the future effect of any such changes.
EXCHANGE OFFER PROCEDURES
Issuance of shares of the Series C Preferred Stock in exchange for shares
of the Series B Preferred Stock pursuant to the Exchange Offer will be made only
after a timely receipt by the Company of such shares of the Series B Preferred
Stock, a properly completed and duly executed Letter of Transmittal and all
other required documents. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of shares of the Series B Preferred
Stock tendered for exchange will be determined by the Company in its sole
discretion, which determination will be final and binding on all parties.
Holders of shares of the Series B Preferred Stock desiring to tender such shares
of the Series B Preferred Stock in exchange for shares of the Series C Preferred
Stock should allow sufficient time to ensure timely delivery. The Company is
under no duty to give notification of defects or irregularities with respect to
the tenders of shares of the Series B Preferred Stock for exchange. Shares of
the Series B Preferred Stock that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing
17
<PAGE> 19
restrictions upon transfer thereof and, except as provided herein, the Company
will have no further obligations to provide for the registration under the
Securities Act of such shares of the Series B Preferred Stock. In addition, any
holder of the Series B Preferred Stock who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Series C Preferred Stock may
be deemed to have received restricted securities, and if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. To the extent that
shares of the Series B Preferred Stock are tendered and accepted in the Exchange
Offer the trading market for untendered and tendered but unaccepted shares of
the Series B Preferred Stock could be adversely affected. See "Exchange Offer."
ABSENCE OF PUBLIC MARKET
The Series C Preferred Stock is a new security for which there currently is
no trading market. Although the Initial Purchaser has informed the Company that
it currently intends to make a market in the Series C Preferred Stock, it is not
obligated to do so and any such market making may be discontinued at any time
without notice. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Series C Preferred Stock. The Company does not
intend to apply for listing of the Series C Preferred Stock on any securities
exchange or for quotation through the National Association of Securities Dealers
Automated Quotation System.
18
<PAGE> 20
RECENT DEVELOPMENTS
ACQUISITION OF GREAT AMERICAN COSMETICS, INC.
On August 21, 1996, the Company, through its wholly-owned Cosmar
subsidiary, completed its acquisition of all of the issued and outstanding
capital stock of GAC pursuant to a Stock Purchase Agreement, dated June 27,
1996, with GAC and Messrs. Larry Pallini and Vincent Carbone, the sole
shareholders of GAC (the "Sellers"). GAC markets, distributes, advertises,
promotes and merchandises high quality, mid-priced lip and eye make-up, make-up
brushes, nail polish and related products sold under the Nat Robbins trademark.
The cash consideration paid for GAC was $15.3 million, approximately $14.2
million of which was paid to the Sellers at closing, approximately $41,000 of
which was retained by Cosmar to fund possible post-closing severance bonuses to
certain GAC employees and the remaining $1.0 million of which was placed into
escrow to secure the Sellers' post-closing obligation to indemnify Cosmar for
breaches of the Sellers' representations, warranties and covenants contained in
the Stock Purchase Agreement. Concurrent with the closing, the Company repaid
approximately $796,000 of GAC indebtedness. Immediately prior to the closing,
GAC repaid $184,000 of loans owed to its shareholders. In connection with the
closing, the Company agreed to fund up to approximately $141,000 (with up to
$100,000 of its own funds and up to $41,000 of the purchase price held back from
the Sellers for this purpose) of possible post-closing severance bonuses to
certain GAC employees, if earned.
In connection with the GAC Acquisition, Cosmar has retained Messrs. Pallini
and Carbone as consultants to Cosmar and its affiliates. Mr. Pallini's
consulting agreement is for a term of three years with annual compensation of
$200,000 per year, payable in thirty-six equal monthly installments. Mr.
Carbone's consulting agreement is for a term of one year with annual
compensation of $150,000, payable in twelve equal monthly installments.
ACQUISITION OF MEM COMPANY, INC.
On December 4, 1996, the Company, through its newly-formed, wholly-owned
subsidiary, Renaissance Acquisition, Inc. ("RAI"), completed its acquisition of
MEM pursuant to a Merger Agreement dated August 6, 1996, as amended. The
aggregate cash consideration paid to the equity holders of MEM in connection
with the MEM Acquisition was $19.8 million. In addition, in connection with the
MEM Acquisition, the Company repaid all of MEM's outstanding indebtedness in an
amount equal to $18.1 million and incurred fees and expenses of approximately
$800,000.
MEM 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, British Sterling, Heaven Sent
and Love's. The principal market for MEM's products is the United States. 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. A subsidiary, Tom Fields (U.K.) Ltd., markets this line of
children's products in the United Kingdom and elsewhere in Europe. MEM had net
sales of approximately $44.8 million and a net loss of approximately $3.0
million for the year ended December 31, 1995. MEM's net sales declined to $22.6
million during the nine months ended September 30, 1996 from $27.7 million
during the prior year's comparable period and its net loss for the period
increased to $4.6 million from $2.6 million in the prior year's comparable
period.
On December 6, 1996, the Company announced that it plans to close MEM's
facilities in Northvale, New Jersey and in Boucherville, Quebec on February 7,
1997. The Company expects to incur costs in connection with the closure of such
facilities and consolidation of MEM's operations in an amount of approximately
$6.1 million, including severance payments, ERISA withdrawal liability costs and
stay bonuses for selected employees of MEM. The Company's estimate of its ERISA
withdrawal liability costs is an estimate for a 1996 withdrawal. The Company has
been advised that the liability for a 1997 withdrawal would be higher. See
"Business -- Employees; and Legal Matters -- Litigation -- MEM Litigation."
19
<PAGE> 21
ACQUISITION OF THE P&G BRANDS
On December 6, 1996, the Company completed its acquisition from P&G of the
worldwide rights to manufacture and market certain mass-market fragrances,
including NaVy, NaVy for Men, Insignia, California for Men and le Jardin. The
cash portion of the purchase price paid through the closing was $41.1 million,
of which $8.0 million related to inventory and $33.1 million related to the
licenses and rights to market such fragrances. The purchase price for the
inventory is subject to adjustment, based on the actual value of inventory
purchased. In addition, in connection with the P&G Acquisition, the Company
assumed certain specified trade-related obligations of P&G, including liability
for returns of products under the P&G Brands sold by P&G prior to the closing
and liabilities under certain advertising and business development commitments.
The amount of such liabilities cannot currently be determined. Based on P&G's
past experience, the amount of the returns from such products may be
approximately $3.0 million. However, there can be no assurance as to what the
actual amount of the returns will be, and such amount may be materially
different from the estimated amount. See "Business -- Products." Based upon
historical information provided to the Company by P&G, net sales for the P&G
Brands for the year ended June 30, 1996 were $56.8 million. Concurrent with the
P&G Acquisition, the Company entered into transition agreements with P&G under
which P&G will continue the foreign marketing of the P&G Brands through June 30,
1997. See "Business -- General."
SENIOR SECURED CREDIT FACILITY
On December 4, 1996, Cosmar entered into the Senior Secured Credit
Facility, pursuant to which Cosmar borrowed $117.5 million and received net
proceeds of $113.2 million. Such net proceeds were used: (i) to finance the MEM
Acquisition (after the application of a $33.8 million certificate of deposit,
plus approximately $537,000 of interest on the certificate of deposit); (ii) to
finance the P&G Acquisition; (iii) to repay all outstanding indebtedness under
the Old Credit Facility (which was terminated on such date); and the remainder
was used or will be available for general corporate purposes. The indebtedness
under the Senior Secured Credit Facility has an initial term of one year,
subject to extension under certain circumstances, and an initial interest rate
of 11.5% per annum, which increases to 12.5% on June 4, 1997 and by an
additional 0.5% at the end of each 90-day period thereafter, subject to a
maximum rate per annum of 20%. The Senior Secured Credit Facility is secured by
substantially all of the assets of Cosmar, the Company and the other guarantors.
For additional information concerning the Senior Secured Credit Facility, see
"Description of Outstanding Indebtedness -- Senior Secured Credit Facility."
Also, see "Risk Factors -- Need to Refinance Senior Secured Credit Facility; and
- --Restrictive Debt Covenants."
OFFER TO PURCHASE SENIOR NOTES
On December 24, 1996, the Company commenced an offer to purchase all of its
outstanding $65.0 million principal amount of Senior Notes at a price of $1,165
for each $1,000 principal amount thereof (plus accrued interest thereon),
subject to certain conditions including obtaining financing on terms
satisfactory to the Company (in its sole discretion) in an amount sufficient to
enable it to complete the Senior Notes Offer and permit it to repay the $117.5
million aggregate principal amount of indebtedness outstanding under the Senior
Secured Credit Facility (plus accrued interest thereon). In addition, on
November 26, 1996, the Company announced that it had received the agreement from
holders of a majority of the aggregate principal amount of the Senior Notes to
tender their Senior Notes if the Company makes an offer to purchase such Notes
at a price equal to $1,165 for each $1,000 principal amount thereof (plus
accrued interest thereon). The agreement of such holders is subject to certain
conditions, including, among other things, the Senior Notes Offer being
concluded by February 14, 1997. The Senior Notes Offer is also subject to a
condition that at least a majority of the aggregate principal amount of Senior
Notes be tendered.
In connection with the Senior Notes Offer, the Company also solicited
consents from the holders of the outstanding Senior Notes to amend the Indenture
pursuant to which the Senior Notes were issued. The proposed amendments would
eliminate, from and after the termination of the Senior Notes Offer,
substantially all of the restrictive covenants contained in the Indenture.
20
<PAGE> 22
The Senior Notes Offer will expire on January 31, 1997. The Company has
been advised by the depositary of the Senior Notes Offer that, as of the date
hereof, all of the $65.0 million principal amount of Senior Notes outstanding
have been tendered, and consents to the proposed amendments from the holders of
such $65.0 million principal amount of Senior Notes have been delivered.
Because the Senior Notes tendered in the Senior Notes Offer may be
withdrawn, and the consents by the holders thereof revoked, at any time prior to
the consummation of the Senior Notes Offer, it is possible that the Senior Notes
Offer will not be consummated as a majority of the aggregate principal amount of
the Senior Notes may be withdrawn prior to the proposed consummation of the
Senior Notes Offer. If less than a majority of the aggregate principal amount of
Senior Notes is so withdrawn, the Senior Notes Offer may be consummated but the
withdrawn Senior Notes will remain outstanding.
NEW REVOLVING CREDIT FACILITY
The Company has received a non-binding letter of intent from a major
institutional lender for the New Revolving Credit Facility with a maximum
committed amount of $75.0 million. A letter of intent is not a binding
commitment and is subject to approval of the lender's credit committee and
satisfactory completion of the lenders due diligence investigation. The New
Revolving Credit Facility is expected to contain a number of covenants that
restrict the operation of the Company and is expected to contain customary
representations, warranties, covenants and events of default for a facility of
this type. There can be no assurance that the Company will be successful in
securing the New Revolving Credit Facility. If the Company is not able to enter
into the New Revolving Credit Facility, the Company would need to seek other
sources of financing for its working capital needs. See "Special Note Regarding
Forward-Looking Information," and "Risk Factors -- High Level of Indebtedness
and Leverage."
RESTATEMENT OF OPERATING RESULTS
In January 1997, the Company determined that its previously-reported
results of operations for the six months ended September 30, 1996 and September
30, 1995 and its previously-reported balance sheet data as of September 30, 1996
and September 30, 1995 required restatement. The changes relate to the Company's
determination that it should not have recognized approximately $3.3 million of
net sales of Dana (or 4.1% of the Company's previously-reported net sales for
the six months ended September 30, 1996) in September 1996 and approximately
$1.9 million of net sales (or 3.0% of the Company's previously-reported net
sales for the six months ended September 30, 1995) in September 1995,
respectively, because certain products that were shipped from the Company's
facilities to a third-party packer's warehouse prior to September 30 in each
year (based in each case on firm orders from the Company's customers) were not
reshipped by the packer to such customers until after such date. However,
because these products were delivered to the customers in October of each year
and the Company has received payment for substantially all such sales, the
effect of the restatement is limited to changing the timing of the Company's
recognition of these sales and the related earnings (a reduction of EBITDA and
an increase in net loss applicable to common stockholders of approximately $1.2
million and $747,000 for the six months ended September 30, 1996 and 1995,
respectively), which will now be recognized in the third quarter of each fiscal
year. The foregoing revisions resulted in decreases to total assets and total
liabilities and common stockholders' equity as of September 30, 1996 and
September 30, 1995 of less than 1%. The restatement of the six-month-period data
did not require any restatement of the Company's previously-reported audited
financial statements for Fiscal 1995 and will not have any impact on the
Company's results of operations for Fiscal 1996 or its balance sheet as of March
31, 1997.
21
<PAGE> 23
USE OF PROCEEDS
No proceeds will be received by the Company from the Exchange Offer. The
aggregate net proceeds of (i) the offering on August 15, 1996, September 16,
1996 and September 27, 1996 of the Series B Preferred Stock and warrants to
purchase Common Stock of the Company (the "Series B Offering"), including
accrued dividends of $0.4 million; (ii) the sale of Common Stock and the refund
of a portion of the fee paid to CIBC WG Argosy Merchant Fund 2, L.L.C. (the
"CIBC Fund") in connection with the CIBC Fund's commitment to purchase $20.0
million of the Company's Senior Redeemable Exchangeable Preferred Stock, Series
A (which the CIBC Fund purchased during May and June 1996 (the "Interim
Preferred Facility")), which refund occurred concurrently with the Series B
Offering (such sale and refund, the "CIBC Financing"); and (iii) the sale of
Common Stock in connection with the closing of a portion of the Series B
Offering on September 27, 1996 (the "New Common Stock Sale," and together with
the Series B Offering and the CIBC Financing, the "Equity Financing") available
to the Company, after deducting expenses incurred in connection with the Equity
Financing, were approximately $119.1 million. Of such net proceeds, (i)
approximately $20.4 million was used to repay the Interim Preferred Facility,
including accrued dividends thereon; (ii) approximately $15.5 million was used
to finance the GAC Acquisition (including repayment of debt), net of a
non-refundable deposit of $0.6 million, and to pay related fees and expenses;
(iii) approximately $33.8 million was used to purchase a certificate of deposit
set aside to consummate the MEM Acquisition; (iv) approximately $7.0 million was
used to repay a portion of the indebtedness under the Old Credit Facility; and
(v) the remainder was used for general corporate purposes.
The Company received net proceeds from borrowings under the Senior Secured
Credit Facility of $113.2 million. Of such net proceeds, (i) $3.9 million was
used to complete the MEM Acquisition (after the application of the $33.8 million
certificate of deposit, plus approximately $537,000 of accrued interest
thereon); (ii) $38.6 million was used to complete the P&G Acquisition, net of
pre-closing deposits and prepayments of $2.5 million; (iii) $54.3 million was
used to repay the outstanding indebtedness under the Old Credit Facility,
including accrued interest thereon; and (iv) the remainder was used or will be
available for general corporate purposes. See "Special Note Regarding
Forward-Looking Information."
Under the Old Credit Facility, dated as of December 21, 1994, as amended,
Nomura had provided to the Company a revolving credit facility in an aggregate
principal amount of $40.0 million, and term loans in an aggregate principal
amount of $30.0 million. Such loans bore interest at variable rates equal to the
bank base rate (8.25% at September 30, 1996) plus 4.5%. The weighted average
interest rate on indebtedness under the Old Credit Facility was 12.19% and
12.25%, respectively, for the year ended March 31, 1996 and the six months ended
September 30, 1996. All of the outstanding indebtedness under the Old Credit
Facility was repaid from a portion of the net proceeds of the Senior Secured
Credit Facility.
22
<PAGE> 24
CAPITALIZATION
The following table sets forth the historical and pro forma capitalization
of the Company as of September 30, 1996, as well as such pro forma
capitalization as adjusted to reflect the aggregate principal amount and
liquidation value of debt and preferred stock, respectively. Original issue and
other discounts have been added back to amounts in the Pro Forma as Adjusted
column. The Equity Financing and the GAC Acquisition have been reflected in the
historical capitalization as of September 30, 1996, as these transactions were
completed prior to that date. The pro forma capitalization of the Company gives
effect to net borrowings under the Senior Secured Credit Facility, the
consummation of the MEM Acquisition and the repayment of all indebtedness under
the Old Credit Facility, as if such transactions had occurred as of September
30, 1996. The pro forma capitalization is presented for information purposes
only and is not necessarily indicative of the future capitalization of the
Company.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------------------------------------------
HISTORICAL PRO FORMA
(AS RESTATED)(A) PRO FORMA ADJUSTMENTS AS ADJUSTED
---------------- --------- ----------- ----------------
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents(b).......... $ 69,523 $ 88,428 (c) $ -- $ 88,428(c)
======== ======== ======== ========
Old Credit Facility(d)................ $ 54,200 $ -- $ -- $ --
Senior Secured Credit Facility........ -- 117,500 -- 117,500
Senior Notes(e)....................... 63,755 63,755 1,245 65,000
Subordinated Seller Notes(f).......... 3,737 3,737 1,263 5,000
-------- -------- -------- --------
Total debt.................. 121,692 184,992 2,508 187,500
-------- -------- -------- --------
Senior Redeemable Preferred Stock
(350,000 shares authorized; 115,000
shares issued and outstanding)(g)... 78,321 78,321 39,546 117,867
Redeemable Preferred Stock (40,000
shares authorized; 12,181 shares
issued and outstanding)(h)(i)....... 12,411 12,411 350 12,761
-------- -------- -------- --------
Total preferred stock....... 90,732 90,732 39,896 130,628
-------- -------- -------- --------
Common Stockholders' Equity (3,000,000
shares authorized; 825,086 shares
issued and outstanding)............. 37,916 37,627 (42,404) (4,777)
-------- -------- -------- --------
Total capitalization........ $250,340 $313,351 $ -- $313,351
======== ======== ======== ========
</TABLE>
See accompanying Notes to Capitalization.
23
<PAGE> 25
NOTES TO CAPITALIZATION
(a) In January 1997, the Company determined that its previously-reported balance
sheet data as of September 30, 1996 required restatement in order to
properly reflect the timing of certain sales. See "Recent Developments --
Restatement of Operating Results."
(b) Cash and cash equivalents in the Pro Forma columns reflect the repayment of
MEM's indebtedness as if such repayment had occurred at September 30, 1996,
which was $1.4 million more than actual MEM indebtedness repaid at the
closing of the MEM Acquisition.
(c)Does not reflect the consummation of the P&G Acquisition on December 6, 1996,
which was financed with proceeds from the Senior Secured Credit Facility. The
cash portion of the purchase price for the P&G Brands paid through the
closing was approximately $41.1 million.
(d) All outstanding indebtedness under the Old Credit Facility was repaid with
the net proceeds of borrowings under the Senior Secured Credit Facility on
December 4, 1996.
(e) The $65.0 million of Senior Notes are presented in the Historical and Pro
Forma columns net of an original issue discount and a discount as a result
of an allocation to the common stock warrants issued in connection
therewith. The Pro Forma as Adjusted column reflects the aggregate principal
amount of the Senior Notes, adding back the unamortized discount at
September 30, 1996.
(f) The Subordinated Seller Notes (the "Seller Notes"), initially issued to the
selling shareholders of Cosmar, accrue interest through August 1997 at a
rate of 8% per annum and thereafter at a rate which increases each year up
to a maximum of 11% per annum beginning in the sixth year after issuance.
The Seller Notes are due on August 15, 2002 and are shown in the Historical
and Pro Forma columns net of an unamortized discount of $1.3 million. The
Pro Forma as Adjusted column reflects the aggregate principal amount of the
Seller Notes, adding back the unamortized discount at September 30, 1996.
(g) The Senior Redeemable Preferred Stock is shown in the Historical and Pro
Forma columns net of a discount of $32.9 million as a result of an
allocation to the common stock warrants issued in connection therewith and
net of transaction fees and expenses of approximately $6.6 million. The Pro
Forma as Adjusted column reflects the aggregate liquidation value of the
Senior Redeemable Preferred Stock, adding back the unamortized discount at
September 30, 1996 and related fees.
(h) The Redeemable Preferred Stock is shown in the Historical and Pro Forma
columns net of a discount of $350,000 as a result of an allocation to the
common stock warrants issued in connection therewith. The Pro Forma as
Adjusted column reflects the aggregate liquidation value of the Redeemable
Preferred Stock, adding back the unamortized discount at September 30, 1996.
(i) Dividends on the Redeemable Preferred Stock are payable in cash or in kind,
at the Company's option, at 10.0% per annum until August 15, 1997,
increasing each year thereafter. Subject to certain conditions and
commencing on August 16, 1999, the dividend rate will be 15%. Shares of the
Redeemable Preferred Stock are subject to mandatory redemption on August 15,
2002 and are exchangeable for Senior Notes, subject to certain limitations,
(i) by the Company at any time and (ii) under certain circumstances, by the
holders thereof on or after August 15, 1997. See "Description of Outstanding
Capital Stock -- Serial Preferred Stock -- Cumulative Exchangeable Preferred
Stock."
24
<PAGE> 26
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data of Cosmar (Predecessor) and the
Company set forth below has been derived from and should be read in conjunction
with the historical financial statements of the Company, GAC and MEM and the
notes thereto and the Company's "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus. The statement of operations data for the six months ended September
30, 1996 include the results of GAC from the date of acquisition (August 21,
1996).
<TABLE>
<CAPTION>
COMPANY
------------------------------------------------------------
COSMAR (PREDECESSOR) PERIOD FROM
----------------------------------------- APRIL 15, 1994 SIX MONTHS ENDED
JANUARY 1 TO (INCEPTION) TO YEAR ENDED SEPTEMBER 30,
YEAR ENDED DECEMBER 31, AUGUST 17, MARCH 31, MARCH 31, (AS RESTATED)(a)
-------------------------- ------------ ----------------- -------------- ---------------------
1991 1992 1993 1994 1995 1996 1995 1996
------ ------- ------- ------------ ----------------- -------------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales............. $9,500 $17,926 $25,844 $ 18,301 $ 57,714 $131,286 $ 61,924 $ 77,710
Operating income...... 1,378 3,899 5,063 3,326 2,744 8,450 5,988 5,110
Interest expense...... 14 37 132 61 8,694 19,458 9,004 10,838
Income (loss) before
extraordinary
items............... 1,357 3,768 4,801 3,364 (5,459) (12,057) (3,557) (5,301)
Income (loss) before
extraordinary items
applicable to common
stockholders........ 1,357 3,768 4,801 3,364 (6,174) (13,390) (4,217) (10,361)
Income (loss) before
extraordinary items
per common share.... -- -- -- -- (8.50) (18.62) $ (5.86) $ (14.08)
BALANCE SHEET DATA
(END OF PERIOD):
Total assets.......... $3,907 $ 7,216 $ 8,489 -- $ 162,253 $184,619 $184,933 $288,554
Intangible
assets -- net....... -- -- -- -- 82,499 76,895 80,985 91,045
Long-term debt,
excluding current
maturities.......... 146 181 294 -- 97,032(b) 67,323(b) 122,166(b) 67,492(b)
Senior redeemable
preferred
stock -- Series B... -- -- -- -- -- -- -- 78,321
Redeemable preferred
stock............... -- -- -- -- 10,365 11,698 11,026 12,411
Common stockholders'
equity(c)........... 2,973 4,278 5,390 -- 20,189 6,452 16,231 37,916
Deficiency of earnings
to combined fixed
charges and
preferred
dividends........... -- -- -- -- (6,209) (12,086) (3,520) (10,054)
OTHER DATA:
EBITDA(d)............. -- -- -- -- $ 5,576 $ 16,501 $ 9,515 $ 9,911
Depreciation and
amortization........ -- -- -- -- 2,832 8,051 3,527 4,801
Capital
expenditures........ -- -- -- -- 629 8,166 4,136 1,635
</TABLE>
- ---------------
(a) In January 1997, the Company determined that its previously-reported results
of operations for the six months ended September 30, 1996 and September 30,
1995 required restatement in order to properly reflect the timing of certain
sales. See "Recent Developments -- Restatement of Operating Results."
(b) Excludes (i) outstanding indebtedness under the Old Credit Facility of
$57,000 at March 31, 1996, and $54,200 at September 30, 1996 which is
classified within current liabilities and (ii) long-term minimum royalty
obligations of $4,686 and $6,158 at March 31, 1996 and 1995, respectively,
and $4,918 and $6,668 at September 30, 1996 and 1995, respectively.
(c) No cash dividends have been paid since April 15, 1994 (Inception).
(d) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization. EBITDA should not be considered as an alternative to net
income or cash flow and is not a measure of performance under generally
accepted accounting principles but provides additional information for
evaluating the Company.
25
<PAGE> 27
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data have been
derived from the historical financial statements of the Company, GAC and MEM
included elsewhere in this Prospectus by the application of pro forma
adjustments giving effect to (i) in the case of the unaudited pro forma
consolidated balance sheet data, the Senior Secured Credit Facility, the MEM
Acquisition and the repayment of all outstanding indebtedness under the Old
Credit Facility, as if such transactions had occurred at September 30, 1996, and
(ii) in the case of the unaudited pro forma consolidated statement of operations
data, the foregoing transactions, the Equity Financing and the completion of the
GAC Acquisition, as if such transactions had occurred at the beginning of the
periods presented. The Equity Financing and the GAC Acquisition have been
reflected in the Company's historical balance sheet information at September 30,
1996 (As Restated), as these transactions were completed prior to that date. The
unaudited pro forma consolidated financial data does not give effect to the P&G
Acquisition as information relating to the P&G Brands is still being compiled by
P&G management. The adjustments are described in the accompanying notes. MEM and
GAC each have fiscal year ends (December 31) which differ from that of the
Company (March 31).
The unaudited pro forma consolidated financial data is presented for
informational purposes only and is not necessarily indicative of actual results
that would have been achieved had such transactions been consummated on the
dates or for the periods indicated and do not purport to indicate results of
operations as of any future date or for any future period. The unaudited pro
forma consolidated financial data should be read in conjunction with the
historical financial statements of the Company, GAC and MEM and the related
notes thereto and the Company's "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
26
<PAGE> 28
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
COMPANY GAC MEM
YEAR ENDED YEAR ENDED YEAR ENDED PRO FORMA(B)
MARCH 31, DECEMBER 31, DECEMBER 31, ------------------------
1996 1995(A) 1995(A) ADJUSTMENTS COMBINED
------------ ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
NET SALES............................................ $131,286 $7,886 $ 44,825 $ -- $183,997
COST OF GOODS SOLD................................... 51,169 4,538 25,618 (1,309)(c) 80,016
-------- ------ ------- ------- --------
GROSS PROFIT......................................... 80,117 3,348 19,207 1,309 103,981
OPERATING EXPENSES:
Selling............................................. 52,781 838 14,742 (1,256)(d) 67,105
General and administrative.......................... 13,679 617 5,215 (550)(e) 18,961
Amortization of intangible and other assets......... 5,207 224 478 890(f) 6,799
-------- ------ ------- ------- --------
Total operating expenses.......................... 71,667 1,679 20,435 (916) 92,865
-------- ------ ------- ------- --------
OPERATING INCOME (LOSS).............................. 8,450 1,669 (1,228) 2,225 11,116
INTEREST EXPENSE (INCOME):
Interest expense.................................... 19,458 8 1,773 (4,159)(g) 17,080
Interest income..................................... (255) -- (19) -- (274)
-------- ------ ------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES.................... (10,753) 1,661 (2,982) 6,384 (5,690)
INCOME TAX PROVISION................................. 1,304 609 -- (340)(h) 1,573
-------- ------ ------- ------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS............. (12,057) 1,052 (2,982) 6,724 (7,263)
PREFERRED STOCK DIVIDENDS............................ 1,333 -- -- 18,169(i) 19,502
-------- ------ ------- ------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS APPLICABLE
TO COMMON STOCKHOLDERS.............................. $(13,390) $1,052 $ (2,982) $ (11,445) $(26,765)
======== ====== ======= ======= ========
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS PER COMMON
SHARE............................................... $ (18.62) $(32.52)
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING.................. 719,138 822,996 (j)
======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of
Operations Data.
27
<PAGE> 29
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS DATA
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(a) GAC and MEM each had fiscal years which ended on December 31.
(b) Does not reflect severance and stay bonus payments and payments with respect
to the ERISA withdrawal liability, all incurred in connection with the MEM
Acquisition, which expenses may be capitalized. See "Business -- Employees."
(c) Reflects the Company's estimate of the following adjustments to cost of
goods sold relating to the MEM Acquisition, primarily resulting from the
consolidation of duplicative manufacturing facilities:
<TABLE>
<S> <C>
Identified U.S. personnel terminations..................................... $(1,437)
Identified Canadian personnel terminations................................. (284)
Less: Corresponding incremental additions to personnel at the Company's
Mountaintop facility................................................. 412
-------
Total............................................................ $(1,309)
=======
</TABLE>
(d) Reflects the Company's estimate of the following adjustments to selling
expenses relating to the MEM Acquisition, primarily resulting from the
consolidation of duplicative sales forces:
<TABLE>
<S> <C>
Identified U.S. personnel terminations..................................... $(1,656)
Identified Canadian personnel terminations................................. --
Less: Corresponding incremental additions to personnel at the Company's
Dana subsidiary...................................................... 400
-------
Total............................................................ $(1,256)
=======
</TABLE>
(e) Reflects the Company's estimate of the following adjustments to general and
administrative expenses relating to the MEM Acquisition, primarily resulting
from the consolidation of duplicative corporate staffs:
<TABLE>
<S> <C>
Identified U.S. personnel terminations..................................... $ (980)
Identified Canadian personnel terminations................................. (133)
Less: Corresponding incremental additions to personnel at the Company's
Mountaintop facility..................................................... 563
-------
Total............................................................ $ (550)
=======
</TABLE>
28
<PAGE> 30
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS DATA
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(CONTINUED)
(f) Reflects the following adjustments to amortization of intangible and other
assets(1):
<TABLE>
<S> <C>
Amortization of excess of assets acquired over liabilities assumed -- GAC.... $ 784
Amortization of excess of assets acquired over liabilities assumed -- MEM.... 808
Elimination of historical amortization -- GAC................................ (224)
Elimination of historical amortization -- MEM................................ (478)
-----
Total.............................................................. $ 890
=====
</TABLE>
- ---------------
(1) While the Company has yet to complete the final allocation of the
excess cost over net assets acquired to the specific assets acquired,
based on its preliminary estimate, the Company believes that the excess
will be allocated principally to trademarks and goodwill, which will be
amortized over an average of 20 years. The preliminary estimate of the
excess of assets acquired over liabilities assumed does not reflect
certain assumed liabilities which have not been quantified as of
September 30, 1996.
(g) Reflects the following adjustments to interest expense:
<TABLE>
<S> <C>
Elimination of historical interest expense -- GAC........................ $ (8)
Elimination of historical interest expense -- MEM........................ (1,773)
Elimination of historical interest expense -- Old Credit Facility........ (5,948)
Elimination of amortization of deferred financing costs -- Old Credit
Facility............................................................... (1,157)
Interest expense -- Senior Secured Credit Facility....................... 3,525
Amortization of deferred financing costs -- Senior Secured Credit
Facility............................................................... 1,202
-------
Total.......................................................... $(4,159)
=======
</TABLE>
(h) Reflects an adjustment to income taxes for a full year as if the GAC
Acquisition and the MEM Acquisition had occurred on April 1, 1995.
(i) Reflects dividends on the Series B Preferred Stock as if such shares had
been issued on April 1, 1995. The dividends on the Series C Preferred Stock
will be the same as the dividends on the Series B Preferred Stock.
(j) Includes 103,918 shares issued to purchasers in connection with the Equity
Financing, as if such shares were issued on April 1, 1995.
29
<PAGE> 31
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
COMPANY
SIX MONTHS GAC MEM
ENDED PERIOD FROM SIX MONTHS
SEPTEMBER 30, APRIL 1, 1996 ENDED PRO FORMA(B)
1996 TO AUGUST 20, SEPTEMBER 30, --------------------------
(AS RESTATED)(A) 1996 1996 ADJUSTMENTS COMBINED
---------------- ------------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C>
NET SALES............................................. $ 77,710 $ 8,633 $17,655 $ -- $103,998
COST OF GOODS SOLD.................................... 28,754 3,057 11,102 (655)(c) 42,258
------- ------ ------- ------- --------
GROSS PROFIT.......................................... 48,956 5,576 6,553 655 61,740
OPERATING EXPENSES:
Selling............................................. 30,653 1,692 6,064 (628)(d) 37,781
General and administrative.......................... 10,071 1,306 3,250 (275)(e) 14,352
Amortization of intangible and other assets......... 3,122 87 238 471(f) 3,918
------- ------ ------- ------- --------
Total operating expenses.......................... 43,846 3,085 9,552 (432) 56,051
------- ------ ------- ------- --------
OPERATING INCOME (LOSS)............................... 5,110 2,491 (2,999) 1,087 5,689
INTEREST EXPENSE (INCOME):
Interest expense.................................... 10,838 46 811 (2,993)(g) 8,702
Interest and other income........................... (735) (7) (692) -- (1,434)
------- ------ ------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES..................... (4,993) 2,452 (3,118) 4,080 (1,579)
INCOME TAX PROVISION.................................. 308 836 -- (617)(h) 527
------- ------ ------- ------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS.............. (5,301) 1,616 (3,118) 4,697 (2,106)
PREFERRED STOCK DIVIDENDS............................. 5,060 -- -- 5,891(i) 10,951
------- ------ ------- ------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS APPLICABLE TO $(10,361) $ 1,616 $(3,118) $(1,194) $(13,057)
COMMON STOCKHOLDERS.................................
======= ====== ======= ======= ========
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS PER COMMON $ (14.08) $(15.83)
SHARE...............................................
======= ========
WEIGHTED AVERAGE SHARES OUTSTANDING................... 735,648 825,086 (j)
======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of
Operations Data.
30
<PAGE> 32
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS DATA
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(a) In January 1997, the Company determined that its previously-reported balance
sheet data as of September 30, 1996 required restatement in order to
properly reflect the timing of certain sales. See "Recent
Developments -- Restatement of Operating Results."
(b) Does not reflect severance and stay bonus payments and payments with respect
to the ERISA withdrawal liability, all incurred in connection with the MEM
Acquisition, which expenses may be capitalized. See "Business -- Employees."
(c) Reflects the Company's estimate of the following adjustments to cost of
goods sold relating to the MEM Acquisition, primarily resulting from the
consolidation of duplicative manufacturing facilities:
<TABLE>
<S> <C>
Identified U.S. personnel terminations..................................... $ (719)
Identified Canadian personnel terminations................................. (142)
Less: Corresponding incremental additions to personnel at the Company's
Mountaintop facility..................................................... 206
-------
Total............................................................ $ (655)
=======
</TABLE>
(d) Reflects the Company's estimate of the following adjustments to selling
expenses relating to the MEM Acquisition, primarily resulting from the
consolidation of duplicative sales forces:
<TABLE>
<S> <C>
Identified U.S. personnel terminations..................................... $ (828)
Identified Canadian personnel terminations................................. --
Less: Corresponding incremental additions to personnel at the Company's
Dana Subsidiary.......................................................... 200
-------
Total............................................................ $ (628)
=======
</TABLE>
(e) Reflects the Company's estimate of the following adjustments to general and
administrative expenses relating to the MEM Acquisition, primarily resulting
from the consolidation of duplicative corporate staffs:
<TABLE>
<S> <C>
Identified U.S. personnel terminations..................................... $ (490)
Identified Canadian personnel terminations................................. (67)
Less: Corresponding incremental additions to personnel at the Company's
Mountaintop facility..................................................... 282
-------
Total............................................................ $ (275)
=======
</TABLE>
(f) Reflects the following adjustments to amortization of intangible and other
assets(1):
<TABLE>
<S> <C>
Amortization of excess of assets acquired over liabilities assumed -- GAC.... $ 392
Amortization of excess of assets acquired over liabilities assumed -- MEM.... 404
Elimination of historical amortization -- GAC................................ (87)
Elimination of historical amortization -- MEM................................ (238)
-----
Total.............................................................. $ 471
=====
</TABLE>
- ---------------
(1) While the Company has yet to complete the final allocation of the
excess cost over net assets acquired to the specific assets acquired,
based on its preliminary estimate, the Company believes that the excess
will be allocated principally to trademarks and goodwill, which will be
amortized over an
31
<PAGE> 33
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS DATA
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(CONTINUED)
average of 20 years. The preliminary estimate of the excess of assets
acquired over liabilities assumed does not reflect certain assumed liabilities
which have not been quantified as of September 30, 1996.
(g) Reflects the following adjustments to interest expense:
<TABLE>
<S> <C>
Elimination of historical interest expense -- GAC.......................... $ (46)
Elimination of historical interest expense -- MEM.......................... (811)
Elimination of historical interest expense -- Old Credit Facility.......... (3,830)
Elimination of amortization of deferred financing costs -- Old Credit
Facility................................................................. (579)
Interest expense -- Senior Secured Credit Facility......................... 1,672
Amortization of deferred financing costs -- Senior Secured Credit
Facility................................................................. 601
-------
Total............................................................ $(2,993)
=======
</TABLE>
(h) Reflects an adjustment to income taxes for the six month period as if the
GAC Acquisition and the MEM Acquisition had occurred on April 1, 1996.
(i) Reflects dividends on the Series B Preferred Stock as if such shares had
been issued April 1, 1996. The dividends on the Series C Preferred Stock
will be the same as the dividends on the Series B Preferred Stock.
(j) Includes 103,918 shares issued to purchasers in connection with the Equity
Financing, as if such shares were issued on April 1, 1996.
32
<PAGE> 34
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DATA
AS OF SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
COMPANY PRO FORMA
SEPTEMBER 30, MEM --------------------------
1996 SEPTEMBER 30,
(AS RESTATED)(A) 1996 ADJUSTMENTS COMBINED
----------------- ------------------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................. $ 69,523 $ 469 $ 18,436(b) $ 88,428 (c)
Marketable securities...................................... 242 -- -- 242
Accounts receivable-net.................................... 47,209 12,966 -- 60,175
Inventories................................................ 39,982 18,038 -- 58,020
Prepaid expenses and other current assets.................. 7,300 987 -- 8,287
------- ------ ------- -------
Total current assets................................. 164,256 32,460 18,436 215,152
PROPERTY, PLANT AND EQUIPMENT-Net............................ 14,536 4,667 -- 19,203
DEFERRED FINANCING COSTS-Net................................. 7,128 -- 8,123(d) 15,251
OTHER ASSETS-Net............................................. 11,589 537 -- 12,126
INTANGIBLE ASSETS-Net........................................ 91,045 9,741 6,416(e) 107,202
------- ------ ------- -------
TOTAL ASSETS................................................. $ 288,554 $ 47,405 $ 32,975 $368,934
======= ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt....................... $ -- $ 1,554 $ (1,554)(f) $ --
Notes payable.............................................. 54,200 15,880 (70,080)(g) --
Accounts payable........................................... 13,911 5,179 -- 19,090
Accrued expenses........................................... 19,385 2,576 9,614(h) 31,575
Other current liabilities.................................. -- -- -- --
------- ------ ------- -------
Total current liabilities............................ 87,496 25,189 (62,020) 50,665
------- ------ ------- -------
LONG-TERM LIABILITIES:
Long-term debt, excluding current maturities............... 67,492 2,047 (2,047)(f) 67,492
Senior Secured Credit Facility............................. -- -- 117,500(i) 117,500
Other long-term liabilities................................ -- -- -- --
Notes payable.............................................. -- -- -- --
Minimum royalty obligation................................. 4,918 -- -- 4,918
Deferred tax liability..................................... -- -- -- --
------- ------ ------- -------
Total long-term liabilities.......................... 72,410 2,047 115,453 189,910
------- ------ ------- -------
TOTAL LIABILITIES............................................ 159,906 27,236 53,433 240,575
------- ------ ------- -------
COMMITMENTS AND CONTINGENCIES
SENIOR REDEEMABLE PREFERRED STOCK............................ 78,321 -- -- 78,321
REDEEMABLE PREFERRED STOCK................................... 12,411 -- -- 12,411
COMMON STOCKHOLDERS' EQUITY:
Common stock............................................... 8 150 (150)(j) 8
Notes receivable from sale of common stock................. (518) -- -- (518)
Additional paid-in capital................................. 69,403 3,090 (3,090)(j) 69,403
Treasury stock, at cost.................................... (210) (4,489) 4,489(j) (210)
Retained earnings (deficit)................................ (29,925) 21,851 (22,140)(k) (30,214)
Cumulative translation adjustment.......................... (842) (433) 433(j) (842)
------- ------ ------- -------
Total common stockholders' equity.................... 37,916 20,169 (20,458) 37,627
------- ------ ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... $ 288,554 $ 47,405 $ 32,975 $368,934
======= ====== ======= =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet Data.
33
<PAGE> 35
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DATA
(DOLLARS IN THOUSANDS)
(a) In January 1997, the Company determined that its previously-reported
results of operations for the six months ended September 30, 1996 required
restatement in order to properly reflect the timing of certain sales. See
"Recent Developments -- Restatement of Operating Results."
(b) Reflects the following adjustments to cash:
<TABLE>
<S> <C>
Gross proceeds from the Senior Secured Credit Facility................. $117,500
Repayment of the Old Credit Facility, including accrued interest
thereon............................................................. (54,776)
Cash portion of purchase price of MEM, including transaction fees and
expenses(1)......................................................... (20,507)
Repayment of MEM indebtedness at September 30, 1996(2)................. (19,481)
Deferred financing costs -- Senior Secured Credit Facility............. (4,300)
--------
Total........................................................ $ 18,436
========
</TABLE>
- ---------------
(1) Includes cash paid at the closing of the MEM Acquisition of $20,197 and
additional estimated transaction fees and expenses of approximately
$310.
(2) Repayment of debt of $19,481 reflects debt outstanding at September 30,
1996. The actual debt repaid at the closing was $18,060.
(c) Excess proceeds from the Senior Secured Credit Facility were used in part to
finance the P&G Acquisition. The cash portion of the purchase price of the
P&G Acquisition paid through the closing was $41,140, subject to adjustment
based on actual levels of inventory acquired, which have not yet been
determined. See "Recent Developments -- Acquisition of the P&G Brands."
(d) Reflects the following adjustments to deferred financing costs:
<TABLE>
<S> <C>
Deferred financing costs -- Senior Secured Credit Facility............. $ 4,300
Deferred financing costs -- accrued commitment fee on Senior Secured
Credit Facility (1)................................................. 4,112
Write-off of deferred financing costs -- Old Credit Facility........... (289)
--------
Total........................................................ $ 8,123
========
</TABLE>
- ---------------
(1) Assumes the Company elects to extend the maturity to December 2003.
(e) Reflects the allocation of the excess cost over net assets acquired of MEM
as follows(1):
<TABLE>
<S> <C>
Cash portion of purchase price, including transaction fees and
expenses............................................................ $ 20,507
Less: pro forma value of net tangible assets acquired.................. (4,350)
--------
Unallocated excess of purchase price over net tangible assets
acquired............................................................ 16,157
Less: historical intangible assets..................................... (9,741)
--------
Total........................................................ $ 6,416
========
</TABLE>
- ---------------
(1) While the Company has yet to complete the final allocation of the
excess cost over net assets acquired to the specific assets acquired
based on its preliminary estimate, the Company believes that the excess
will be allocated principally to trademarks and goodwill, which will be
amortized over an average of 20 years. The excess of assets acquired
over liabilities assumed does not reflect certain assumed liabilities
which have not been quantified as of September 30, 1996.
(f) Reflects the repayment of a portion of MEM indebtedness at September 30,
1996. See notes (b)(2) above and (g) below.
(g) Reflects the following adjustments to notes payable:
34
<PAGE> 36
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DATA
(DOLLARS IN THOUSANDS)
(CONTINUED)
<TABLE>
<S> <C>
Repayment of the Old Credit Facility, excluding accrued interest
thereon............................................................. $(54,200)
Repayment of a portion of MEM indebtedness............................. (15,880)
--------
Total........................................................ $(70,080)
========
</TABLE>
(h) Reflects the following adjustments to accrued expenses:
<TABLE>
<S> <C>
Severance and stay bonuses -- MEM plant closing........................ $ 2,678
Termination of multi-employer pension plan -- MEM plant closing(1)..... 3,400
Accrued commitment fee -- Senior Secured Credit Facility............... 4,112
Elimination of accrued interest -- Old Credit Facility................. (576)
--------
Total........................................................ $ 9,614
========
</TABLE>
- ---------------
(1) Estimate based on currently available information for a 1996 withdrawal.
The Company has been advised that the liability for a 1997 withdrawal
would be higher. See "Business -- Employees."
(i) Reflects the gross proceeds from the Senior Secured Credit Facility.
(j) Reflects the elimination of MEM historical equity accounts.
(k) Reflects the following adjustment to retained earnings:
<TABLE>
<S> <C>
Elimination of MEM historical retained earnings......................... $(21,851)
Write-off of deferred financing costs -- Old Credit Facility............ (289)
--------
Total....................................................... $(22,140)
========
</TABLE>
35
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
financial statements of the Company and the notes thereto included elsewhere in
this Prospectus.
This discussion and analysis relates to the consolidated results of
operations of the Company, which includes the Company's major operating
divisions (the "Fragrance division," the "Cosmetics division" and the
"International division," which includes both fragrance and cosmetics sales),
resulting from the following acquisitions that have been consummated by the
Company.
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,
Lutece, Alyssa Ashley, Raffinee, Demi-Jour, Parfums Parquet's 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 and sale of Tabu, Ambush,
Canoe, Canoe-Sport and certain other mass-market 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.
In addition, on August 21, 1996, the Company acquired GAC, a company which
markets high quality, mid-priced lip and eye make-up, nail polish, make-up
brushes and related products sold under the Nat Robbins trademark through the
mass-market distribution channel. The operation is being integrated into the
Cosmetics division and the results of operations of GAC are included in the
Company's consolidated financial statements from the date of acquisition.
In January 1997, the Company determined that its previously-reported
results of operations for the six months ended September 30, 1996 and September
30, 1995 and its previously-reported balance sheet data as of September 30, 1996
and September 30, 1995 required restatement. The changes relate to the Company's
determination that it should not have recognized approximately $3.3 million of
net sales of Dana (or 4.1% of the Company's previously-reported net sales for
the six months ended September 30, 1996) in September 1996 and approximately
$1.9 million of net sales (or 3.0% of the Company's previously-reported net
sales for the six months ended September 30, 1995) in September 1995,
respectively, because certain products that were shipped from the Company's
facilities to a third-party packer's warehouse prior to September 30 in each
year (based in each case on firm order from the Company's customers) were not
reshipped by the packer to such customers until after such date. However,
because these products were delivered to the customers in October of each year
and the Company has received payment for substantially all such sales, the
effect of the restatement is limited to changing the timing of the Company's
recognition of these sales and the related earnings (a reduction of EBITDA and
an increase in net loss applicable to common stockholders of approximately $1.2
million and $747,000 for the six months ended September 30, 1996 and 1995,
respectively), which will now be recognized in the third quarter of each fiscal
year. The foregoing revisions resulted in decreases to total assets and total
liabilities and common stockholders' equity as of September 30, 1996 and
September 30, 1995 of less than 1%. The restatement of the six-month-period data
did not require and restatement of the Company's previously-reported audited
financial statements for Fiscal 1995 and will not have any impact on the
Company's results of operations for Fiscal 1996 or its balance sheet as of March
31, 1997.
36
<PAGE> 38
OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AS COMPARED TO THE
SIX MONTHS ENDED SEPTEMBER 30, 1995 (AS RESTATED)
Net Sales. The Company's net sales were as follows (dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------
1996 1995
------------------------ ------------------------
DIVISION NET SALES % OF TOTAL NET SALES % OF TOTAL
------------------------------------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Fragrance................................. $34,066 43.8% $33,052 53.4%
Cosmetics................................. 24,019 30.9% 19,719 31.8%
International............................. 19,625 25.3% 9,153 14.8%
------- ------ ------- ------
Total................................ $77,710 100.0% $61,924 100.0%
======= ====== ======= ======
</TABLE>
Total sales increased 25.5% or $15,786,000 from $61,924,000 to $77,710,000.
Fragrance sales increased 3.1% from $33,052,000 to $34,066,000. This increase
was due to an increase in orders for Christmas gift sets over the six months
ended September 30, 1995, as well as the impact of sales of Navigator from Canoe
and DREAMS BY TABU, products launched subsequent to the six months ended
September 30, 1995. The Cosmetics division's sales increased by 21.8% from
$19,719,000 to $24,019,000. Contributing to this increase were sales of UltraGel
and Nail Fetish, which were launched subsequent to the six months ended
September 30, 1995, as well as the impact of Nat Robbins' sales since the date
of the GAC Acquisition (August 21, 1996). International sales for the six months
ended September 30, 1996 include the sales of Dana Brazil acquired during
December 1995, and a 35.9% increase in remaining international sales which was
attributable in large part to the Company's Canadian operations.
Gross Profit. The Company's gross profit was as follows (dollars in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------
1996 1995
------------------------------- -------------------------------
DIVISION GROSS PROFIT % OF NET SALES GROSS PROFIT % OF NET SALES
-------------------------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Fragrance....................... $ 23,910 70.2% $ 21,139 64.0%
Cosmetics....................... 13,921 58.0% 12,175 61.7%
International................... 11,125 56.7% 5,061 55.3%
------- ------ ------- ---- --
Total...................... $ 48,956 63.0% $ 38,375 62.0%
======= ====== ======= ======
</TABLE>
Gross profit margin in the Fragrance division improved to 70.2% from 64.0%.
Contributing to this improvement were increases in manufacturing efficiency and
continued improvement in material sourcing resulting in a lower cost of finished
goods. The decrease in gross profit margin in the Cosmetics division to 58.0%
from 61.7% was the result of an increase in lower-margin promotional sales of
the Company's base products sold in conjunction with new product introductions.
The gross profit margin increase in the International division to 56.7%
from 55.3% was attributable to higher sales and an increase in the proportion of
direct international sales (versus exports) to total international sales.
Selling Expenses. The Company's selling expenses in the first half of
Fiscal 1996 and Fiscal 1995 were $30,653,000 (39.4% of Net Sales) and
$22,080,000 (35.7% of Net Sales), respectively. The increase in selling expenses
as a percentage of sales was principally attributable to increased advertising
and promotional spending relating to the Company's strategy of reinvigorating
existing brand equities and introducing complementary new products.
General and Administrative Expenses. The Company's general and
administrative expenses in the first half of Fiscal 1996 and Fiscal 1995 were
$10,071,000 (13.0% of Net Sales) and $7,892,000 (12.7% of Net Sales),
respectively. The increase in general and administrative expenses was
attributable in part to the addition of key personnel to both the Company's
corporate and operating division management teams in anticipation of future
operating needs.
37
<PAGE> 39
Amortization of Intangible and Other Assets. Amortization of intangible
and other assets during the first half of Fiscal 1996 were $3,122,000 (4.0% of
Net Sales) compared to $2,414,000 (3.9% of Net Sales) during the first half of
Fiscal 1995.
Operating Income. Operating income was $5,110,000 (6.6% of Net Sales) for
the first half of Fiscal 1996 and $5,988,000 (9.7% of Net Sales) for the first
half of Fiscal 1995. The decrease in operating income for the first half of
Fiscal 1996 compared to the first half of Fiscal 1995 was attributable to the
increase in selling expenses and an increase in non-cash amortization and
depreciation expenses for Fiscal 1996 as compared to Fiscal 1995. Management
believes that an additional measurement, earnings before interest, income 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 as an alternative either to net income (loss) as an
indicator of the Company's operating performance or to cash flow as a
measurement of liquidity. The computation of EBITDA is set forth below (dollars
in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER
30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Operating Income........................................ $ 5,110 $ 5,988
Plus: Amortization...................................... 3,122 2,414
Plus: Depreciation...................................... 1,679 1,113
------- -------
EBITDA.................................................. $ 9,911 $ 9,515
======= =======
EBITDA as a% of Net Sales.............................. 12.8% 15.4%
</TABLE>
Interest Expense. The Company's total interest expense was $10,838,000 for
the first half of Fiscal 1996 and $9,004,000 for the first half of Fiscal 1995,
while cash interest for the periods was $8,576,000 and $7,198,000, respectively.
Interest expense consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER
30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH INTEREST PAID OR ACCRUED:
Interest on Senior Notes.............................. $ 4,471 $ 4,474
Interest on Seller Notes (payable in 2002)............ 220 204
Interest on Old Credit Facility....................... 3,830 2,509
Other Interest........................................ 55 11
----------- -----------
Total Cash Interest Expense................. $ 8,576 $ 7,198
----------- -----------
NON-CASH INTEREST EXPENSE:
Accretion of Senior Notes and Seller Notes............ $ 169 $ 133
Amortization of Deferred Financing Costs.............. 1,605 1,162
Accretion of Interest on Obligations for Minimum
Royalty Payment..................................... 488 511
----------- -----------
Total Non-Cash Interest Expense............. 2,262 1,806
----------- -----------
Total Interest Expense...................... $10,838 $ 9,004
=========== ===========
</TABLE>
Income Tax Expense. Income tax expense was $308,000 for the first half of
Fiscal 1996 and $697,000 for the first half of Fiscal 1995. The effective tax
rates differ from the United States federal income tax rate of 35% due to the
effects of filing separate income tax returns in certain state and foreign
jurisdictions and limitations on utilization of federal income tax benefits.
38
<PAGE> 40
OPERATIONS FOR THE FISCAL YEAR ENDED MARCH 31, 1996 ("FISCAL 1995") AS COMPARED
TO
THE PERIOD FROM APRIL 15, 1994 (INCEPTION) THROUGH MARCH 31, 1995 ("FISCAL
1994")
Net Sales. The Company's net sales were as follows (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994
------------------------------- -------------------------------
DIVISION NET SALES % OF TOTAL NET SALES % OF TOTAL
------------------------------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Fragrance..................... $ 63,865 48.6% $ 31,931 55.3%
Cosmetics..................... 44,511 33.9% 19,514 33.8%
International................. 22,910 17.5% 6,269 10.9%
-------- ----- ------- -----
$131,286 100.0% $ 57,714 100.0%
======== ===== ======= =====
</TABLE>
Total sales increased by $73,572,000 (or 127.5%) to $131,286,000.
Approximately $32,700,000 of this increase was attributable to internal growth
through the implementation of focused sales and marketing programs. The
remaining increase is a result of including a full year of operations in Fiscal
1995 compared to a partial year of operations for the prior fiscal year.
Gross Profit. The Company's gross profit was as follows (dollars in
thousands):
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994
------------------------------- -------------------------------
DIVISION GROSS PROFIT % OF NET SALES GROSS PROFIT % OF NET SALES
------------------------------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Fragrance..................... $ 39,338 61.6% $ 18,681 58.5%
Cosmetics..................... 28,501 64.0% 10,998 56.4%
International................. 12,278 53.6% 3,482 55.5%
------- ---- ------- ----
$ 80,117 61.0% $ 33,161 57.5%
======= ==== ======= ====
</TABLE>
The gross profit margin improvements in the Fragrance division and
Cosmetics division were the result of the consolidation of manufacturing
operations in the Company's Mountaintop facility at the Fragrance division and
the introduction of new, higher-margin products such as PRO(10) Nail Lacquer,
along with cost containment efforts in the Cosmetics division. The gross profit
margin decrease in the International division was attributable to an increase in
export sales and sales of fragrance products that typically carry a lower gross
margin than direct international sales and sales of cosmetics products,
respectively, resulting in a lower total International division gross profit
margin.
Selling Expense. The Company's selling expenses for Fiscal 1995 and Fiscal
1994 were $52,781,000 (40.2% of Net Sales) and $18,246,000 (31.6% of Net Sales),
respectively. The increase in selling expenses as a percentage of sales was
principally attributable to increased advertising and promotional spending
relating to the Company's strategy of reinvigorating existing brand equities and
introducing complementary new products.
General and Administrative Expenses. The Company's general and
administrative expenses for Fiscal 1995 and Fiscal 1994 were $13,679,000 (10.4%
of Net Sales) and $10,127,000 (17.5% of Net Sales), respectively. The decline in
general and administrative expenses as a percentage of sales was attributable to
what management believes is a high fixed component for such expenses and
management's ability to control the increase in such expenses as sales
increased.
Amortization of Intangible and Other Assets. Amortization of intangible
and other assets for Fiscal 1995 and Fiscal 1994 was $5,207,000 (4.0% of Net
Sales) and $2,044,000 (3.5% of Net Sales), respectively. The increased
amortization in Fiscal 1995 includes a full year of amortization resulting from
acquisitions, Fiscal 1994 includes goodwill amortization only as of the
effective date of the respective acquisitions. In addition, Fiscal 1995 includes
a full year of amortization of the minimum royalty obligation.
39
<PAGE> 41
Operating Income. Operating Income for Fiscal 1995 and Fiscal 1994 was
$8,450,000 (6.4% of Net Sales) and $2,744,000 (4.8% of Net Sales), respectively.
Management believes that, as an additional measurement, EBITA is useful and
meaningful to an understanding of the operating performance of the Company.
However, EBITDA should not be considered as an alternative either to net income
(loss) as an indicator of the Company's operating performance or to cash flow as
a measurement of liquidity. The computation of EBITDA is set forth below
(dollars in thousands):
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994
----------- -----------
<S> <C> <C>
Operating Income........................................ $ 8,450 $ 2,744
Plus: Amortization...................................... 5,207 2,044
Plus: Depreciation...................................... 2,844 788
------- ------
EBITDA.................................................. $16,501 $ 5,576
======= ======
EBITDA as a% of Net Sales.............................. 12.6% 9.7%
</TABLE>
Interest Expense. The Company's total interest expense for Fiscal 1995 and
Fiscal 1994 was $19,458,000 and $8,694,000, respectively, while cash interest
for the periods was $15,524,000 and $6,834,000, respectively. Interest expense
consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994
----------- -----------
<S> <C> <C>
CASH INTEREST PAID OR ACCRUED:
Interest on Senior Notes.................................... $ 8,943 $ 5,577
Interest on Seller Notes (payable in 2002).................. 420 247
Interest on Old Credit Facility............................. 5,948 971
Other Interest.............................................. 213 39
----------- -----------
Total Cash Interest Expense..................... $15,524 $ 6,834
----------- -----------
NON-CASH INTEREST EXPENSE:
Accretion of Senior Notes and Seller Notes.................. $ 290 $ 154
Amortization of Deferred Financing Costs.................... 2,623 993
Accretion of Interest on Obligations for Minimum Royalty
Payment................................................... 1,021 713
----------- -----------
Total Non-Cash Interest Expense................. 3,934 1,860
----------- -----------
Total Interest Expense.......................... $19,458 $ 8,694
======== ========
</TABLE>
Income Tax Expense (Benefit). Income tax expense (benefit) for Fiscal 1995
and Fiscal 1994 was $1,304,000 and ($35,000), respectively. The effective tax
rates differ from the United States federal income tax rate of 34% due to state
and foreign income taxes and limitations on utilization of federal income tax
benefits.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by the Company in operating activities for the six months
ended September 30, 1996 was $27.6 million, consisting of a net loss of $5.3
million, less the impact of non-cash items impacting the net loss of $7.1
million, increases in accounts receivable, inventories and prepaid expenses of
$10.6 million, $8.2 million and $1.2 million, respectively, and decreases in
accounts payable, other current liabilities and other of $6.7 million, $2.7
million and $0.9 million, respectively; offset by an increase in accrued
expenses of $0.9 million.
Net cash used in investing activities was $17.1 million, consisting
primarily of the acquisition of GAC (including repayment of outstanding
indebtedness) for $15.4 million and capital expenditures of $1.7 million. Net
cash provided by financing activities was $112.8 million, consisting primarily
of the proceeds from the Equity Financing. In addition, the Company issued and
subsequently retired the Series A Preferred Stock. The net increase in cash and
cash equivalents was $68.1 million.
40
<PAGE> 42
On May 29, 1996, the Company entered into a securities purchase agreement
with the CIBC Fund, and issued $20.0 million aggregate value of Series A Senior
Exchangeable Redeemable Preferred Stock (the "Series A Preferred Stock"). The
Series A Preferred Stock had a dividend of 12% per annum payable quarterly in
cash or additional preferred stock at the option of the Company.
On June 14, 1996, the availability under the revolving credit portion of
the Old Credit Facility was increased from $30.0 million to $40.0 million.
During August and September 1996, the Company completed a private placement
of $115.0 million of Series B Preferred Stock. The net proceeds were used to
retire the $20.0 million Series A Preferred Stock and provide funds for new
acquisitions and general corporate purposes. In addition, the CIBC Fund acquired
51,959 shares of the Company's Common Stock for $5.0 million. The Company also
sold an additional 51,959 shares of its common stock to a holder of the Series B
Preferred Stock for $5.0 million.
In connection with the Equity Financing, Nomura waived certain provisions
of the Old Credit Facility to allow the Company to retain the net proceeds of
the Equity Financing after a repayment of $7.0 million of the amounts
outstanding under the Old Credit Facility. The Company purchased a certificate
of deposit for $33.8 million and granted Nomura a first priority perfected lien
on such certificate of deposit, which was subsequently used for the MEM
Acquisition.
As of September 30, 1996, the Company had outstanding indebtedness of
$121.7 million, including $54.2 million under the Old Credit Facility, $31.2
million of which was related to the revolving credit portion. Due to the nature
of the fragrance and cosmetics industry, both the Company's need for working
capital and its income stream are seasonal. The most significant liquidity
requirements occur in connection with the production of inventory prior to sales
and related shipments to customers in advance of the calendar year-end holiday
season and other events such as new launches.
On December 4, 1996, the Company and certain of its subsidiaries entered
into the Senior Secured Credit Facility and borrowed $117.5 million thereunder,
resulting in net proceeds of $113.2 million. Net proceeds from this financing
were used to finance the MEM Acquisition (after the application of a $33.8
million certificate of deposit, plus approximately $537,000 of interest on the
certificate of deposit), to finance the P&G Acquisition, to repay all
outstanding indebtedness under the Old Credit Facility; and the remainder was
used and will be available for general corporate purposes. The Senior Secured
Credit Facility has an initial term of one year subject to extension under
certain circumstances. See "Description of Outstanding Indebtedness -- Senior
Secured Credit Facility."
On December 4, 1996, the Company, through its newly-formed, wholly-owned
subsidiary, RAI, completed its acquisition of MEM pursuant to a Merger Agreement
dated August 6, 1996, as amended. The aggregate cash consideration paid to the
equity holders of MEM in connection with the MEM Acquisition was $19.8 million.
In addition, in connection with the MEM Acquisition, the Company repaid all of
MEM's outstanding indebtedness in an amount equal to $18.1 million and incurred
fees and expenses of approximately $800,000. Each outstanding share of MEM was
purchased for $7.50 and each outstanding option was redeemed for $7.50 less the
per share exercise price of such option. On December 6, 1996, the Company
announced that it plans to close MEM's facilities in Northvale, New Jersey and
in Boucherville, Quebec on February 7, 1997. The Company expects to incur costs
in connection with the closure of such facilities and consolidation of MEM's
operations in an amount of approximately $6.1 million, including severance
payments, ERISA withdrawal liability costs and stay bonuses for selected
employees of MEM. The severance payments and stay bonuses (estimated to be
approximately $2.7 million) are expected to be paid during the last quarter of
Fiscal 1996 or the first quarter of Fiscal 1997. The Company's estimate of its
ERISA withdrawal liability costs is an estimate for a 1996 withdrawal. The
Company has been advised that the liability for a 1997 withdrawal would be
higher. The ERISA withdrawal liability will be paid (with interest) in equal
quarterly installments over a period of years in an amount per installment to be
determined under a statutory formula and based in part on the employer's
contribution rate to the plan and highest employee head count over the last
decade. Sufficient information currently is not readily available to calculate
the quarterly payment amounts. The MEM and Tom Fields combined contributions
were approximately $390,000 in 1995 and are expected to be approximately
$250,000 in 1996, although the number of MEM and Tom Fields
41
<PAGE> 43
employees has declined by approximately one-half from its highest levels over
the last decade. Accordingly, the annual total of the quarterly payment amounts
may be significantly higher than the contributions to the Union Plan (as
defined) in recent years. See "Business -- Employees."
On December 6, 1996, the Company completed its acquisition of the worldwide
rights to manufacture
and market the P&G Brands from P&G. The cash portion of the purchase price paid
through the closing was $41.1 million, of which $8.0 million related to current
inventory and $33.1 million related to the licenses and rights to market such
fragrances. The purchase price for the inventory is subject to adjustment, based
on the actual value of inventory purchased. In addition, the Company assumed
certain specified trade-related obligations of P&G, including liability for
returns of products under the P&G Brands sold by P&G prior to the closing and
liabilities under certain advertising and business development commitments. The
amount of such liabilities cannot currently be determined. The amount of such
liabilities, when ultimately determined, will be considered part of the purchase
price of the P&G Brands. Concurrent with the P&G Acquisition, the Company
entered into transition agreements with P&G, under which P&G will continue the
foreign marketing of the P&G Brands through June 30, 1997. P&G will remit to the
Company, within 45 days of the end of a calendar month, the net amount of
revenues earned from the product sales, less allowances for sales returns,
discounts, bad debts, any applicable sales and marketing costs and less any
costs of goods in excess of inventories already purchased by the Company.
As a result of the repayment of all outstanding indebtedness under, and
termination of, the Old Credit Facility on December 4, 1996, the Company no
longer has a revolving credit facility to fund working capital needs. In
addition, the Company is effectively prevented under the terms of the Senior
Secured Credit Facility from incurring additional indebtedness, including
indebtedness for working capital purposes. The completion by the Company of the
Acquisitions has resulted in a significant increase in the Company's working
capital needs. Although the Company has entered into a letter of intent with a
major institutional lender for the New Revolving Credit Facility, there can be
no assurance that the Company will be able to secure such a facility. The
failure of the Company to obtain such a facility would have a material adverse
effect on the Company's ability to implement its current business plan. The
failure by the Company to refinance the Senior Secured Credit Facility also
would have a material adverse effect on the Company. See "Risk Factors -- Need
to Refinance Senior Secured Credit Facility."
42
<PAGE> 44
BUSINESS
GENERAL
The Company is a leading manufacturer and marketer of mass-market
fragrances, artificial nail care products, mid-priced lip and eye make-up, nail
polish and related products that are sold by more than 1,000 retailers in
approximately 25,000 locations in the United States and in 45 foreign countries.
The Company sells its products principally through the mass-market distribution
channel which includes drug stores (such as Walgreen and Revco), mass
merchandisers (such as Wal-Mart and Kmart) and supermarkets and combination
supermarket/drug stores (such as Kroger and Albertson's). In Fiscal 1995 and for
the six months ended September 30, 1996, the Company generated net sales of
$131.3 million and $77.7 million, respectively, and EBITDA of $16.5 million and
$9.9 million, respectively.(1)
Through Dana, the Company sells women's and men's fragrances designed to
appeal to a broad range of consumers within the mass market, including several
classic brands such as Chantilly and Tabu for women and English Leather and
Canoe for men, each of which has enjoyed widespread sales and consumer loyalty
for more than 30 years. The Company has an 11.1% share and a 6.5% share of the
women's and men's mass-market fragrance categories, respectively, and is the
third and fifth largest marketer of women's and men's fragrances, respectively,
in the mass market.
The Company's women's fragrance brands represent two of the top seven and
14 of the top 100 women's fragrance brands sold through the drug store channel,
which represents approximately 50% of mass-market sales. The Company's men's
fragrance brands represent three of the top 20 men's fragrance brands sold
through the drug store channel. The Company's fragrance and related products are
marketed under established brand names including Chantilly, White Chantilly,
Tabu, DREAMS BY TABU, Ambush, NaVy, Insignia, Toujours Moi, le Jardin, Love's,
Heaven Sent, French Vanilla by Dana, Raffinee, Lutece, Canoe, English Leather,
British Sterling, NaVy for Men, California for Men and Herbissimo.
Through Cosmar, the Company is the largest domestic manufacturer and
marketer of artificial nail care products and related accessories sold through
the mass market. Cosmar has the leading share in five of the top seven
artificial nail care segments, and its 33% share in the mass market is more than
twice the share of its nearest competitor. In 1995, the Company successfully
entered the $300+ million nail polish category with its line of PRO(10) nail
lacquers. In just one year after its introduction, PRO(10) ranked as the ninth
best-selling nail lacquer brand in the United States. The Company's artificial
nail care products and related accessories are marketed under the brand names
LaJoie, Press & Go, Sculpture Quik, Quik Fit, PRO(10), UltraGel and Nail Fetish.
The following table breaks down the Company's net sales for Fiscal 1995 and
the six months ended September 30, 1996 between fragrance and cosmetics (dollars
in millions):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL 1995 SEPTEMBER 30, 1996
-------------------------- --------------------------
NET SALES % OF TOTAL NET SALES % OF TOTAL
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Fragrance......................... $ 83.2 63.4% $51.9 66.8%
Cosmetics......................... 48.1 36.6% 25.8 33.2%
------ ---- ----- -----
Total................... $ 131.3 100.0% $77.7 100.0%
====== ==== ===== =====
</TABLE>
BACKGROUND
The entire mass-market distribution channel (i.e., chain drug stores, mass
merchandisers and supermarkets and combination supermarket/drug stores), in the
United States, where the Company's products are sold,
- ---------------
(1) EBITDA is defined as earnings before interest, income taxes, depreciation
and amortization. EBITDA should not be considered as an alternative to net
income or cash flow and is not a measure of performance under generally
accepted accounting principles but provides additional information for
evaluating the Company.
43
<PAGE> 45
generated sales of approximately $4.5 billion in 1995 and is the largest and
fastest growing segment of the estimated $9.0 billion domestic fragrance and
cosmetics market. Management believes that this growth is attributable to a
recent consumer trend of seeking increased value per dollar spent. Mass-market
retailers account for approximately 50% of total domestic fragrance and
cosmetics sales, with department and specialty stores accounting for the
remaining 50%. In recent years there has been substantial consolidation within
the mass-market distribution channel. As a result of such consolidation, large
chains such as Wal-Mart and Revco have been driving smaller, independent general
merchandise stores and drug stores out of existence.
Management believes that the fragrance and cosmetics industry is highly
fragmented and is undergoing a similar consolidation. As the importance of the
mass-market distribution channel continues to increase, the fragrance and
cosmetics industry consolidation should accelerate because smaller private
companies typically lack the management skills, technical expertise, worldwide
marketing capabilities and capital resources necessary to: (i) introduce new
products; (ii) provide the financial reporting and management information
systems necessary to satisfy stringent mass-market retailer service
requirements; (iii) develop, fund and utilize the sophisticated advertising and
marketing programs required to compete in the mass market; (iv) provide
sophisticated category management services to retailers designed to maximize the
profitability of their shelf space; and (v) establish effective international
distribution networks.
The Company was formed in April 1994 by Kidd Kamm, together with Thomas V.
Bonoma, Chairman, Chief Executive Officer and President of the Company, to
participate in the aforementioned fragrance and cosmetics industry
consolidation. Prior to forming the Company, Dr. Bonoma was chief executive
officer of Benckiser America ("Benckiser"), a subsidiary of Joh. A. Benckiser,
GmbH, a $3.0 billion privately-held German producer of packaged goods in the
fragrance, cosmetics and cleaning products industries ("Benckiser, GmbH").
During Dr. Bonoma's tenure at Benckiser, he, along with his team of senior
managers (eleven of which have since joined him at the Company), were directly
responsible for building Benckiser's North and Latin American-based operations
from inception in 1986 to worldwide sales in excess of $700 million by 1993.
This increase was accomplished through both internal growth and the acquisition
and integration of seven companies. Dr. Bonoma and his management team improved
the sales and cash flow of these acquired companies by, among other things,
reducing administrative overhead, rationalizing operations and developing
cost-effective advertising and marketing programs to restore and expand
prominent fragrance brands such as Jovan, Coty and Stetson, and soap brands such
as ElectraSol and Jet-Dry. At the time of Dr. Bonoma's departure from Benckiser
in mid-1993, fragrances under his management represented six of the top 25
women's fragrances and ten of the top 25 men's fragrances in the mass market.
At inception, the Company's strategic plan was to build a substantial
fragrance and cosmetics company within five years with annual sales in excess of
$750 million by implementing Dr. Bonoma's previously successful growth strategy
of acquiring and successfully integrating underperforming brands or companies
and restoring and expanding brand equities through the initiation or expansion
of focused marketing programs. In May 1994, KKEP invested $22.5 million in the
common equity of the Company, which represented the largest investment ever made
by KKEP or any of its principals. Management and certain other investors
invested an additional $4.0 million in the common equity of the Company.
In July and August 1994, the Company entered into long-term exclusive
license agreements with Houbigant to manufacture, distribute, use and sell
throughout the world (excluding Canada) 12 mass-market fragrances formerly
marketed by Houbigant (the "Houbigant Fragrances"), including Chantilly, Lutece
and Raffinee. In December 1994, the Company acquired the assets of ACB
Mercantile, Inc. and related companies (collectively, "Houbigant ACB") through
which the Company acquired certain rights to manufacture, distribute, use and
sell the Houbigant Fragrances in Canada which, when combined with the previous
Houbigant license agreements, gave the Company the exclusive worldwide right to
manufacture and market the Houbigant Fragrances. In July 1996, the Company
entered into a restated license agreement with Houbigant.
In August 1994, the Company purchased the operations of Cosmar, the largest
manufacturer and marketer in the United States of artificial fingernails and
related nail care products. In December 1994, the Company acquired Les Parfums
de Dana, Inc. and related companies, which manufactured mass-market
44
<PAGE> 46
fragrances and related products sold in the United States and in 20 foreign
countries, including such classic brands as Tabu, Canoe and Ambush.
In August 1996, the Company acquired GAC, a company that markets,
distributes, advertises, promotes and merchandises high-quality, mid-priced lip
and eye make-up, nail polish and related products. In December 1996, the Company
acquired MEM, which manufactures mass-market fragrances, and the P&G Brands. See
"Recent Developments" for a description of the Acquisitions.
BUSINESS STRATEGY
The Company's management team intends to continue to capitalize on
opportunities in the mass-market segment of the fragrance and cosmetics
industry, through both internal growth and acquisitions, and to maximize sales
and EBITDA by implementing a strategy based on the following elements:
- Acquisition and Reinvigoration of Underperforming and/or Undermarketed
Brands. The Company intends to continue to selectively acquire and
subsequently reinvigorate underperforming and/or undermarketed
established brands by: (i) reestablishing trust and reliability with
retail accounts that may have been lacking under previous ownership; (ii)
restoring the quality and brand franchise of acquired fragrances by using
original formulations and applying advanced technology to improve
acquired cosmetics products; (iii) redesigning the packaging and
advertising of certain acquired brands to modernize their images and
refocus them toward their target markets; and (iv) initiating or
expanding focused advertising and promotional programs. Advertising and
marketing support is particularly important in the mass market due to
minimal in-store sales support by store personnel or manufacturer
representatives. Management believes that the Company provides the
broad-based consumer advertising necessary to support new product
introductions and to motivate consumers to "pull" the Company's products
off of the shelf.
- Integration of Acquired Businesses into Existing Company
Infrastructure. Following its acquisition of brands or companies, the
Company reduces the operating costs of such acquired brands or companies
by: (i) eliminating redundant overhead; (ii) consolidating plants (such
as the planned closing of MEM's facilities); (iii) selling the acquired
brands through the Company's existing sales force; and (iv) using common
components (e.g., the same type of bottle for several brands) to reduce
manufacturing costs.
- Focused Flanking of Established Fragrance Brand Equities. Rather than
introduce completely new products into the mass market, the Company has
specialized in the launch of new products that leverage off of the strong
name recognition and brand equity ("trust") of the Company's portfolio of
classic fragrance brands. These new products, known as "focused
flankers," draw on the consumer recognition and heritage of the Company's
existing brand equities while simultaneously enhancing and revitalizing
the "parent" products being flanked. The Company's flanker introductions
are strongly related to their "parents" but are targeted toward a
different consumer segment, enabling the Company to increase shelf space
allocated to, and revenues generated by, the expanded brand family. To
date, the Company has successfully launched White Chantilly as a flanker
of the classic Chantilly brand in the fall of 1995, DREAMS BY TABU as a
flanker of the classic Tabu brand in February 1996 and Navigator from
Canoe as a flanker of the classic Canoe brand in September 1996. In
addition, the Company has identified several opportunities to launch
focused flankers of its newly acquired MEM and P&G fragrance brands.
Management believes that the reinvigoration of existing brands and the
launch of focused flanker products typically generate more predictable
sales and require less advertising and promotional expenditures than
"cold" launches of completely new products.
- Introduction of Complementary Products. Similar to its focused flanker
approach to fragrances, the Company also introduces complementary new
cosmetics products. For example, the Company enhanced its leadership
position in the artificial nail care market in Fiscal 1995 through the
introduction of products targeting new segments of the market, including
UltraGel (patented gel nails with built-in color targeting salon users)
and Nail Fetish (a line of artificial nail care products targeting
teenage consumers). In addition, in 1995 the Company successfully entered
the $300+ million nail
45
<PAGE> 47
polish category with the launch of its PRO(10) line of nail lacquers,
which ranked as the ninth best-selling nail lacquer brand in the United
States one year after its introduction. In the upcoming year, Cosmar
plans to introduce three innovative artificial nail sculpturing kits that
management believes will address the growing consumer interest in
do-it-yourself home manicures.
- Use of Category Management Techniques to Increase the Company's Sales by
Increasing its Allocation of Shelf Space and Enhancing Relationships with
Retailers. Due to the consolidation in the mass-market retail industry,
the allocation of retail shelf space has become increasingly important.
To increase shelf space allocated to the Company's products and to build
stronger relationships with retailers, the Company purchases consumer
sales data derived from in-store checkout scanners in order to
mathematically quantify sales results for its own products (as well as
those of its competitors). The Company engages in account-specific
category management by offering to be a retailer's category advisor or
"category captain," a role that most retailers fill by electing one
manufacturer per category. The category captain assists the retailer in
deciding which products it will sell within the shelf space dedicated to
a specific category. Management believes that because the Company has
made a significant investment in data, systems and employee resources for
its category management program, the Company should maintain a
significant competitive advantage in this area that will be difficult for
its competitors to overcome.
- Expansion into Additional Retail Outlets and Alternative Distribution
Channels. The Company continually seeks to expand its sales and
distribution network (currently over 1,000 retailers with approximately
25,000 locations) for its existing and acquired products. Due to the
Company's long-standing relationships with retail buyers, extensive
domestic retailer network, ability to reinvigorate brands and category
management expertise, the Company has been able to significantly increase
the sales of its acquired brands by integrating them into its existing
distribution network. For example, under Cosmar's management, the Nat
Robbins line has increased its retail store door distribution from
approximately 6,000 doors at the closing of the GAC Acquisition to
approximately 7,200 doors as of December 1996 as the Company introduced
the Nat Robbins line to a number of the Company's major accounts. The
Company continually explores alternative distribution channels (such as
the home shopping channel QVC) through which to sell its products. In
addition, the Company is increasing its worldwide doors by expanding the
number of foreign countries (currently 45) in which it sells its
products.
The Company intends to continue to capitalize upon the success of its
previous fragrance and cosmetics product launches, market share gains and close
working relationships with mass-market retailers to launch additional focused
flanker fragrance products and new artificial nail care and cosmetics products.
Management believes that the Company has the management talent and corporate
infrastructure in place to continue to implement its proven growth strategy and
effectively manage future growth. See "Special Note Regarding Forward-Looking
Information."
INDUSTRY OVERVIEW
General. Based on management's estimates, the worldwide fragrance and
cosmetics industry is approximately $17 billion in size and growing at a rate of
approximately 3%-5% per year due to the emergence of new markets and increased
penetration in existing markets. The domestic portion of the fragrance and
cosmetics industry represents approximately $9 billion in annual sales (53% of
the worldwide market). The mass-market distribution channel of the domestic
fragrance and cosmetics industry represents an estimated $4.5 billion in annual
revenues, accounting for 50% of total domestic industry revenues, and is growing
at the rate of approximately 3%-5% per year. The entire mass-market fragrance
and cosmetics industry is divided into six major product categories: men's and
women's fragrances (13% and 23%, respectively), face make-up (20%), nail care
(16%), eye make-up (15%) and lip products (13%) based on 1995 market share data.
Distribution Channels. The fragrance and cosmetics industry relies on two
primary channels of distribution: mass-market retailers and department and
specialty stores. These two channels have materially different sales and
marketing processes because of the contrasting economic, demographic, demand and
usage characteristics of their consumers.
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<PAGE> 48
The mass-market distribution channel is characterized by value-oriented
products with emphasis placed on both price and image. Since mass-market
retailers depend on self-selection of products by consumers and employ only a
nominal amount of in-store sales support personnel, the allocation and placement
of retail shelf space is one of the most important means of gaining consumer
awareness in this channel. Accordingly, mass-market retailers are becoming more
aware of the benefits of sophisticated category management systems, such as
those utilized by the Company, to maximize the sales generated by their existing
shelf space. Retailers have become more reluctant to allow new products to
displace proven, high-volume products without a guarantee of extensive
advertising support to generate consumer interest. As a result, the introduction
of new products into the mass market is more difficult and relatively more
expensive than in department and specialty stores. Manufacturers of mass-market
products must provide broad-based consumer advertising to support new product
introductions and to get consumers to "pull" products off of the shelf. These
characteristics of the mass market limit the number of new product offerings,
enabling proven products to retain existing shelf space and creating barriers to
entry. As a result, the mass-market distribution channel for fragrances and
cosmetics is generally characterized by greater brand stability, consumer
loyalty and repeat purchases than the department and specialty store channel.
In contrast to the mass market, fragrance and cosmetics products sold
through the department and specialty store channel are generally characterized
as "prestige" brands which are primarily sold based upon perceived image and
quality at substantially higher price points (average retail price point of
$35.00 per one-ounce size for fragrances) than those sold in the mass-market
channel (average retail price point of $14.00 per one-ounce size for
fragrances). Consequently, product offerings in the department and specialty
store channel tend to be much more sensitive to changes in fashion and popular
trends than those sold in the mass market. Such fashion consciousness results in
a greater number of product introductions in this channel than in the mass
market. The introduction of new products in department and specialty stores is
facilitated, in part, by a greater level of personal customer service during the
sales process through the use of sales personnel or in-store manufacturer
representatives who "push" new products to consumers. In addition, department
and specialty retailers generally reallocate their selling space and product mix
several times per year to accommodate changing fashion trends, whereas
mass-market retailers generally do so only once per year. As a result,
manufacturers are able to introduce new products more easily and frequently in
the department and specialty store channel, as well as depend on in-store direct
selling efforts rather than broad-based consumer advertising to attract
consumers. While such reallocation results in greater flexibility to change
product offerings to match current fashion trends, it also reduces brand
stability and consumer loyalty over time.
As the department and specialty store channel selling "prestige" fragrances
has been consolidating, there has been increasing pressure to introduce certain
fragrances into mass-market channels which were historically sold primarily in
department and specialty stores. Management believes, however, that increased
penetration by such fragrances into the mass market is not a material
competitive threat to those mass-market brands supported by strong management,
marketing and advertising because: (i) a significant portion of prestige
products sold in the mass market have been diverted from their normal
distribution channels, thus constituting an unsteady supply source; (ii) such
prestige fragrances are often marketed toward different consumers than
mass-market fragrances; and (iii) the "push" and promotional marketing support
(i.e., gift with a purchase, high sales and display intensity) typically
associated with prestige brands is not replicable in the self-select,
mass-market channel. Certain prestige marketers have attempted to adopt
mass-market methods including less intensive sales support, lower packaging
quality and broader distribution. However, management believes that the
resulting pressure for price discounts on these prestige products has threatened
the perception of exclusivity associated with their up-market trademarks.
Fragrance Market. The domestic fragrance market, which represented sales
of approximately $4 billion in 1995, is growing at a rate of approximately 3%-5%
per year. The entire mass-market segment of the retail fragrance industry
generated sales of $1.4 billion in 1995. The market for both men's and women's
fragrances is highly fragmented, with the most popular brand in each segment
commanding a share of less than 5% of the total market (although there are large
competitors with significant aggregate market shares). The mass-market fragrance
industry is relatively recession-resistant due to its low average price point
($14.00 per one ounce size) and more frequent usage of the product, which is
evidenced by estimated industry growth rates
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<PAGE> 49
which have varied between negative 5% to positive 5% over the last ten years.
Fragrance products sold in the mass market, where the Company operates,
typically have the following characteristics in relation to prestige brands: (i)
more frequent purchase/use; (ii) sales that are less affected by changing
fashions (which results in fewer new product introductions); (iii) lower
packaging costs; (iv) faster inventory turnover; and (v) lower prices.
Management believes that these characteristics enable the Company's products to
achieve, on average, greater customer loyalty and more stable sales volume than
prestige products.
In addition to "prestige" fragrance products sold in the mass-market
channel, the Company competes with alternative designer fragrances ("ADFs"),
which are impostors of designer and prestige fragrances. ADFs began capturing
market share from both designer and prestige fragrances and mass-market products
in 1990. Since 1992, however, sales of ADFs and prestige fragrances in the mass
market have been declining as consumers have retreated to classic fragrances
that offer greater value for their money. For example, sales of women's ADFs
have declined by 21%, and sales of women's prestige fragrances sold in the mass
market have declined by 16% for the 52 weeks ended November 3, 1996 over the
comparable prior period.
Cosmetics Market. The domestic cosmetics market, which generated sales of
approximately $5 billion in 1995, has grown at a rate of approximately 2%-3% per
year over the last five years according to management's estimates. The entire
mass-market segment of the domestic cosmetics market generated sales of $2.8
billion in 1995. The Cosmetics division primarily focuses on the artificial nail
care, lip and eye make-up segments of the mass market. The Cosmetics division
has also entered into other segments of the cosmetics market, including the
$300+ million nail polish category with the introduction of its line of PRO(10)
nail lacquers.
Nail Care Market. The retail nail care mass market is divided into four
major product categories: (i) nail polish (47%); (ii) artificial nail care
(24%); (iii) nail implements (18%); and (iv) nail polish removers (11%). The
mass-market segment of the artificial nail care category, which generated retail
sales of approximately $170 million in 1996 based on management estimates, is
the fastest growing segment of the $700 million domestic retail nail care
market. Management believes that the compound annual growth rate in the
mass-market segment of the artificial nail care category exceeded 18% from 1984
to 1995. Management attributes the rapid growth in this market primarily to a
greater acceptance of artificial nail care products and a shift in consumer
preferences from more expensive salon services to significantly less expensive
self-application products such as those manufactured by the Company. Other
factors causing the shift include improved product quality (e.g., a more natural
appearance), simplified product application and a greater selection of products.
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Although the mass-market artificial nail care market has many participants,
the top three brands generate over 60% of total category sales. As the following
table indicates, Cosmar brands dominate the artificial nail care products
category sold through the mass market as measured by total sales dollars:
U.S. ARTIFICIAL NAIL CARE MARKET (DRUG AND MASS MERCHANDISER)
<TABLE>
<CAPTION>
CONSOLIDATED MARKET SHARE
BRAND OWNER 52 WEEKS ENDED 11/3/96
------------------------------------ -------------------------- -------------------------
<S> <C> <C>
COSMAR.............................. THE COMPANY 33.2%
Nailene............................. Pacific World Corp. 16.0
Kiss Professional................... Dae Do 11.5
Jonel............................... Barristo Ltd. 10.7
Fing'rs............................. Entrecap Corp. 9.4
Sally Hansen........................ Del Laboratories 8.6
IBD................................. Intl. Beauty Distributors 3.8
Lee Fancy Fingers................... Lee Pharmaceutical 1.3
All Other Brands.................... Various 5.5
------
Total Category 100.0%
===================
</TABLE>
- ---------------
Source: InfoScan, Total U.S. Drug and Mass Merchandisers, 52 weeks ended
November 3, 1996.
Repeat purchases by consumers, who typically purchase 10 to 15 packages per
year, as well as high inventory turnover have resulted in increased retail shelf
space allocation and market stability for artificial nail care products. It is
expected that in the future there will be less opportunity for niche players in
the artificial nail care market, with more shelf space being allocated to market
leaders with sophisticated category management capabilities such as the Company.
The domestic artificial nail care market is expected to continue to grow as
consumer penetration throughout the United States expands. According to Nails
Magazine, the total market for artificial nail care and related products,
including those sold in salons, has grown from approximately $1.4 billion in
1989 to $3.0 billion in 1995. According to 1995 consumer survey results,
approximately 31% of all American women use artificial nail tips, with the
majority of users under the age of 35, and 77% of all American women use nail
glue. However, according to consumer surveys, over 60% of artificial nail care
product users still have their nails done at salons at an average cost of
approximately $30.00, representing a significant opportunity for considerable
growth in the retail nail care market, where an average mass-market application
costs approximately $10.00. Additional growth opportunities exist in the United
States, as well as abroad, to attract the millions of potential new consumers
that currently do not use artificial nail care products.
Lip and Eye Make-up Markets. The domestic lip and eye make-up markets are
highly competitive and dependent upon strong brand recognition, consumer trust
in product quality, product selections aligned with current fashion and color
trends and distinct price brackets that meet particular consumer needs and
demographics. Within the approximately $1.2 billion entire mass-market segment
of the lip and eye make-up markets, there are higher priced brands, generally
priced at $3.25 to $7.00 per unit, followed by mid-priced brands at $2.00 to
$3.75 per unit and lower-priced brands at $0.99 to $1.79 per unit. The Company
has focused on the mid-priced segment through its acquisition of GAC. In
general, the Company believes that the lip and eye make-up markets have
experienced strong growth over the past year because of enhancements in color
cosmetics technology and formulations coupled with a renewed emphasis on
fashion-conscious color selections. The most prevalent trends include
longer-lasting applications (such as "smudge-free" lipstick), healthier products
(such as moisturizing and vitamin-added formulas) and fashionable color ranges
(such as browns and purples). In addition, manufacturers are now utilizing
point-of-purchase displays or "wall units" that emphasize certain products and
features and educate consumers on the use of cosmetics in an attempt to further
stimulate category expansion.
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<PAGE> 51
PRODUCTS
Fragrance. The Company manufactures and markets a wide variety of men's
and women's fragrances, which include some of the oldest, most recognized
"classic" brand names in the industry. Classic brands, which generally have more
than 20 years of sales history, are typically characterized by extensive brand
name recognition and strong consumer loyalty. The Company estimates that less
than 1% of all fragrance brands introduced each year achieve such classic
status. The Company currently manufactures nine classic brands: Chantilly, Tabu,
Ambush, Toujours Moi, Raffinee, Heaven Sent, Canoe, English Leather and British
Sterling. In addition to the Company's classic fragrances, the Company markets
its women's fragrance brands under such names as White Chantilly, DREAMS BY
TABU, NaVy, le Jardin and Love's and markets its men's fragrance brands under
such names as Navigator from Canoe, NaVy for Men, Insignia, California for Men
and Herbissimo.
Within its current portfolio of classic and established brands, the Company
focuses on reinvigorating its largest and most recognized brands. For its
smaller brands, the Company applies various cost-reduction methods designed to
result in production savings by utilizing less expensive common componentry and
standard packaging. Additionally, the Company minimizes advertising and
promotion costs by offering these products in the same packaging on a year-round
basis. The Company passes along these cost savings by offering value pricing to
customers with primary advertising occurring only in-store, leaving the majority
of its advertising funds to be spent on its better known brands.
The Company produces and markets men's and women's fragrances through Dana.
Among the Company's most well-known brand names are Chantilly and Tabu.
Introduced in 1941 and 1931, respectively, Chantilly and Tabu are two of the
oldest "classic" fragrances in the United States. Both the Chantilly and Tabu
brand families include a complete line of products including perfumes, colognes,
bath gels, powders and lotions. The items in the Chantilly family are
merchandised as premium mass-market products. Based upon Chantilly's and Tabu's
longevity in the market and market share, the Company believes that the
Chantilly and Tabu brands enjoy significant consumer loyalty and name
recognition.
Following the four acquisitions completed by the Company in 1994,
management was able to regain the confidence of its retail accounts by
supporting its brands with increased advertising and promotional expenditures,
reestablishing efficient production scheduling and shipping processes,
maintaining adequate inventory levels and creating responsive order fulfillment
practices. Under current management's leadership, the Chantilly and Tabu brands
have risen to the fourth and seventh positions respectively in market share of
the domestic women's fragrance market sold in drug stores. In addition to the
Company's growth in its existing product lines, the Company also grew through
the launch of new brands such as Classic Gardenia and the fall of 1995 launch of
White Chantilly, a flanker product for the core Chantilly brand. In Fiscal 1995,
in addition to $16.4 million of Chantilly gross sales (before giving effect to
product returns), White Chantilly generated $11.6 million in gross sales (before
giving effect to product returns) due to its significant product differentiation
and marketing focus targeting more youthful consumers. White Chantilly was
nominated for a 1995 FiFi (Fragrance Foundation) award as new product of the
year. In the spring of 1996, the Company launched DREAMS BY TABU, a focused
flanker of Tabu, which has generated over $11 million in gross sales (before
giving effect to product returns) since February 1996. During such period, sales
of Tabu increased by 12% over the comparable period in 1995, which management
attributes to increased advertising and promotional expenditures for the Tabu
family name. The Company's Ambush line for women was introduced in 1962, and the
Company plans to relaunch this classic fragrance following an extensive
packaging and positioning change. The Company is preparing to commence shipment
of the repackaged Ambush in the fourth quarter of Fiscal 1996.
The recent acquisition of the MEM and P&G fragrance brands, including NaVy,
NaVy for Men, California for Men, English Leather, British Sterling, Insignia,
Love's and Heaven Sent, further strengthens the Company's position in the
fragrance market. The Company believes that the MEM Acquisition and the P&G
Acquisition will enhance the Company's position in the mass merchandiser segment
of the mass market, thereby improving the position of its existing brands in
this market. The Company believes that the acquired brands represent a
significant opportunity for growth through the reinvigoration of underperforming
brands
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<PAGE> 52
and through the use of its proven flanker strategy. Significant marketing
expenditures have been made on many of these brands over the past several years.
According to information provided by P&G to the Company, P&G has spent a
substantial amount in the last five years on the marketing of the P&G Brands
worldwide. Although sales of several of the P&G Brands have declined
significantly in recent years under P&G's management, the Company's management
believes that opportunities exist to reinvigorate the brands with more focused
marketing campaigns and product offerings. In addition, management believes that
the Company should benefit from the international distribution of the P&G
Brands, especially in the United Kingdom, which, prior to the P&G Acquisition,
was not a significant market for the Company's products. See "Special Note
Regarding Forward-Looking Information."
As demonstrated in the following table, two of the Company's products
command the fourth and seventh highest market share of all domestic women's
fragrances sold through drugstores:
U.S. WOMEN'S FRAGRANCE MARKET (DRUG STORES)
<TABLE>
<CAPTION>
CONSOLIDATED MARKET SHARE
BRAND OWNER 52 WEEKS ENDED 11/3/96
- ----------------------- -------------------------------- -------------------------
<S> <C> <C>
Vanilla Fields......... Coty, Inc. 3.8%
Jean Nate.............. Revlon, Inc. 3.1
Vanderbilt............. Cosmair 3.0
CHANTILLY.............. THE COMPANY 3.0
E.T. White Diamond..... Parfums International (Unilever) 2.9
Charlie................ Revlon, Inc. 2.3
TABU................... THE COMPANY 2.2
Jovan Musk............. Coty, Inc. 2.1
Exclamation............ Coty, Inc. 2.0
Sand & Sable........... Coty, Inc. 2.0
</TABLE>
- ---------------
Source: InfoScan, Total U.S. Drug, 52 weeks ended November 3, 1996.
In men's fragrances, the Company manufactures and markets three classic
brands, Canoe, English Leather and British Sterling, each of which has more than
30 years of sales history. The Company recently successfully completed the
relaunch of Canoe after completely repackaging the product and creating a new
advertising campaign. The Company significantly enhanced its position in the
men's fragrance mass market with the acquisition of MEM's and P&G's men's
fragrance brands. Prior to the acquisitions, the Company did not have a
significant presence in the men's fragrance category. With the acquisition of
MEM, the Company added English Leather and British Sterling. With the
acquisition of the P&G Brands, the Company added such well known men's brands as
NaVy for Men, Insignia and California for Men. Three of the Company's products,
English Leather, British Sterling and Canoe, command the 12th, 13th and 19th
highest market shares, respectively, of all men's fragrances sold through the
chain drug store channel, with market shares of 2.6%, 2.1% and 1.5%,
respectively. Navigator from Canoe, which the Company launched in September
1996, had the 24th highest market share for the 12 weeks ended November 3, 1996,
with a 1.2% market share.
Sales of fragrances are highly seasonal at retail, with over one-half of
the mass-market fragrance industry's sales occurring during the calendar
year-end holiday season from October to December. The Company's fragrance
division had the strongest calendar 1995 holiday sales in the category,
outpacing all other competitors and the category as a whole. The Company's
holiday season fragrance sales at retail increased 14.1% in the fourth quarter
of calendar 1995 over the fourth quarter of the prior year while its nearest
competitor's increased by only 4.1%. Management believes that the Company's
strong performance during the year-end holiday season in 1995 resulted in an
increase in gross sales (before giving effect to product returns) of the
Company's Christmas products sold to retailers in Fiscal 1996 (sold
predominantly in August, September and October 1996) of approximately 40% over
1995 levels. However, there can be no assurance
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<PAGE> 53
that this increase in sales to retailers will translate into a comparable
increase in sales to consumers during the 1996 year-end holiday season. See
"-- Distribution" for a discussion of returns.
Nail Care. Through Cosmar, the Company is the largest manufacturer and
marketer of artificial nail care products and related accessories sold through
the mass-market channel. The Company's nail care products include full-length,
artificial press-on or glue-on fingernails, artificial fingernail tips,
fingernail sculpturing kits, nail lacquer, natural fingernail cuticle treatments
and strengtheners and related accessories. The Company markets its products
under such brand names as LaJoie (Sculpture Quik, Press & Go and Quik Fit),
PRO(10), UltraGel and Nail Fetish. The LaJoie line is an easy-to-use line of
artificial fingernail products, acrylic applications and accessories targeted at
the consumer who generally does not visit a professional nail care salon. The
PRO(10) line has established itself as a leading professional "salon-standard"
nail care line sold through retailers. This line includes artificial fingernail
tips, a selection of nail sculpturing applications and abrasives. These products
are similar to those commonly used by professional nail technicians, but are
designed, formulated and packaged for retail purchase. This line of products
also permits customers to maintain their natural nails with professional quality
nail strengtheners, nail builders, finish coats and cuticle creams. In addition,
for extremely easy applications, the Company's Press & Go colored nails dominate
the instant pre-colored nail care segment (originally pioneered by Lee
Pharmaceutical) of the mass market with a 90% market share.
Throughout Fiscal 1995, the Company continued to grow its nail care segment
through increased marketing and improved packaging of existing brands and the
introduction of new products. In Fiscal 1995, the Company targeted new users and
younger women with its Nail Fetish brand. In February 1996, the Company launched
an innovative new line of products under the UltraGel brand name that offers a
unique two-step gel nail process with built-in color. Management believes that
these new product introductions will contribute to Cosmar's continued sales
growth and market share gains. The Company is planning to launch three new nail
care products prior to end of Fiscal 1996. See "Special Note Regarding
Forward-Looking Information."
Lip and Eye Make-up. As a result of the GAC Acquisition, the Company is a
leading marketer of high quality, mid-priced lip and eye make-up, make-up
brushes and nail polish and related products sold through the mass-market
channel, with net sales under the prior management of GAC of $7.9 million for
the year ended December 31, 1995. The Company's lip and eye cosmetics include
lipliner pencils, lipstick, lipgloss, eyeliner pencils, eye shadow, mascara and
assorted accessories. Under previous ownership, the Nat Robbins line
successfully achieved a leading position in the mid-priced cosmetics market by
offering high quality, consumer-friendly products, in an assortment of colors.
Management believes that GAC has attracted loyal consumers who trust the name
Nat Robbins and associate the brand with both year-round and season-specific
color selections. The Company expects to continue to add new formulations and
colors to the Nat Robbins line and expand the number of doors in which Nat
Robbins products are sold in an attempt to realize continued sales growth and
market share gains. See "Special Note Regarding Forward-Looking Information."
INTERNATIONAL OPERATIONS
The Company has manufacturing operations in five foreign countries and
sells its products in 45 foreign countries. In Fiscal 1995 and for the six-month
period ended September 30, 1996, net sales from the Company's products sold
abroad were $22.9 million ($6.9 million of which were export sales from the
United States) and $19.6 million ($4.3 million of which were export sales from
the United States), respectively, accounting for approximately 17.5% and 25.3%,
respectively, of its total net sales for Fiscal 1995 and for the six-month
period ended September 30, 1996. These amounts do not include sales for MEM and
the P&G Brands, which were acquired by the Company subsequent to September 30,
1996.
In December 1995, the Company exercised its option to acquire the Brazilian
operations of Les Parfums de Dana for $100,000. Prior to the acquisition, the
Company received management fees from the operations of the Brazilian
subsidiary. Management believes that this operation alone should contribute
approximately $16 million in sales in Fiscal 1996 which, when combined with
other expected international growth, should generate increases in international
sales of more than 100% in Fiscal 1996 over Fiscal 1995. See "Special Note
Regarding Forward-Looking Information."
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<PAGE> 54
During the last 18 months, the Company has significantly improved the
operations of its wholly-owned foreign subsidiaries in Canada, Spain, Argentina
and Brazil. Information systems have been improved and detailed performance
measurements have been established. Additionally, further investments are
planned that are expected to increase capacity, improve productivity and lead to
higher volume growth.
The Company remains committed to actively expanding its sales effort
abroad. The Company will continue to capitalize on its strong brand equities to
tap foreign markets and will consolidate selling efforts between its fragrance
and cosmetics subsidiaries. Accordingly, the Company is seeking substantial
growth in this arena and expects to eventually achieve foreign sales equal to at
least 30% of total Company sales. Based upon historical information provided by
P&G, approximately 47% of net sales from the P&G Brands for the year ended June
30, 1996 was from the sale of products marketed abroad. See "Special Note
Regarding Forward-Looking Information."
In connection with the P&G Acquisition, the Company entered into transition
agreements with P&G under which P&G will continue the foreign marketing of the
P&G Brands through June 30, 1997. These transition agreements cover the majority
of the P&G Brands in Japan, the United Kingdom, Poland and South Africa. Under
the transition agreements, P&G employees will continue to be responsible for
marketing and distribution of the P&G Brands in the specified jurisdictions, and
the Company will be obligated to reimburse P&G for its direct costs and will be
entitled to receive any gross profit from the sale of such brands. During the
transition period, the Company expects to establish its own marketing and
administrative organizations to replace those of P&G and to obtain any necessary
local licenses and permits in the jurisdictions where it currently does not have
its own operations. If the Company is unable to establish its own operations in
any of these jurisdictions by June 30, 1997, it may be required to negotiate an
extension of the transition arrangements with P&G. There can be no assurance
that the Company could successfully negotiate such an extension on terms
satisfactory to it.
PRODUCT DEVELOPMENT AND NEW PRODUCT LAUNCHES
In developing new products, the Company seeks to build on its growing brand
values, expanding customer base, increasing allocation of retail shelf space and
point-of-sale consumer access. The Company believes its existing fragrance and
cosmetics businesses will provide a basis for product extensions into additional
segments of the mass market.
The Company's product development activity is primarily conducted in-house,
utilizing feedback from consumer focus groups, tests in fingernail care salons
for its nail care products and consumer questionnaires. The cycle of market
research, product conceptualization, product design and development, consumer
testing and package design typically requires approximately six months for the
Company. The Company believes that the average cycle for the industry is
approximately 18 months. The Company invested $548,000 and $526,000 in Fiscal
1994 and Fiscal 1995, respectively, on new product development.
Since inception, management believes that it has successfully reestablished
trust and a reputation for reliability with the buyers of the Company's retail
accounts resulting from the Company's reinvigoration of previously
underperforming fragrances and the successful launch of focused flankers. This
retail acceptance is evidenced by the Company's receipt of several awards and
honors, including the Sears Roebuck & Company "Partner in Progress" award in
1995, the appointment to the "Sears Retail Advisory Council" for 1996,
recognition as "Best Small Fragrance Vendor" in a Goldman, Sachs & Co. survey
and being named the "Best Cosmetics Vendor of the Year" by Rite Aid Corporation.
Recent launches by the Company include French Vanilla by Dana in October
1994, Classic Gardenia in the spring of 1995, White Chantilly in the fall of
1995, DREAMS BY TABU in February 1996 and Navigator from Canoe in September
1996. The Company intends to relaunch Ambush in the fourth quarter of Fiscal
1996.
In the upcoming year, Cosmar plans to introduce three innovative artificial
nail sculpturing kits that management believes will address the growing consumer
interest in do-it-yourself home manicures.
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DISTRIBUTION
The Company's products are sold principally through the mass-market
distribution channel and through international subsidiaries and distributors.
The mass-market distribution channel, with estimated domestic sales of $4.5
billion in 1996, is the largest and fastest growing distribution channel in the
estimated $9.0 billion domestic fragrance and cosmetics market. This channel
includes chain drug stores (such as Revco and Walgreen), mass merchandisers and
discount stores (such as Wal-Mart and Kmart) and supermarkets and combination
supermarket/drug stores (such as Kroger and Albertson's). The Company's brands
are sold to over 1,000 retailers with approximately 25,000 locations. The
Company also sells a limited amount of its artificial nail care products to
professional salon owners. The Company's top ten mass-market customers for the
year ended March 31, 1996 represented 50% of the Company's gross sales (before
giving effect to product returns), and no one customer represented more than 10%
of the Company's sales.
The Company's products are sold in 45 foreign countries primarily through
distributors, as well as through direct sale by the Company's sales force in
Canada, Spain, Argentina and Brazil. The Company has been rapidly expanding its
U.S. dollar-denominated export sales and expects to be selling its products in
over 50 countries by the end of Fiscal 1996. See "International Operations."
The Company customarily accepts returns of its products that are not sold
by its customers (mass-market retailers), and such customers' accounts with the
Company are credited in amounts equal to the purchase price paid for these
products. The Company believes that its policy regarding its acceptance of
returns is consistent with industry practice. The amount of returns in any given
period is a function of many factors, including (without limitation) general
economic conditions and their effect on retail businesses; the popularity of the
Company's products; the magnitude and success of the Company's marketing
efforts; competition; and product placement by retailers. Returns in any period
may be significantly more or less than in comparable prior periods. In addition,
the Company will be required to accept returns of products sold by MEM and P&G
prior to the Company's acquisitions. The Company, however, is unable to
determine at this time the extent of such potential returns. The Company
endeavors to resell products received as returns, although this is not always
possible and may, when possible, require packaging modifications, labor and
other expenses that reduce the Company's profits on such products. See "Special
Note Regarding Forward-Looking Information."
SALES AND MARKETING
To induce consumers' trial and repeat purchases, the Company relies
primarily on price, quality, effective product packaging and distinctive
in-store displays that are generally provided to retailers free-of-charge. In
addition to these proven advertising and promotion methods, the Company's
management has instituted significant promotions for the Company's products
through ongoing trade advertising for its artificial nail care and fragrance
products directed toward chain drug retailers, mass merchandisers and
supermarket chains. The Company also advertises in many national women's
magazines including Cosmopolitan, Glamour, Harper's Bazaar, Mademoiselle,
Seventeen and Vogue and runs focused television advertising campaigns during new
product launches or relaunches of existing brands. In its nail care business,
the Company's national advertising campaigns represent a significant level of
total category spending, which enhances the Company's trade relationships and
leads to better shelf space allocation and increased distribution.
The Company's fragrance and cosmetics products are sold primarily through
an in-house sales force comprised of a dedicated staff of 19 people, including
three territory sales representatives, eight regional managers, six key account
managers and two vice presidents of sales. Additional sales are generated by a
network of over 50 independent sales representatives, who are compensated solely
on a commission basis. These sales representatives are supervised by the
Company's internal sales personnel who specialize in understanding retailer
needs in specific segments of the mass-market distribution channel.
Domestically, the Company communicates directly with its nail care product
consumers through its Consumer Assistance Hotline. The Company's toll-free
number for consumer assistance is displayed on each nail care product package.
Consumers are assisted on any questions that arise as they use the Company's
products by a licensed, in-house nail technician and manicurist. The Company
believes that its toll-free number has enhanced the Company's consumer loyalty.
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<PAGE> 56
The Company's fragrances are currently sold abroad in Europe, Asia, South
America, Central America, the United Kingdom, Australia, New Zealand, the Middle
East and Africa through distributors or licensees. The Company sells its
fragrance products directly in Brazil, Spain, Argentina and Canada through
subsidiary operations. The Company's artificial nail care products are currently
sold abroad by local distributors in Europe, Canada, Mexico, Puerto Rico,
Paraguay and Australia and directly in Brazil through a subsidiary operation.
Management believes that opportunities exist to cross-distribute the
Company's fragrance and nail care product lines in Europe and Latin America,
where the Company's products are either undermarketed or underrepresented. The
Company plans to pursue such opportunities in the fragrance market through the
European and Latin American manufacturing facilities acquired in the Dana
Acquisition. See "Special Note Regarding Forward-Looking Information."
As of November 30, 1996 and 1995, the Company had an immaterial amount of
backlog orders.
COMPETITION
The fragrance and cosmetics business is characterized by vigorous
competition throughout the world. Brand recognition, together with product
quality, performance and price and the extent to which consumers are educated
about specific product attributes, have a marked influence on consumers' choices
among competing products and brands. Advertising, promotion, merchandising,
packaging and the timing of new and focused flanker product introductions also
have a significant impact on buying decisions. Further, the structure and
quality of the manufacturer's sales force affects product reception, in-store
position, permanent display space and inventory levels in retail outlets. The
Company competes in most of its product categories against a large number of
companies, some of which have substantially greater resources than the Company.
In addition to products sold in the mass-market and department and specialty
store distribution channels, the Company's products also compete with similar
products sold door-to-door or through mail order or telemarketing by
representatives of direct sales companies.
In the fragrance market, the Company competes with numerous companies
domestically and internationally, including more than 500 brands competing for
market share in the mass-market chain drug store segment. The Company's
principal competitors in this market include Benckiser, Revlon, P&G, Cosmair and
Unilever N.V.
The artificial nail care market is dominated by Cosmar with its 33% market
share in the mass market, making it more than twice the size of its nearest
competitor. For the last three years, Cosmar has virtually driven the category's
growth via new product launches and has realized significant shelf space gains
as a result of such launches, category management expertise and strong in-store
promotional support. Cosmar has made these gains against competitors such as
Nailene (Pacific World Corp.), Jonel (a division of Barristo Ltd.), Kiss
Professional Fingernail Products (Dae Do, a Korean manufacturer), Sally Hansen
(Del Laboratories), Fing'rs (a division of Entrecap Corp.), Lee (Lee
Pharmaceutical) and Kristy Wells in the mass-market distribution channel and
several companies such as International Beauty Distributors and Orly that sell
their professional salon products into the retail market.
The Company's principal competitors in the nail lacquer category include
Revlon, Del Laboratories, L'Oreal S.A., Maybelline, Inc., Estee Lauder, Inc.,
Helene Curtis Industries, Inc., Unilever N.V. and P&G.
The Company believes that GAC's products occupy a leading position within
the mid-priced lipstick and eye make-up segments because they offer superior
quality, consumer-friendly products. GAC's competitors include Lancetti
Cosmetics, and Eco Beauty Inc., both marketers of mid-priced lipstick and eye
make-up products. GAC also competes with Revlon, L'Oreal S.A., Maybelline, Inc.,
P&G and Pavion, Ltd.
Management believes that the Company is well positioned to compete
effectively in its markets and to continue to gain market share as a result of
the established brand names and quality of its nail care products, the pricing
of its products, the strength of the Company's relationships with
mass-merchandisers, its retailer marketing programs, its category management
services and its state-of-the-art information systems. See "Special Note
Regarding Forward-Looking Information."
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<PAGE> 57
CATEGORY MANAGEMENT
Management believes that the Company's category management skills are
unsurpassed in the industry and represent a significant competitive advantage
for the Company. Category management involves strategic partnering with
retailers whereby manufacturers such as the Company utilize state-of-the-art
mathematical modeling tools to understand the sales dynamics of categories,
brands and specific SKUs so that retailers can offer the best mix of products to
boost category sales, profits and customer satisfaction. Management believes
that the Company is the category captain for eight of its top ten nail care
accounts and is category captain or advisor for most of its major fragrance
accounts. As category captain, the Company works with retailers to define
optimum space allocation for their fragrance and nail care product categories
and, as advisor, the Company validates the analysis provided by the category
captain. The Company has invested significant resources in category management,
and as of September 30, 1996, the Company had a staff of five people dedicated
specifically to the process and annual expenditures of approximately $2 million
for payroll and purchased data. The Company commits significant funds each year
to Information Resources, Inc. ("IRI") to track weekly sales data on all
products it sells through mass-market channels. Management believes that the
Company is one of the few companies in the industry to employ this degree of
information utilization to analyze sales data. By utilizing the information
available through IRI, the Company enhances its relationships with its retail
accounts by supplying them with key selling information presented in a
user-friendly manner for both the Company's and its competitors' products.
Category management allows the Company to work with retailers to: (i)
assist the retailers in determining the optimal product mix for each category;
(ii) recommend the SKUs in the entire category that the retailer should carry;
and (iii) monitor the sales results, both for the Company's products and its
competitors' products, on a weekly basis. These steps, when combined with the
Company's dedicated category management staff, allow the Company to, whenever
possible, replace less profitable competitors' products with its own brands,
leading to better shelf space allocation and increased sales volume for the
Company. In addition, the Company is able to penetrate different functional
areas within retailers' operations, thereby strengthening its overall
relationship with retailers which contributes favorably to future sales and
marketing efforts. The Company's category management program also enables the
Company's marketing department to perform a variety of functions including: (i)
real time understanding of relaunch marketing effectiveness; (ii) gauging new
product success rates for the Company's products and its competitors' products;
and (iii) amassing competitive intelligence about consumer buying patterns.
MANUFACTURING
Fragrance. The Company's fragrance and related products sold in the United
States and in selected export markets (other than the fragrances it acquired
from MEM and P&G) are manufactured in one facility in Mountaintop, Pennsylvania
where the production of the Houbigant and Dana fragrances was successfully
consolidated in 1995 to achieve manufacturing economies of scale and cost
reduction. Additionally, four facilities in Canada, Spain, Argentina and Brazil
manufacture fragrances and related products for local markets and for export.
The Spanish and Brazilian facilities are being upgraded to become regional
production and export facilities. The Company plans to close all of MEM's
facilities and manufacture the MEM and P&G fragrances to be sold in the United
States at the Mountaintop facility. The Company plans to consolidate at a new
location the Canadian manufacturing operations for Houbigant (1995) Limited and
MEM by closing the Chomedey and Boucherville, Quebec facilities.
The Company's strategy for sourcing, producing and distributing its
fragrance products consists of: (i) conducting operations in-house that add
significant value to the Company's products and that can be executed
economically based upon volume efficiencies; (ii) sourcing component materials
and products from outside vendors when reliable, ongoing and multiple sources
can be secured at competitive prices; and (iii) least-cost sourcing for local
markets whereby international subsidiary facilities will become regional
producers of products for export to their regional markets.
Key supplies in the manufacturing and packaging of fragrances, including
bottles, scents and packages, are all sourced from a network of reliable vendors
which is consolidated following each acquisition to achieve
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purchasing economies of scale. Final assembly of finished products, warehousing
and shipping of fragrance products to customers is performed at the Mountaintop
and foreign subsidiary facilities.
Nail Care. The Company's strategy for contracting, producing and
distributing its nail care products consists of: (i) maintaining centralized
coordination of these operations in the Company's Garden Grove, California
facilities; (ii) conducting operations in-house that add significant value to
the Company's products and that can be executed economically based on volume
efficiencies; and (iii) sourcing from outside vendors component materials and
products when reliable, ongoing and multiple sources can be secured at
competitive prices. The Company uses an injection molding process to manufacture
all artificial nails and tips for the LaJoie product line at its
state-of-the-art manufacturing facility in Sparks, Nevada. All glues, hardeners
and other chemical compounds included in the Company's artificial nail kits are
supplied to the Company by third-party contract manufacturers. Most of the raw
materials and components sourced externally are readily available through
standard industry sources and represent small percentages of unit manufacturing
costs.
Lip and Eye Make-up. The Company outsources substantially all of its raw
materials, manufacturing and distribution needs for its lip and eye make-up
products. By sourcing from industry-leading color cosmetics suppliers that also
service large manufacturers such as Revlon and Estee Lauder, management believes
it can purchase the latest technologically advanced components at reasonable
prices. The Company currently intends to continue to outsource the production of
its lip and eye make-up products.
See "-- Facilities" for additional information regarding the Company's
manufacturing facilities.
SUPPLIERS AND RAW MATERIAL
The principal raw materials for the Company's fragrance products are
fragrance oils (which are either purchased from third parties or manufactured by
the Company from individual raw materials), bottles, caps, pumps and sprayers.
The principal raw materials used by the Company in the manufacture of its nail
care products are common polymers, waxes, pigments, dyes and other processing
components, such as bottles and brushes, all of which are readily available. The
principal materials that the Company sources for its Nat Robbins line from
industry-leading color cosmetics suppliers include waxes, pigments and silicone
commonly used to manufacture lip and eye make-up products. While all raw
materials are purchased from outside sources, the Company is not dependent upon
a single supplier in any of its operations for any materials essential to its
business that are not otherwise commercially available to the Company.
Historically, the Company has been able to obtain an adequate supply of raw
materials, and no shortage of such materials is currently anticipated.
MANAGEMENT INFORMATION SYSTEMS
From inception in April 1994 through Fiscal 1995, management invested over
$3.5 million in its MIS infrastructure to install new corporate information
systems, sales/marketing systems, personal computers and communication systems
throughout the Company. The new MIS platform is based on an IBM AS/400 mini
computer with personal computers on local and wide area networks. This platform
allows the Company to: (i) connect more than 200 of its key employees; (ii)
conduct electronic data interchange ("EDI") with its top customers which enables
customers to place orders electronically; (iii) enable sales force and accounts
receivable managers to process and track orders and returns; (iv) provide
sophisticated inventory management and distribution capabilities; and (v)
install corporate-wide measurement systems which yield accurate and timely
information regarding sales, costs, profits, accounting functions, customer
service and asset management.
The Company also uses a sales order processing system ("SOP"), developed by
JD Edwards, along with a sales order pick management system ("PKMS") developed
by Manhattan Associates. The integration of these two systems allows the Company
to closely manage each step of the selling process (i.e., from a sales order to
the distribution and actual delivery of products).
Management believes that its investment in state-of-the-art information
systems has established a strong platform for both internal growth and growth
through acquisitions. Such a platform provides the capacity base
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and the ability to rapidly integrate acquired companies into an established and
effective information management structure, thereby reducing costs and
increasing the effectiveness of the Company's manufacturing and product
distribution process.
EMPLOYEES
At December 1, 1996, prior to the MEM Acquisition, the Company employed
1,019 people, of whom 296 were general and administrative personnel and 42 were
sales and marketing personnel. All of the Company's production employees at its
Mountaintop, Pennsylvania manufacturing facility, as well as the plants located
in Spain, Argentina and Brazil, are covered by collective bargaining agreements.
The collective bargaining agreement for the Company's production employees at
its Mountaintop, Pennsylvania manufacturing facility expires in February 1999.
There can be no assurance that the Company will be able to negotiate an
extension to such agreement on terms acceptable to it and the failure to obtain
an extension could have a material adverse effect on the Company. The Company
considers its relations with its employees to be good. The following table
provides information relating to the Company's employees:
<TABLE>
<CAPTION>
PRODUCTION
----------------------
LOCATION ADMINISTRATIVE SALES PERMANENT SEASONAL TOTAL
--------------------------------- -------------- ----- --------- -------- -----
<S> <C> <C> <C> <C> <C>
RCI Corporate.................... 23 -- -- -- 23
Cosmar -- California............. 36 2 46 77 161
Cosmar -- Nevada................. 4 -- 53 124 181
Dana -- Connecticut.............. 17 16 -- -- 33
Dana -- Pennsylvania............. 57 -- 121 126 304
Dana -- Brazil................... 88 9 65 -- 162
Dana -- Argentina................ 14 8 10 -- 32
Dana -- Spain.................... 26 4 2 14 46
Houbigant -- Canada.............. 29 3 24 19 75
GAC.............................. 2 -- -- -- 2
--- --- --- ---
--
Total 296 321 360 1,019
42
=== === === ===
==
</TABLE>
The Company has announced that on or about February 7, 1997 it will close
the Northvale, New Jersey facilities of MEM and Tom Fields which were acquired
in the MEM Acquisition and terminate substantially all of the employees working
at such facilities. In connection with the closures, the Company will incur an
ERISA withdrawal liability to a multiemployer pension plan (the "Union Plan")
covering certain MEM and Tom Fields employees. The Union Plan's actuary has
advised the Company that it estimates that the Company's withdrawal liability
would be approximately $3.4 million for a 1996 withdrawal. The Union Plan's
actuary has advised that the liability for a 1997 withdrawal would be higher
than the estimate for 1996, although it could not currently provide a 1997
estimate. There can be no assurance that the actual amount of the withdrawal
liability would not exceed the estimate for a withdrawal for 1996. The Company
is permitted to pay the withdrawal liability (with interest) in equal quarterly
installments over a period of years. The quarterly payment amount (inclusive of
interest) is calculated under a statutory formula and the quarterly payment
amount so calculated does not vary regardless of the amount of the withdrawal
liability itself, the amount of the withdrawal liability being relevant only in
determining how long the quarterly payments will continue. The statutory
calculation of the quarterly payment amount is based in part on the employer's
contribution rate to the plan and the highest employee head count over the last
decade. All relevant information to make this calculation is not readily
available and the Company's quarterly payment amount cannot be calculated at
this time. The MEM and Tom Fields combined contributions to the Union Plan were
approximately $390,000 in 1995 and are expected to be approximately $250,000 in
1996 although the number of MEM and Tom Fields employees has declined by
approximately one-half from its highest levels over the last decade.
Accordingly, the annual total of the quarterly payment amounts may be
significantly higher than the contributions to the Union Plan in recent years.
In addition, under ERISA, the Company's withdrawal liability can be recalculated
if the Union Plan terminates within three years of the withdrawal, which could
significantly increase the
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amount of the liability. In addition to the foregoing, the Union Plan's actuary
has informed the Company that for several years the Union Plan has not received
the minimum annual level of contributions required by ERISA and that the Union
Plan is in the process of seeking to obtain appropriate waivers under ERISA and
the Internal Revenue Code so that the participating employers will not have to
pay any penalties for the Union Plan's failure to receive such minimum levels of
contributions. If the Union Plan fails to obtain such waivers, it is possible
that the Company could incur additional liabilities on account of its
participation in the Union Plan, but the amount of such liabilities cannot
readily be determined at this time.
FACILITIES
The Company manufactures its fragrances at its 155,000 square-foot
Mountaintop, Pennsylvania facility and at its facilities in Buenos Aires,
Argentina, Sao Paolo, Brazil, Granollers, Spain and Chomedey (Laval), Canada.
Each of these facilities contains production, warehouse and office facilities.
The Company owns the facilities in Pennsylvania, Argentina, Brazil and Spain and
leases the facility in Canada. In addition, Dana leases warehouse facilities in
Ridgefield, New Jersey and a building in Ridgefield, New Jersey which the
Company uses as its company store pursuant to a lease agreement that will expire
in February 1997.
The Company's artificial nail care business, Cosmar, occupies approximately
102,000 square feet in leased facilities in Garden Grove, California, pursuant
to a sublease that expires on December 31, 1997. These new facilities house
management, sales and marketing, warehouse and production assembly operations.
The Company performs most of its manufacturing for its artificial nail care
business at its 44,000 square-foot Sparks, Nevada facility which is leased
pursuant to an agreement that expires on December 31, 2002. The Company leases
or subleases facilities in New York City, Cambridge, Massachusetts and Stamford
and Greenwich, Connecticut at which it conducts executive and administrative
activities. The Company currently utilizes its facilities fully.
As a result of the MEM Acquisition, the Company owns a 206,000 square-foot
building located on 16.3 acres in Northvale, New Jersey, which MEM used for its
executive offices and main plant. The Tom Fields plant is located in a 53,000
square-foot building in Northvale, New Jersey and is owned by a subsidiary of
MEM. Manufacturing facilities in Canada are located in a 32,000 square-foot
plant in Boucherville, Quebec which is owned by MEM Company (Canada) Ltd. Tom
Fields (U.K.) assembles products in leased facilities in Folkestone, United
Kingdom. The Company plans to close all of MEM's facilities. See "-- Employees."
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The following table provides information on each of the Company's operating
facilities:
<TABLE>
<CAPTION>
APPROX.
YEAR LAST SIZE LEASED/
SUBSIDIARY LOCATION OPENED EXPANSION (SQ. FT.) OWNED
- ----------- --------------------------- ------ --------- --------- ------
<S> <C> <C> <C> <C> <C>
Dana Mountaintop, PA 1963 1996 155,000 Owned
Dana Chomedey (Laval), Canada 1994 -- 43,087 Leased
Dana Granollers, Spain 1971 -- 67,500 Owned
Dana Sao Paolo, Brazil 1954 1984 20,810 Owned
Dana Buenos Aires, Argentina 1955 -- 24,600 Owned
Dana Ridgefield, NJ 1995 -- 15,000 Leased
Cosmar Sparks, NV* 1987 -- 43,859 Leased
Cosmar Garden Grove, CA** 1996 -- 95,320 Leased
Cosmar Garden Grove, CA** 1996 -- 7,000 Leased
MEM Northvale, NJ -- -- 206,000 Owned
MEM Northvale, NJ -- -- 53,000 Owned
MEM Boucherville, Quebec -- -- 32,000 Owned
MEM Folkestone, United Kingdom -- -- 9,500 Leased
-------
772,676
=======
</TABLE>
- ---------------
* Assumed by Cosmar in 1994.
** Sublease.
INTELLECTUAL PROPERTY
The Company believes that the trademarks relating to its brand and product
names and patents are important to both its fragrance and artificial nail care
businesses. In addition to "Cosmar," an unregistered brand name used in its
artificial nail care business, the Company's principal product trademarks which
it owns or licenses are Chantilly, White Chantilly, Lutece, Raffinee, Tabu,
DREAMS BY TABU, Demi-Jour, Ambush, French Vanilla by Dana, Classic Gardenia,
Monsieur Musk, French Garden Flowers, English Waterlilys, Canoe, Canoe-Sport,
Herbissimo, Navigator, English Leather, British Sterling, Love's, Heaven Sent,
NaVy, Toujours Moi, NaVy for Men, Insignia, California for Men and le Jardin
with respect to its fragrance products, Press & Go, Petite Press & Go, Sport
Press & Go, PRO(10), Sculpture Quik, Sculpture Quik II, UltraGel, Nail Fetish,
Wrap Quik, Quikfile, Quikshine, Filepro, Quik Fit, and LaJoie with respect to
its artificial nail care products and Nat Robbins, Lip Lacquer, Ever Sheer, and
Color Intense 24 with respect to its lip and eye make-up products. The Company's
or its licensors' applications to register DREAMS BY TABU, French Vanilla by
Dana, Classic Gardenia, UltraGel, Nail Fetish, Lip Lacquer, White Chantilly and
Ever Sheer in the United States are currently pending. The Company's other
principal trademarks are registered in the United States and several are
registered in other countries.
In July and August 1994, the Company entered into two long-term license
agreements pursuant to which it obtained certain exclusive rights to
manufacture, sell, use and distribute the Houbigant Fragrances, including
Chantilly, Lutece and Raffinee, worldwide (excluding Canada). The Company
acquired similar long-term licensing rights for the Houbigant Fragrances in
Canada through the purchase in December 1994 of the assets of Houbigant ACB
followed by the execution of a new license agreement with Houbigant in July
1996, which superseded and restated its prior rights acquired from Houbigant
ACB. Each of these three licenses is with Houbigant and has an initial term
ending in 2001 with options for seven additional five-year terms, or a total
extension of 35 years if all of the options are exercised. The royalty payment
provisions of all three licenses were amended in July 1996. Since November 18,
1993, Houbigant has been the subject of a proceeding under Chapter 11 of the
Bankruptcy Code. Houbigant has been authorized and empowered to enter into each
license by the federal bankruptcy court. Under such license agreements, the
Company generally is obligated to pay royalties at a rate of 7% of net sales of
the Houbigant Fragrances, decreasing to a minimum of 5% depending on the volume
of net sales. Aggregate annual minimum royalty payments will total
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$2.7 million during the initial terms of these agreements. During each renewal
period, annual minimum royalties are adjusted based on increases in the U.S.
Consumer Price Index. The Company has prepaid royalties of $5.0 million, which
will be credited against royalties payable under these agreements in excess of
$500,000 per year after the Company has paid Houbigant an aggregate of $7.6
million in royalties. In August 1994, the Company entered into an assumption and
assignment agreement with Houbigant and Harby's Corporation NV under which it
was granted exclusive western hemisphere rights to the fragrances that are
marketed under the Alyssa Ashley and Robert Ashley names (including Alyssa
Ashley, Alyssa Ashley Musk and French Garden Flowers) for a total term of 25
years if all options for additional terms are exercised. The assignment was
authorized by the federal bankruptcy court. In connection with the MEM
Acquisition, the Company acquired the exclusive and perpetual rights to
manufacture and sell fragrances under the Heaven Sent trademark.
The Company has various pending applications and patent rights in
connection with its cosmetics and nail care business including: (i) an
artificial nail sizing ring which allows for manufacturing efficiencies and ease
of measurement and application by women; (ii) a clam shell package design that
displays artificial nails in a unique manner; (iii) an artificial nail tip
design that enables the tips to fit more comfortably and adhere better to a
woman's nail bed; and (iv) an artificial nail file/buffer that is more
comfortable for a woman to use due to its unique cushion and plastic core. In
addition, Cosmar is the exclusive licensee for two patented artificial nail
sculpturing applications.
LEGAL MATTERS
Litigation
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 conspiracy,
unfair competition, intentional interference with Atlantis's contractual and
business relationships, prima facie tort and breach of warranty and seeks
damages allegedly suffered in the amount of $6.0 million and punitive damages in
the amount of $1.0 million. 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.
ACB Litigation. 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") commenced 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 the ACB Companies'
counterclaims against the Company and its affiliates except for three counts
against the Company's Canadian affiliate, Houbigant (1995) Limited
("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
$8.0 million (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").
In July 1996, the parties to the New York action and the Canadian action
entered into a settlement agreement with respect to all litigation. Under the
settlement, ACB dismissed its remaining counterclaims against the Company and
its affiliates and on August 21, 1996, the Company paid $2.7 million in
connection with the purchase of certain inventory from Houbigant in 1994. The
settlement also included certain modifications of existing royalty agreements in
order to consolidate the worldwide rights to manufacture and distribute the
Houbigant Fragrances.
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MEM Litigation. 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 was inadequate and grossly unfair and that
the defendants had violated their fiduciary duties by not seeking additional
potential purchasers for MEM. The action sought, among other things, a court
order requiring the defendants to seek other purchasers, or, if the MEM
Acquisition was consummated, damages. Although MEM and the Company believe that
the suit is without merit, because of the expense of continued legal
proceedings, MEM has reached an agreement in principle with the named plaintiff
for settlement of the lawsuit without the admission of liability or wrongdoing
by the defendants. The terms of the settlement include some additional
disclosure to be made to shareholders through the settlement notice, a payment
of up to $25,000 for plaintiffs' attorneys fees and the exchange of releases by
the parties. The settlement is subject to, among other things, the execution of
final settlement documents by the parties and final approval by the court.
The Company is involved from time to time in various legal proceedings
arising from the ordinary course of business. The Company believes that the
outcome of all pending legal proceedings in the aggregate will not have a
material effect on the financial condition or results of operations of the
Company.
Environmental and Other Regulation
Due to the nature of the Company's business, its operations are subject to
a variety of environmental laws relating to the storage, discharge, handling,
emission, generation, manufacture, use and disposal of chemicals, solid and
hazardous waste and other toxic and hazardous materials used to manufacture the
Company's products. The Company believes that it has been operating its
facilities in substantial compliance in all material respects with existing laws
and regulations.
Compliance with federal, state and local laws and regulations pertaining to
the discharge of materials into the environment, or otherwise relating to the
protection of the environment, is not anticipated to have a material effect upon
the operations of the Company.
The Company is subject to regulation by the United States Food and Drug
Administration. The Company's advertising and sales practices are subject to the
jurisdiction of the Federal Trade Commission. In addition, the Company is
subject to numerous federal, state and local laws relating to marketing and to
the content, labeling and packaging of its products.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers, directors and certain key employees of the Company as of December 1,
1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- ---------------------------------------------------
<S> <C> <C> <C>
Thomas V. Bonoma................ 50 Chairman, Chief Executive Officer, President and
Director
Norbert Becker.................. 48 Group Vice President, Administration
Ronald D. Bowen................. 53 Group Vice President, International
Albert E. DeChellis............. 47 Group Vice President and General Manager
Sean E. Greene.................. 56 Group Vice President, Sales
John R. Jackson................. 38 Vice President, General Counsel and Secretary
Thomas T.S. Kaung............... 59 Group Vice President and Chief Financial Officer
Gay A. Mayer.................... 54 Group Vice President, Market Development
Marc L. Rovner.................. 44 General Manager, Cosmar
Keith H. Wagner................. 47 Group Vice President, Operations
Eric R. Hamburg................. 34 Director
Kurt L. Kamm.................... 53 Director
William J. Kidd................. 55 Director
John H. Lynch................... 44 Director
E. Mark Noonan.................. 44 Director
Terry M. Theodore............... 33 Director
Daniel D. Villanueva............ 59 Director
</TABLE>
Thomas V. Bonoma, Chairman, Chief Executive Officer, President and a
director, is responsible for the overall administration and direction of the
Company. From 1987 to 1993, Dr. Bonoma was employed by Benckiser, GmbH, a $3
billion privately-held international manufacturer of fragrances, cosmetics and
cleaning products, as the chief executive officer of its business in the United
States, Canada and Latin America. In this capacity, Dr. Bonoma directed the
acquisition of seven businesses with aggregate annual gross revenues in excess
of $800 million. Products under his management while at Benckiser, GmbH included
Coty, Jovan and Quintessence brands in the fragrance and cosmetics business and
Calgon Bubble Bath, Cling Free Fabric Softener, ElectraSol and Jet-Dry, in the
cleaning products business. Since 1987, Dr. Bonoma has been a partner of BGI, a
consulting firm. From 1979 to 1990, he was Professor of Business Administration
at the Harvard Business School. Dr. Bonoma is a director of Griffin Corp., an
agricultural chemicals company.
Norbert Becker, Group Vice President, Administration, joined the Company in
July 1996. From April 1981 to 1996, Mr. Becker held a number of positions with
Benckiser, GmbH in different countries. His last position was as President and
Chief Executive Officer of Lancaster Group USA, the American subsidiary of
Benckiser, GmbH, selling and marketing prestige fragrances in the United States.
Previously, Mr. Becker was Chief Operating Officer of Lancaster Group USA and
Executive Vice President for Finance and Administration for Lancaster Worldwide,
a division of Benckiser, GmbH. Mr. Becker is a graduate of Frankfurt University,
in Frankfurt, Germany.
Ronald D. Bowen, Group Vice President, International, joined the Company in
June 1994. From 1988 to 1994, Mr. Bowen served as Benckiser, GmbH's Vice
President of Operations. In this capacity Mr. Bowen supervised all of Benckiser,
GmbH's North American production activities, including manufacturing, logistics
and distribution and was actively involved in acquiring and restructuring
facilities and implementing production policies for certain businesses acquired
by Benckiser, GmbH. Mr. Bowen worked closely with Dr. Bonoma on the acquisition
and integration of Beecham Household Products (Calgon), Germaine Monteil
(Revlon), Quintessence, Inc. and Coty, Inc. For 17 years prior to joining
Benckiser, GmbH, Mr. Bowen was employed by General Foods Corporation in
manufacturing, logistics, marketing and MIS positions and as a
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<PAGE> 65
Vice President of Culinova Group, a General Foods Corporation subsidiary. Mr.
Bowen is a graduate of Harvard University's Program for Management Development
and the United States Military Academy.
Albert E. DeChellis, Group Vice President and General Manager, joined the
Company in June 1994. From 1992 to 1994, Mr. DeChellis was the President and
Chief Operating Officer of Benckiser, GmbH Consumer Products. Previously, Mr.
DeChellis was Benckiser, GmbH's Vice President of Sales. Mr. DeChellis was
integrally involved with Dr. Bonoma in the acquisition and restructuring of
several companies while at Benckiser, GmbH. Mr. DeChellis helped orchestrate the
acquisition and restructuring of Calgon, Inc., Quintessence, Inc. and Coty,
Inc., and was directly responsible for the restructuring of the sales
organizations for each of those acquired companies. Prior to 1987, Mr. DeChellis
was employed by Ecolab in various sales capacities for almost 15 years, where he
held positions such as District Manager, Assistant Vice President of Regional
Sales and Vice President of Eastern Area Sales. Mr. DeChellis is a graduate of
Kent State University.
Sean E. Greene, Group Vice President, Sales, joined the Company in June
1994. From 1991 to 1994, Mr. Greene served as Vice President of Sales of
Quintessence, Inc., which was acquired by Benckiser, GmbH in 1991. In 1994, Mr.
Greene became Senior Vice President of Sales for Coty, Inc., another Benckiser,
GmbH subsidiary. Prior to joining Benckiser, GmbH, Mr. Greene was Senior Vice
President of the Fine Fragrance Division of Faberge, Inc. and a Vice President
of Mary Quant Cosmetics, an international cosmetics and fragrance company. Mr.
Greene is a graduate of Belvedere College in Dublin, Ireland.
John R. Jackson, Vice President, General Counsel and Secretary, joined the
Company in June 1995. From 1994 to 1995, Mr. Jackson was the Vice President of
Acquisitions and General Counsel and Secretary for Brothers Gourmet Coffees,
Inc. From 1983 to 1988, he was engaged in the practice of law at the Denver
office of Kirkland and Ellis. From 1988 to 1994, Mr. Jackson was engaged in the
practice of law at the Denver office of the firm of Ballard Spahr Andrews &
Ingersoll, where he became a partner in 1990. While engaged in private practice,
Mr. Jackson focused on merger and acquisition transactions and private and
public financing. Mr. Jackson taught Business Planning as an adjunct professor
of law at the University of Denver Law School. He holds a B.A. degree from
Davidson College and a J.D. degree from Vanderbilt Law School.
Thomas T.S. Kaung, Group Vice President and Chief Financial Officer, joined
the Company in July 1995. From 1991 to 1995, Mr. Kaung was President of River
International, Inc., a consulting firm. From 1990 to 1991 he was the Executive
Vice President and Chief Financial Officer for Zale Corporation, which operates
a large national chain of fine jewelry stores, which filed for bankruptcy
protection on January 23, 1992. Prior thereto, he spent 12 years at Cole
National Corporation, a leading specialty retailer, where he served as Executive
Vice President, Administration and Chief Financial Officer. In addition, Mr.
Kaung rose to the position of Divisional Vice President for Finance for the
Dayton Hudson Corporation after ten years of service. Mr. Kaung holds a B.S.
degree from Southwestern University and an M.S. degree from the University of
Iowa.
Gay A. Mayer, Group Vice President, Market Development, joined the Company
on December 4, 1996. From 1990 to 1996, Mr. Mayer was President, Chief Executive
Officer and Chairman of the Board of Directors of MEM.
Marc L. Rovner, General Manager, Cosmar, joined the Company in May 1995.
Mr. Rovner's background spans 16 years of international sales and marketing
experience with Fortune 500 companies such as International Paper, Unilever and
Benckiser, GmbH. From 1992 to 1995, he served as U.K. General Manager at
Benckiser, GmbH. From 1981 to 1992, Mr. Rovner served as Divisional Category
Manager at Unilever, where he directed the launch of ten major detergent and
personal care products, both in the United States and Japan. From 1978 to 1980,
he served as Product Manager at International Paper, where he was responsible
for the introduction of its first consumer products' ad campaign. Mr. Rovner
holds a B.A. degree from the University of Pennsylvania and an M.A. degree from
the University of Chicago.
Keith H. Wagner, Group Vice President, Operations, joined the Company in
June 1994. From 1991 to 1993, Mr. Wagner served as Quintessence, Inc.'s Vice
President of Operations and as Coty, Inc.'s Vice President of Packaging and
Purchasing from 1993 to 1994. From 1983 to 1990, Mr. Wagner served in the
additional capacity of director of manufacturing during the period of ownership
by Beecham PLC. From 1979
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<PAGE> 66
to 1983, he served as director of engineering for Jovan, Inc. Mr. Wagner is a
graduate of Loyola University and Bradley University.
Eric R. Hamburg, Director, was elected as a director in October 1994. In
1993, he joined Kidd, Kamm & Company as a partner after serving as a senior
manager with Andersen Consulting from 1985 to 1993. While at Andersen
Consulting, Mr. Hamburg led the design and implementation of numerous business
turnarounds and profit improvement initiatives in a wide variety of industries.
He has extensive experience in just-in-time manufacturing, distribution,
management information systems and plant start-ups. In November 1996, Mr.
Hamburg indicated that he plans to form a separate entity for future
investments, Industrial Renaissance Inc.
Kurt L. Kamm, Director, was elected as a director in October 1994. In 1979,
Mr. Kamm joined Lineberger Kidd Kamm & Company. He helped to establish Kidd,
Kamm & Company in 1987. Mr. Kamm is a director of Wright Medical Technology,
Inc., a manufacturer and marketer of orthopaedic implant devices. In November
1996, Mr. Kamm indicated that he plans to form a separate entity for future
investments, Kamm, Theodore & Company.
William J. Kidd, Director, was elected as a director in May 1994. In 1974,
Mr. Kidd helped to form and became a principal of Lineberger, Kidd & Company
which, in turn, became Lineberger Kidd Kamm & Company in 1979. In 1987, Mr. Kidd
helped to establish Kidd, Kamm & Company. Mr. Kidd is a director of Wright
Medical Technology, Inc., a manufacturer and marketer of orthopaedic implant
devices. In November 1996, Mr. Kidd indicated that he plans to form a separate
entity for future investments, Kidd & Company, LLC.
John H. Lynch, Director, was elected as a director in March 1995. Mr. Lynch
has been the Vice Chairman and President since 1994 of Knoll Inc., a firm
engaged in the manufacture of office furniture. He has been a partner since 1987
of BGI, a consulting firm. From 1982 to 1990, Mr. Lynch was employed by the
Harvard Business School, as Assistant Dean and Director of the MBA program from
1982 to 1986 and as Associate Dean from 1988 to 1990. Mr. Lynch has been elected
to the board of directors pursuant to the right of Dr. Bonoma, under his
employment agreement, to designate one additional director.
E. Mark Noonan, Director, has been a Managing Director since 1990 of
Triumph Capital Group, Inc., a firm engaged in investment banking and investment
management. He served as a Managing Director of Drexel Burnham Lambert from 1984
to 1990. Mr. Noonan has been elected to the board of directors pursuant to the
right of the holders of the Company's Cumulative Exchangeable Preferred Stock to
elect one director under the Company's restated certificate of incorporation.
Terry M. Theodore, Director, was elected as a director in May 1994. Mr.
Theodore, a partner at Kidd Kamm & Company, joined Kidd, Kamm & Company in 1989
after serving in the Financial Institutions Group of Bear, Stearns & Co. from
1988 to 1989. In November 1996, Mr. Theodore indicated that he plans to form a
separate entity for future investments, Kamm, Theodore & Company.
Daniel D. Villanueva, Director, was elected as a director in September
1996. Mr. Villanueva has been the Chairman and Managing Director since 1990 of
Bastion Capital Corporation, a minority-controlled private equity investment
firm specializing in management-led buyouts of leading middle market companies
and related transactions. He has served since April 1996 on the Board of
Directors of Telemundo Group, Inc., a publicly traded Spanish-language
television company and Seven-Up/RC Bottling Company of Southern California,
Inc., a manufacturer and distributor of beverage products. Mr. Villanueva has
been elected to the board of directors as the designee selected by the holders
of a majority of the shares of Senior Redeemable Preferred Stock.
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<PAGE> 67
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation for services rendered in all capacities earned
by the Company's Chief Executive Officer and the four other most highly
compensated executive officers (collectively, the "Named Executive Officers")
during the fiscal period from April 15, 1994 (Inception) to March 31, 1995 and
the fiscal year ended March 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL SHARES
COMPENSATION UNDERLYING
FISCAL -------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION PERIOD SALARY BONUS GRANTED COMPENSATION
- ----------------------------------------- ------ -------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Thomas V. Bonoma......................... 1995 $400,000 -- -- --
Chairman, Chief Executive Officer and 1994 233,338 -- 93,182 --(1)
President
Sean E. Greene........................... 1995 250,000 -- -- --
Group Vice President, Sales 1994 145,836 $175,000 9,318 $ 62,500(2)
Albert E. DeChellis...................... 1995 225,000 -- -- --
Group Vice President and General 1994 131,250 125,000 9,318 37,500(2)
Manager
Thomas T.S. Kaung........................ 1995(3) 177,385 -- 9,318 --
Group Vice President and Chief
Financial Officer
Ronald D. Bowen.......................... 1995 166,667 -- -- --
Group Vice President, International 1994 93,333 125,000 9,318 40,000(2)
</TABLE>
- ---------------
(1) Does not include $85,000 paid to a company controlled by Dr. Bonoma during
May through July 1994 for consulting services.
(2) Represents amounts paid in respect of services rendered as a consultant
prior to the individual's employment by the Company.
(3) Mr. Kaung joined the Company during the fiscal year ended March 31, 1996.
The following table sets forth certain information with respect to grants
of stock options during the fiscal year ended March 31, 1996 to the Named
Executive Officers.
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
MARKET POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF PRICE AT ASSUMED ANNUAL RATES
SECURITIES TOTAL EXERCISE ON OF STOCK APPRECIATION FOR
UNDERLYING OPTIONS PRICE DATE OF OPTION TERM(1)
OPTIONS GRANTED TO PER GRANT EXPIRATION ----------------------------
NAME GRANTED EMPLOYEES SHARE ($/SH) DATE 0% 5% 10%
- ------------------------- ---------- ---------- -------- ------- ---------- --- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas V. Bonoma......... -0-
Sean E. Greene........... -0-
Albert E. DeChellis...... -0-
Thomas T.S. Kaung........ 9,318(2) 29.7% $37.17 $37.17 7/1/05 $0 $58,755 $148,897
Ronald D. Bowen.......... -0-
</TABLE>
- ---------------
(1) The 0%, 5% and 10% assumed annual rates of appreciation are mandated by the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future common stock price.
(2) This option is not currently exercisable.
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<PAGE> 68
DIRECTORS
Directors of the Company are elected annually and hold office until the
next annual meeting of shareholders or until their successors are duly elected
and qualified. Officers of the Company are appointed by and serve at the
discretion of the Board of Directors of the Company. Under the Company's
restated certificate of incorporation, the holders of the outstanding shares of
the Company's cumulative exchangeable preferred stock have the right to elect
one member of the Company's Board of Directors. Mr. Noonan has been elected to
the Board of Directors pursuant to this right. In addition, pursuant to Dr.
Bonoma's employment agreement with the Company, Dr. Bonoma has been elected a
director and has the right to designate one additional director. Mr. Lynch has
been elected to the Board of Directors pursuant to this right. Holders of the
Series C Preferred Stock (acting together with the holders of the Series B
Preferred Stock, as a single class) will have the right to nominate three
candidates for consideration for the Company's Board of Directors. The Company
shall use all reasonable commercial efforts to cause the election of one of such
nominees selected by the Company (the "Series C Preferred Nominee"). Mr.
Villanueva has been elected to the Board of Directors pursuant to this right.
Pursuant to the Securities Purchase Agreement, dated as of September 27, 1996,
between the Company and Bastion Capital Fund, L.P. ("Bastion"), the Company has
agreed in the event that Bastion is not entitled to designate the Series C
Preferred Nominee, the Company will include one person selected by Bastion in
its nominations for the Company's Board of Directors and to use all reasonable
commercial efforts to cause the election of such person to the Board, so long as
Bastion owns 75% (in value) of (i) the shares of common stock purchased by
Bastion in the New Common Stock Sale and (ii) the Units purchased by Bastion
pursuant to the Series B Offering (the "Minimum Share Amount"). In addition,
pursuant to a Voting Agreement, dated as of September 27, 1996, KKEP agreed
that, in the event that Bastion is not entitled to designate the Series C
Preferred Nominee, KKEP will vote its shares of common stock in favor of a
nominee designated by Bastion for election to the Company's Board of Directors
provided that Bastion has the Minimum Share Amount.
Directors of the Company are not compensated for their services as
directors. All non-employee directors of the Company are reimbursed for ordinary
and necessary expenses incurred in attending board or committee meetings.
The Board of Directors intends to create a Financial Affairs Committee of
the Board of Directors and to appoint Messrs. Kidd, Noonan and Theodore to such
committee. It is expected that the Financial Affairs Committee would consider
matters pertaining to the Company's financing and business strategies, although
the Board of Directors has not yet determined the extent of the authority to be
delegated to such committee. Other than the Compensation Committee, the Stock
Option Committee and the Audit Committee of the Board of Directors and the
contemplated Financial Affairs Committee, there are no other committees of the
Board of Directors.
STOCK OPTION PLAN
The Company's 1994 Stock Option Plan (the "Plan") was approved by the
Company's Board of Directors and stockholders in January 1995. The Company has
reserved 111,320 shares of its common stock, par value $.01 per share (the
"Common Stock"), under the Plan. Options granted under the Plan may include
those qualified as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended, and non-qualified stock options. The Plan is
administered by a Stock Option Committee of the Board of Directors (the "Stock
Option Committee") consisting of Dr. Bonoma and Mr. Kidd. The Stock Option
Committee has wide latitude in determining the recipients of options and
numerous other terms and conditions of the options. All regular employees and
all directors may be chosen by the Stock Option Committee to participate in the
Plan. Non-employees may receive only nonqualified options. Options become
exercisable in such amounts and at such intervals as the Stock Option Committee
provides for in the applicable option agreement. There are currently outstanding
options under the Plan with respect to 99,805 shares of Common Stock. These
options generally become exercisable with respect to 25% of their shares in each
of the four years 1995 through 1998, and expire in January 2005.
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<PAGE> 69
The exercise price for the shares purchased upon exercise of all options
granted under the Plan is determined by the Stock Option Committee. The exercise
price of an incentive stock option must be at least equal to the fair market
value of the Common Stock on the date such option is granted (110% of the fair
market value for stockholders who, at the time the option is granted, own more
than 10% of the total combined classes of stock of the Company or any
subsidiary).
No option may have a term of more than ten years (five years for incentive
stock options granted to 10% or greater stockholders). Options generally may be
exercised only if the option holder remains continuously associated with the
Company or a subsidiary from the date of grant to the date of exercise. However,
options may be exercised within certain specified periods following termination
of employment or ceasing to be a director by reason of death, disability or
retirement of the optionee or any reason other than termination of employment
for cause or without the consent of the Company. The Stock Option Committee may
cancel, by giving an optionee written notice, any option that remains
unexercised upon the date of the consummation of a merger, consolidated
reorganization, liquidation or dissolution in which the Company does not survive
or a sale, lease exchange or other disposition of all or substantially all of
the property and assets of the Company.
EMPLOYMENT AND NON-COMPETE AGREEMENTS
The Company has entered into an employment agreement (the "Bonoma
Employment Agreement"), dated as of August 6, 1996, with Dr. Bonoma, which
agreement supersedes his prior employment agreement with the Company. Pursuant
to the Bonoma Employment Agreement, Dr. Bonoma is employed as the chief
executive officer of the Company and each of its present and future subsidiaries
and is responsible for managing the day-to-day affairs of the Company and its
subsidiaries.
Dr. Bonoma will receive a base salary of $500,000 per year and will be
eligible to receive an additional annual bonus of 100% of his annual base salary
if certain objectives, to be established by the Board of Directors of the
Company, are met. If Dr. Bonoma's employment is terminated without cause or if
Dr. Bonoma terminates his employment for good reason, Dr. Bonoma will be
entitled to the greater of his annual base salary for the remaining term of his
employment or for one year, and to a bonus equal to the greater of 75% of his
annual base salary for the remaining term of his employment or for one year.
The Bonoma Employment Agreement will expire on August 18, 2000 and is
automatically renewable for additional one-year periods unless Dr. Bonoma or the
Company, upon 90 days notice, decides not to renew it. The Bonoma Employment
Agreement will automatically terminate in the event of a change of control of
the Company resulting in a sale of all or substantially all of the stock or
assets of the Company in which the shareholders of the Company liquidate all or
substantially all of their equity interests in the Company.
The Company and Mr. Gay A. Mayer, the former Chief Executive Officer and
President of MEM, entered into an employment agreement dated August 6, 1996,
pursuant to which Mr. Mayer is employed as Group Vice President of Market
Development of the Company. Mr. Mayer will receive an annual gross salary of
$250,000 and will be eligible to participate in all bonus programs for
executives of the Company, on the same terms and conditions as such executives.
The Company also granted Mr. Mayer an option to purchase 5,000 shares of Common
Stock under the Company's stock option plan at a per share exercise price of
$104.00. Mr. Mayer's employment will terminate 30 months after consummation of
the MEM Acquisition, which was completed on December 4, 1996.
BONUS PLANS
The Company and each of its principal divisions -- the Fragrance division,
Cosmetics division and International division -- have adopted an incentive bonus
plan for Fiscal 1996 (the "1996 Bonus Plan") under which eligible employees of
the Company (including the Named Executive Officers) or such division, as the
case may be, who are actively employed on the day the bonus is paid, will be
entitled to receive cash bonuses as a percentage of such employee's base salary
depending upon whether target levels of EBITDA established by the Company's
Board of Directors are met or exceeded. Five percent of a target award amount is
paid if 90% of the established EBITDA target is met and 10% of a target award is
paid if 91% of the established EBITDA target is met. Thereafter increasing
percentages of the target award are paid until 100% of the
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<PAGE> 70
established EBITDA target is met (at which point 100% of the target award is
paid). In the event that the established EBITDA target is exceeded, bonus levels
will increase above 100% of the target award by one percentage point for each
full percentage point by which the applicable EBITDA target is exceeded.
Employees who are actively employed for less than one full year will have the
award pro-rated for each full month of employment. Final award payments are
subject to the approval of the Chairman. If the established EBITDA target for
Fiscal 1996 is met, approximately $4.1 million would be payable under the 1996
Bonus Plan.
In October 1996, the Board of Directors elected to pay to certain employees
of the Company approximately $1.5 million as a non-returnable advance against
incentive bonuses that may be earned under the 1996 Bonus Plan. Amounts advanced
will offset on a dollar-for-dollar basis the bonuses actually earned, but such
advances are not required to be returned even if not ultimately earned. The
Named Executive Officers received advances as follows: Thomas V.
Bonoma -- $150,000; Sean E. Greene -- $125,000; Albert E. DeChellis -- $80,000;
Thomas T.S. Kaung -- $100,000; and Ronald D. Bowen -- $120,000.
In connection with the MEM Acquisition, the Company established the MEM
Employee Stay Bonus Program for twenty-nine employees of MEM in order to
encourage the selected employees to remain in the employ of the Company
following the closing. On the closing date, $207,932 was deposited in an escrow
account. Each employee will be paid 100% of their respective stay bonus provided
that (i) they have been in the continuous employ of MEM (or its successor)
through the expiration of each individual's transition period, or (ii) they are
an employee of MEM (or its successor) on the closing date but cease to be an
employee of MEM (or its successor) prior to the expiration of the transition
period as a result of their employment with MEM (or its successor) being
terminated without cause. The stay bonus is in addition to, and in lieu of, any
other bonus or incentive compensation currently made available by MEM.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Bonoma and Mr. Kidd functionally act as the Company's Compensation
Committee. Dr. Bonoma's salary is established by his employment agreement with
the Company. Dr. Bonoma and Mr. Kidd constitute the Stock Option Committee of
the Board of Directors. Messrs. Kidd, Lynch and Noonan constitute the Audit
Committee of the Board of Directors. Mr. Kidd, Mr. Noonan and Mr. Theodore are
expected to constitute the Financial Affairs Committee. There are no other
committees of the Board of Directors.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 1996, information with
respect to the beneficial ownership of shares of the Company's Common Stock by
(i) each stockholder known by the Company to be the beneficial owner of more
than 5% of such shares, (ii) each director of the Company, the Company's Chief
Executive Officer and each of the other named executive officers in the Summary
Compensation Table contained herein and (iii) directors and executive officers
of the Company as a group.
<TABLE>
<CAPTION>
PERCENT
ON A
NO. OF FULLY DILUTED
NAME OF STOCKHOLDER SHARES PERCENT+ BASIS
- ----------------------------------------------------------------- ------- -------- -------------
<S> <C> <C> <C>
Kidd, Kamm Equity Partners, L.P.(1).............................. 605,286 73.4% 39.3%
c/o Kidd, Kamm & Company
Three Pickwick Plaza
Greenwich, CT 06830
Thomas V. Bonoma(2).............................................. 26,902 3.3% 1.7%
Ronald D. Bowen.................................................. 3,632 * *
Albert E. DeChellis.............................................. 6,053 * *
Sean E. Greene................................................... 8,070 1.0% *
Thomas T.S. Kaung................................................ 2,690 * *
John H. Lynch.................................................... 2,690 * *
E. Mark Noonan(3)................................................ 59,825 6.8% 3.9%
Triumph-Connecticut Limited Partnership(3)....................... 59,825 6.8% 3.9%
60 State Street, 21st Floor
Boston, MA 02109
Daniel D. Villanueva(4).......................................... 95,766 11.0% 6.2%
Bastion Capital Corporation
Suite 2960
1999 Avenue of the Stars
Los Angeles, CA 90067
CIBC WG Argosy Merchant Fund 2, L.L.C.(5)........................ 51,959 6.3% 3.4%
c/o CIBC Wood Gundy Securities Corp.
425 Lexington Avenue, 3rd Floor
New York, NY 10017
All directors and executive officers as a group (14 persons)..... 810,914 87.3% 52.7%
</TABLE>
- ---------------
* Less than 1%.
+ The percentages in this column have been calculated pursuant to Rule
13d-3(d)(1) of the Exchange Act and do not give effect to options and
warrants, except for options and warrants of the person for whom the
percentage is being calculated that are exercisable within 60 days.
(1) William J. Kidd, Kurt L. Kamm, Terry M. Theodore and Eric R. Hamburg are
principals of Kidd, Kamm & Company, an entity affiliated with Kidd, Kamm
Equity Partners, L.P., and for purposes of this report may be deemed to
beneficially own the shares owned of record by Kidd, Kamm Equity Partners,
L.P.
(2) Includes 26,902 shares held by a trust for the benefit of Dr. Bonoma but
excludes 93,182 shares of Common Stock issuable to Dr. Bonoma under a stock
option which is not currently exercisable.
(3) Represents shares issuable upon exercise of Common Stock purchase warrants
acquired by Triumph-Connecticut Limited Partnership ("Triumph-Connecticut")
in connection with the purchase by that entity of shares of the Company's
Cumulative Exchangeable Preferred Stock. Does not include 175 shares
issuable upon exercise of warrants held by Jeffrey Lane and Meri Lane
(collectively, the "Lanes"), as trustees of a trust that is not affiliated
with Triumph-Connecticut. Jeffrey Lane is affiliated with
Triumph-Connecticut. Mr. Noonan is a Managing Director of Triumph Capital
Group Inc., a general partner of Triumph-Connecticut Capital Advisors,
Limited Partnership, the general partner of Triumph-Connecticut, and for
purposes of this report Mr. Noonan may be considered to be the owner of
these shares. As of September 30, 1996, Triumph-Connecticut and the Lanes
also hold approximately
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<PAGE> 72
12,138,000 shares and approximately 42,600 shares, respectively, of the
Cumulative Exchangeable Preferred Stock.
(4) Represents 51,959 shares of Common Stock acquired by Bastion in the New
Common Stock Sale and includes 43,807 shares of Common Stock issuable upon
exercise of Common Stock warrants acquired by Bastion in the Series B
Preferred Stock Offering. Mr. Villanueva is the Chairman and Managing
Director of Bastion and for purposes of this report Mr. Villanueva may be
considered to be the owner of such shares.
(5) The Initial Purchaser, an affiliate of the CIBC Fund, may from time to time
hold a position in the Series B Warrants (as defined herein).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Ownership and Compensation. In August 1994, Dr. Bonoma,
together with other members of senior management, acquired 68,922 shares of
Common Stock in consideration of the payment of approximately $3 million. In
addition, the Company has granted options to officers and other employees under
the Plan referred to above under the caption "Stock Option Plan" and additional
options may be granted under the Plan to directors, officers and other
employees.
Management Agreement. On August 16, 1994 the Company entered into a
Management Agreement (the "Management Agreement") with Kidd Kamm. Pursuant to
the Management Agreement, Kidd Kamm received a fee of $675,000 upon the closing
of the Cosmar Acquisition and, subject to certain restrictions contained in the
Existing Indenture governing the Company's Existing Senior Notes, will receive
an annual management fee of $675,000 subject to increases as determined by the
Board of Directors of the Company, plus out-of-pocket expenses incurred for
management, consulting and related services to be rendered to the Company. Such
management fee was not paid during the fiscal year ended March 31, 1996 as a
result of certain restrictions on such payments contained in the Existing
Indenture. Principals of Kidd Kamm organized KKEP which is the owner of 73.4% of
the currently outstanding Common Stock.
In November 1996, the partners of Kidd Kamm agreed to a division of the
firm and its operations in relation to future investments. The firm's two
founding partners, William J. Kidd and Kurt L. Kamm, indicated that they planned
to form separate entities for future investments, including the formation of two
firms, Kidd & Company, LLC and Kamm, Theodore & Company. The ongoing support and
management provided to the Company under the Management Agreement will not be
affected by the aforementioned changes in Kidd Kamm. Members of the investment
firms to be formed by the founding partners of Kidd Kamm who were primarily
responsible for providing support and management assistance to the Company as
employees of Kidd Kamm will continue to provide such services throughout the
term of the Management Agreement.
Stockholders Agreement. Management, Kidd Kamm and certain other equity
holders have entered into a stockholders agreement dated August 18, 1994 with
the Company (the "Stockholders Agreement"), whereby such equity holders of the
Company are restricted in the transfer of their shares of Common Stock of the
Company for a period of eight years from that date unless such transfer is made
in accordance with the Stockholders Agreement.
Financing Fees. In May 1996, the Company paid the CIBC Fund a $2.1 million
commitment fee for committing to provide the Interim Preferred Facility, $1.1
million of which was refunded to the Company as part of the CIBC Financing. In
addition, the Initial Purchaser, an affiliate of the CIBC Fund, has from time to
time provided investment banking services to the Company in connection with
various transactions and proposed transactions. The Initial Purchaser acted as
initial purchaser of the Series B Preferred Stock, provided the initial
commitment in connection with the Senior Secured Credit Facility and purchased a
portion of the notes issued in the initial funding under the Senior Secured
Credit Facility, in each case in return for customary fees and reimbursement of
expenses. In connection with the Equity Financing, Triumph-Connecticut, a
partnership in which E. Mark Noonan serves as a general partner of the general
partner, received a finder's fee of $575,000 from the Initial Purchaser and may
receive additional fees from the Initial Purchaser from time to time.
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<PAGE> 73
Bastion Securities Purchase Agreement. On September 27, 1996, the Company
entered into a Securities Purchase Agreement (the "Bastion Securities Purchase
Agreement") with Bastion pursuant to which it sold 51,959 shares of Common Stock
to Bastion for an aggregate purchase price of $5.0 million. Pursuant to the
terms of the Bastion Securities Purchase Agreement, the Company has agreed to
include one person selected by Bastion in its nominations for the Company's
Board of Directors and to use all reasonable commercial efforts to cause the
election of such person to the Board, so long as Bastion owns 75% (in value) of
the shares of Common Stock purchased thereunder and of the Units purchased by
Bastion pursuant to the Series B Preferred Stock Offering. Bastion agreed that
the Common Stock purchased thereunder shall be bound by the terms of the
Stockholders Agreement.
In addition, pursuant to a Voting Agreement, dated as of September 27,
1996, KKEP agreed that, in the event that Bastion is not entitled to designate
the Series C Preferred Nominee, KKEP will vote its shares of Common Stock in
favor of a nominee designated by Bastion for election to the Company's Board of
Directors provided that Bastion has the Minimum Share Amount.
EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange shares of Series C
Preferred Stock for any and all of the outstanding shares of Series B Preferred
Stock (on a share for share basis) properly tendered on or prior to the
Expiration Date and not withdrawn as permitted pursuant to the procedures
described below.
PURPOSE OF THE EXCHANGE OFFER
Pursuant to the Series B Offering which closed on August 15, 1996,
September 16, 1996 and September 27, 1996, the Company issued 115,000 shares of
the Series B Preferred Stock, and a total of 4,008 shares of the Series B
Preferred Stock were issued on November 15, 1996 as dividends in respect of such
115,000 shares of Series B Preferred Stock. The issuances of Series B Preferred
Stock were not registered under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act.
In connection with the issuance and sale of the Series B Preferred Stock,
the Company entered into the Registration Rights Agreement, which requires the
Company to (i) use its best efforts to cause to be filed with the Commission
within 74 days after the date of the original issuance of the Series B Preferred
Stock (August 15, 1996), a registration statement (the "Exchange Offer
Registration Statement") relating to a registered Exchange Offer for the Series
B Preferred Stock under the Securities Act and (ii) use its best efforts to have
the Exchange Offer Registration Statement declared effective under the
Securities Act within 149 days after the date of the original issuance of the
Series B Preferred Stock. As soon as practicable after the effectiveness of the
Exchange Offer Registration Statement, the Company will offer to the holders of
the Series B Preferred Stock who are not prohibited by any law or policy of the
Commission from participating in the Exchange Offer the opportunity to exchange
their Series B Preferred Stock for Series C Preferred Stock. The Company will
keep the Exchange Offer open for not less than 30 days (or longer, if required
by applicable law) after the date notice of the Exchange Offer is mailed to the
holders of the Series B Preferred Stock. In the event that applicable
interpretations of the staff of the Commission do not permit the Company to
effect the Exchange Offer or do not permit any holder of the Series B Preferred
Stock (including the Initial Purchaser) to participate in the Exchange Offers,
or if the Initial Purchaser has not sold all the securities bought subsequently
to the Expiration Date and requests it, or if the Exchange Offer is commenced
and not consummated within 209 days of issuance of the Series B Preferred Stock,
the Company will file with the Commission a shelf registration statement (the
"Shelf Registration Statement") to cover resales of the Series B Preferred Stock
by such holders who satisfy certain conditions relating to, among other things,
the provision of information in connection with the Shelf Registration
Statement. In the event that (i) the Exchange Offer Registration Statement or
the Shelf Registration Statement is not filed within 74 days after
72
<PAGE> 74
the date of original issuance of the Series B Preferred Stock, (ii) the Exchange
Offer Registration Statement or the Shelf Registration Statement is not declared
effective within 149 days after the date of original issuance of the Series B
Preferred Stock or (iii) the Exchange Offer Registration Statement ceases to be
effective prior to the time that the Exchange Offer is consummated, or the
Company has not exchanged the Series C Preferred Stock for all Series B
Preferred Stock validly tendered under the Exchange Offer or a Shelf
Registration Statement is not declared or ceases to be effective within 209 days
following the date of the issuance of the Series B Preferred Stock (each, a
"Registration Default"), the annual dividend rate borne by the Series B
Preferred Stock will immediately increase by 0.5% per annum and the dividend
rate will increase by an additional 0.25% for each subsequent 90-day period
during which the Registration Default remains uncured up to a maximum additional
dividend rate of 2.0% per annum. Upon the Registration Default being cured the
dividend rate borne by the Series B Preferred Stock will be reduced to the
original dividend rate. The Exchange Offer is being made by the Company to
satisfy its obligations under the Registration Rights Agreement.
Based on no action letters issued by the staff of the Commission to third
parties, the Company believes that the Series C Preferred Stock issued pursuant
to the Exchange Offer in exchange for Series B Preferred Stock may be offered
for resale, resold and otherwise transferred by holders thereof (other than (i)
a broker-dealer who purchases such Series C Preferred Stock directly from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an affiliate of the Company within
the meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery requirements of the Securities Act provided
that such shares of Series C Preferred Stock are acquired in the ordinary course
of such holders' business and such holders have no arrangement with any person
to participate in the distribution of such Series C Preferred Stock. Any holder
of Series B Preferred Stock who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Series C Preferred Stock could not rely
on such interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Thus, any shares of Series C Preferred
Stock acquired by such holders will not be freely transferable except in
compliance with the Securities Act. Each broker-dealer that receives shares of
Series C Preferred Stock for its own account in exchange for shares of Series B
Preferred Stock acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Series C Preferred Stock. See
"Plan of Distribution."
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 P.M., New York City time, on
, 1997, unless the Company, in its sole discretion, has extended the
period of time (as described below) for which the Exchange Offer is open (such
date, as it may be extended, is referred to herein as the "Expiration Date").
The Expiration Date will be at least 20 business days after the commencement of
the Exchange Offer in accordance with Rule 14e-1(a) under the Exchange Act. The
Company expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and thereby
delay acceptance for exchange of any shares of Series B Preferred Stock by
giving oral notice (confirmed in writing) or written notice to the Exchange
Agent (as defined herein) and by giving written notice of such extension to the
holders thereof or by timely public announcement communicated, unless otherwise
required by applicable law or regulation, by making a release through the Dow
Jones News Service, in each case, no later than 9:00 A.M. New York City time, on
the next business day after the previously scheduled Expiration Date. Such
announcement may state that the Company is extending the Exchange Offer for a
specified period of time. During any such extension, all shares of Series B
Preferred Stock previously tendered will remain subject to the Exchange Offer.
In addition, the Company expressly reserves the right to terminate or amend
the Exchange Offer and not to accept for exchange any shares of Series B
Preferred Stock not theretofore accepted for exchange upon the occurrence of any
of the events specified below under "-- Certain Conditions to the Exchange
Offer." If any such termination or amendment occurs, the Company will notify the
Exchange Agent and will either issue a
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<PAGE> 75
press release or give oral or written notice to the holders of the Series B
Preferred Stock as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day other
than Saturday, Sunday or a federal holiday, and consists of the time period from
12:01 A.M. through 12:00 midnight, New York City time.
PROCEDURES FOR TENDERING SERIES B PREFERRED STOCK
The tender to the Company of shares of Series B Preferred Stock by a holder
thereof as set forth below and the acceptance thereof by the Company will
constitute a binding agreement between the tendering holder and the Company upon
the terms and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal.
A holder of shares of Series B Preferred Stock may tender the same by (i)
properly completing and signing the Letter of Transmittal or a facsimile thereof
(all references in this Prospectus to the Letter of Transmittal shall be deemed
to include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the shares of Series B Preferred Stock
being tendered and any required signature guarantees, to the Exchange Agent at
its address set forth below on or prior to 5:00 p.m., New York City time, on the
Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
THE METHOD OF DELIVERY OF SHARES OF SERIES B PREFERRED STOCK, LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, OR AN OVERNIGHT OR HAND
DELIVERY SERVICE, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
INSURE TIMELY DELIVERY. NO SHARES OF SERIES B PREFERRED STOCK OR LETTER OF
TRANSMITTAL SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the shares of Series B Preferred Stock
surrendered for exchange pursuant thereto are tendered (i) by a registered
holder of the shares of Series B Preferred Stock who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal or (ii) for the account of an Eligible Institution (as
defined herein). In the event that signatures on a Letter of Transmittal or a
notice of withdrawal, as the case may be, are required to be guaranteed, such
guarantees must be by a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office or
correspondent in the United States (each an "Eligible Institution"). If shares
of Series B Preferred Stock are registered in the name of a person other than a
signer of the Letter of Transmittal, the shares of Series B Preferred Stock
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Series B Preferred Stock at
the book-entry transfer facility, The Depository Trust Company, for the purpose
of facilitating the Exchange Offer, and subject to the establishment thereof,
any financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of shares of Series B Preferred
Stock by causing such book-entry transfer facility to transfer such shares of
Series B Preferred Stock into the Exchange Agent's account with respect to the
shares of Series B Preferred Stock in accordance with the book-entry transfer
facility's procedures for such transfer. Although delivery of shares of Series B
Preferred Stock may be effected through book-entry transfer in the Exchange
Agent's account at the book-entry transfer facility, an appropriate Letter of
Transmittal with any required signature guarantee and other required documents
must in each case be transmitted to and received or confirmed by the Exchange
Agent at its address set forth below on or prior to the Expiration Date, or, if
the guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures.
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<PAGE> 76
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or shares of Series B Preferred Stock to reach the
Exchange Agent before the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if the
Exchange Agent has received at its address or facsimile number set forth below
on or prior to the Expiration Date a letter, telegram or facsimile from an
Eligible Institution setting forth the name and address of the tendering holder,
the name in which the shares of Series B Preferred Stock are registered and, if
possible, the certificate number or numbers of the certificate or certificates
representing the shares of Series B Preferred Stock to be tendered, and stating
that the tender is being made thereby and guaranteeing that within three
business days after the Expiration Date the shares of Series B Preferred Stock
in proper form for transfer (or a confirmation of book-entry transfer of such
shares of Series B Preferred Stock into the Exchange Agent's account at the
book-entry transfer facility), will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless shares of Series B Preferred Stock being
tendered by the above-described method are deposited with the Exchange Agent
within the time period set forth above (accompanied or preceded by a properly
completed Letter of Transmittal and any other required documents), the Company
may, at its option, reject the tender. Copies of a Notice of Guaranteed Delivery
which may be used by an Eligible Institution for the purposes described in this
paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the shares of Series B Preferred Stock (or a confirmation of
book-entry transfer of such shares of Series B Preferred Stock into the Exchange
Agent's account at the book-entry transfer facility) is received by the Exchange
Agent, or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile
to similar effect (as provided above) from an Eligible Institution is received
by the Exchange Agent. Issuances of shares of Series C Preferred Stock in
exchange for shares of Series B Preferred Stock tendered pursuant to a Notice of
Guaranteed Delivery or letter, telegram or facsimile to similar effect (as
provided above) by an Eligible Institution will be made only against deposit of
the Letter of Transmittal (and any other required documents) and the tendered
shares of Series B Preferred Stock.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of shares of Series B Preferred Stock tendered for
exchange will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
right to reject any and all tenders of any particular shares of Series B
Preferred Stock not properly tendered or reject any particular shares of Series
B Preferred Stock the acceptance of which might, in the judgment of the Company
or its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or condition of the Exchange Offer as to any
particular shares of Series B Preferred Stock either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender shares of Series B Preferred Stock in the Exchange Offer).
The interpretation of the terms and conditions of the Exchange Offer (including
the Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of shares of Series B Preferred Stock for exchange
must be cured within such time as the Company shall determine. Neither the
Company nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of shares of Series B
Preferred Stock for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal or any shares of Series B Preferred Stock or
powers of attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
By tendering, each holder that is not a broker-dealer or is a broker-dealer
but is not receiving shares of Series C Preferred Stock for its own account will
represent to the Company that, among other things, the shares of Series C
Preferred Stock acquired pursuant to the Exchange Offer are being obtained in
the ordinary course of such holder's business, that such holder has no
arrangement or understanding with any person to participate in the distribution
of such shares of Series C Preferred Stock and that such holder is not an
"affiliate" of the Company as defined in Rule 405 under the Securities Act or,
if it is an affiliate, such holder
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<PAGE> 77
will comply with the registration and prospectus delivery requirements of the
Securities Act, to the extent applicable. Each broker-dealer that is receiving
shares of Series C Preferred Stock for its own account in exchange for shares of
Series B Preferred Stock that were acquired as a result of market-making or
other trading activities will represent to the Company that it will deliver a
prospectus in connection with any resale of such shares of Series C Preferred
Stock.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any shares of Series B Preferred Stock that remain
outstanding subsequent to Expiration Date, or, as set forth under "-- Certain
Conditions to the Exchange Offer," to terminate the Exchange Offer and (b) to
the extent permitted by applicable law, purchase shares of Series B Preferred
Stock in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers may differ from the terms of the Exchange
Offer.
WITHDRAWAL RIGHTS
Tenders of shares of Series B Preferred Stock may be withdrawn at any time
prior to the Expiration Date. For a withdrawal to be effective, a written notice
of withdrawal sent by letter, telegram or facsimile must be received by the
Exchange Agent prior to the Expiration Date at its address or facsimile number
set forth below. Any such notice of withdrawal must (i) specify the name of the
person having tendered the shares of Series B Preferred Stock to be withdrawn
(the "Depositor"), (ii) identify the shares of Series B Preferred Stock to be
withdrawn (including the certificate number or numbers of the certificate or
certificates representing such shares of Series B Preferred Stock and number of
shares of such Series B Preferred Stock), (iii) be signed by the holder in the
same manner as the original signature on the Letter of Transmittal by which such
shares of Series B Preferred Stock were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
permit the Transfer Agent with respect to the shares of Series B Preferred Stock
to register the transfer of such shares of Series B Preferred Stock into the
name of the person withdrawing the tender and (iv) specify the name in which any
such shares of Series B Preferred Stock are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such withdrawal notices will be determined by the
Company in its sole discretion, which determination will be final and binding on
all parties. Any shares of Series B Preferred Stock so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange Offer and no
shares of Series C Preferred Stock will be issued with respect thereto unless
the shares of Series B Preferred Stock so withdrawn are validly retendered. Any
shares of Series B Preferred Stock which have been tendered but which are
withdrawn will be returned to the holder thereof without cost to such holder as
soon as practicable after such withdrawal. Properly withdrawn shares of Series B
Preferred Stock may be retendered by following one of the procedures described
above under "-- Procedures for Tendering Series B Preferred Stock" at any time
prior to the Expiration Date.
ACCEPTANCE OF SERIES B PREFERRED STOCK FOR EXCHANGE; DELIVERY OF SERIES C
PREFERRED STOCK
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all shares of
Series B Preferred Stock properly tendered and will issue the shares of Series C
Preferred Stock promptly after acceptance of the Exchange Offer. See "-- Certain
Conditions to the Exchange Offer" below. For purposes of the Exchange Offer, the
Company will be deemed to have accepted properly tendered shares of Series B
Preferred Stock for exchange when the Company has given oral or written notice
thereof to the Exchange Agent.
In all cases, issuance of the shares of Series C Preferred Stock in
exchange for shares of Series B Preferred Stock pursuant to the Exchange Offer
will be made only after timely receipt by the Company of such shares of Series B
Preferred Stock, a properly completed and duly executed Letter of Transmittal
and all other required documents. If any tendered shares of Series B Preferred
Stock are not accepted for exchange for any reason set forth in the terms and
conditions of the Exchange Offer, such unaccepted shares of Series B Preferred
Stock will be returned without expense to the tendering holder thereof as
promptly as practicable after the rejection of such tender or the expiration or
termination of the Exchange Offer.
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<PAGE> 78
UNTENDERED SERIES B PREFERRED STOCK
Holders of shares of Series B Preferred Stock whose shares of Series B
Preferred Stock are not tendered or are tendered but not accepted in the
Exchange Offer will continue to hold such shares of Series B Preferred Stock and
will be entitled to all the rights and preferences and subject to the
limitations applicable thereto. Following consummation of the Exchange Offer,
the holders of shares of Series B Preferred Stock will continue to be subject to
the existing restrictions upon transfer thereof and, except as provided herein,
the Company will have no further obligation to such holders to provide for the
registration under the Securities Act of the shares of Series B Preferred Stock
held by them. To the extent that shares of Series B Preferred Stock are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted shares of Series B Preferred Stock could be adversely
affected.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or issue shares of Series C Preferred Stock
in exchange for, any shares of Series B Preferred Stock, and may terminate or
amend the Exchange Offer, if at any time before the acceptance of such shares of
Series B Preferred Stock for exchange, any of the following events shall occur:
(A) an injunction, order or decree shall have been issued by any court
or governmental agency that would prohibit, prevent or otherwise materially
impair the ability of the Company to proceed with the Exchange Offer; or
(B) there shall occur a change in the current interpretation of the
staff of the Commission which current interpretation permits the shares of
Series C Preferred Stock issued pursuant to the Exchange Offer in exchange
for the shares of Series B Preferred Stock to be offered for resale, resold
and otherwise transferred by holders thereof (other than (i) a
broker-dealer who purchases such Series C Preferred Stock directly from the
Company to resell pursuant to Rule 144A or any other available exemption
under the Securities Act or (ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such shares of Series C Preferred Stock are
acquired in the ordinary course of such holders' business and such holders
have no arrangement with any person to participate in the distribution of
shares of Series C Preferred Stock.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any shares of Series B
Preferred Stock and return any shares of Series B Preferred Stock that have been
tendered to the holders thereof, (ii) extend the Exchange Offer and retain all
shares of Series B Preferred Stock tendered prior to the Expiration Date,
subject to the rights of such holders of tendered shares of Series B Preferred
Stock to withdraw their tendered shares of Series B Preferred Stock, or (iii)
waive such termination event with respect to the Exchange Offer and accept all
properly tendered shares of Series B Preferred Stock that have not been
withdrawn. If such waiver constitutes a material change in the Exchange Offer,
the Company will disclose such change by means of a supplement to this
Prospectus that will be distributed to each registered holder of shares of
Series B Preferred Stock, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
waiver and the manner of disclosure to the registered holders of the shares of
Series B Preferred Stock, if the Exchange Offer would otherwise expire during
such period.
In addition, the Company will not accept for exchange any Series B
Preferred Stock tendered, and no Series C Preferred Stock will be issued in
exchange for any such Series B Preferred Stock, if at any time any stop order
shall be threatened by the Commission or in effect with respect to the
Registration Statement.
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The Exchange Offer is not conditioned on any minimum number of shares of
Series B Preferred Stock being tendered for exchange.
EXCHANGE AGENT
The Firstar Trust Company ("Firstar") has been appointed as Exchange Agent
for the Exchange Offer. Questions regarding Exchange Offer procedures and
requests for additional copies of this Prospectus or the Letter of Transmittal
should be directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Mail: By Hand or Overnight Delivery:
Firstar Trust Company Firstar Trust Company
Corporate Trust Services Corporate Trust Services
Milwaukee, WI 53201-2077 615 E. Michigan Street, 4th Floor
Attention: Suzanne P. Norman Milwaukee, WI 53201-2077
Barnes Attention: Suzanne P. Norman Barnes
</TABLE>
By Facsimile:
(414) 276-4226
Confirm by Telephone:
(414) 287-3971
Firstar is also the Transfer Agent for the Series B Preferred Stock and the
Series C Preferred Stock.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The cash expenses to be incurred by the Company in
connection with the Exchange Offer will be paid by the Company.
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of shares of Series B Preferred Stock in
any jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of shares of Series B Preferred Stock pursuant to the Exchange Offer. If,
however, certificates representing shares of Series C Preferred Stock or shares
of Series B Preferred Stock not tendered or accepted for exchange are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the shares of Series B Preferred Stock tendered,
or if tendered shares of Series B Preferred Stock are registered in the name of
any person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of shares of
Series B Preferred Stock pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. Expenses incurred in connection
with the issuance of the Series C Preferred Stock will be amortized by the
Company over the term of the Series C Preferred Stock under generally accepted
accounting principles.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives shares of Series C Preferred Stock for its
own account in exchange for shares of Series B Preferred Stock acquired as a
result of market-making or other trading activities must acknowledge that it
will deliver a prospectus in connection with any resale of such shares of Series
C Preferred Stock. For a period of 90 days after the Expiration Date, this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of such shares of Series C
Preferred Stock. During such 90-day period, the Company will use its best
efforts to make this Prospectus available to any broker-dealer for use in
connection with such resale, provided that such broker-dealer indicates in the
Letter of Transmittal that it is a broker-dealer.
The Company will not receive any proceeds from any sale of shares of Series
C Preferred Stock by broker-dealers. Shares of Series C Preferred Stock received
by broker-dealers for their own account pursuant to the Exchange Offer may be
sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the shares
of Series C Preferred Stock or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through broker-dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such shares of Series C Preferred
Stock. Any broker-dealer that resells shares of Series C Preferred Stock that
were received by it for its own account pursuant to the Exchange Offer and any
person that participates in the distribution of such shares of Series C
Preferred Stock may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of shares of Series C Preferred
Stock and any commissions or concessions received by any such broker-dealers may
be deemed to be underwriting compensation under the Securities Act. The Letter
of Transmittal states that a broker-dealer, by acknowledging that it will
deliver and by delivering a prospectus, will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The Company will indemnify the holders of the Series C Preferred Stock
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
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DESCRIPTION OF SERIES C PREFERRED STOCK
The Series C Preferred Stock will be issued pursuant to a certificate of
designation (the "Certificate of Designation"). The summary contained herein of
certain provisions of the Series C Preferred Stock does not purport to be
complete and is qualified in its entirety by reference to the provisions of the
Certificate of Designation.
GENERAL
Subject to limitations imposed by law or the Company's Certificate of
Incorporation, the Board of Directors is empowered to determine with respect to
the Company's preferred stock (a) the designation of such series, the number of
shares to constitute such series; (b) whether the shares of such series shall
have voting rights, in addition to any voting rights provided by law, and, if
so, the terms of such voting rights; (c) the annual rate or amount of dividends,
if any, payable on the shares of such series, the conditions and dates upon
which such dividends shall be payable, and whether such dividends shall be
cumulative or non-cumulative; (d) whether the shares of such series shall be
subject to redemption by the Company, and, if made subject to redemption, the
times, prices and other terms and conditions of such redemption; (e) the amount
or amounts payable upon shares of such series, and rights of the holders of
shares of such series upon the voluntary or involuntary liquidation, dissolution
or winding up, of the Company; (f) whether or not the shares of such series
shall be convertible into, or exchangeable for, shares of stock of any other
class or classes, or of any other series of the same class, and if so
convertible or exchangeable, the terms and conditions thereof, including the
date or dates of conversion or exchange and the method, if any, of adjusting the
same; (g) the conditions or restrictions, if any, upon the creation or
indebtedness of the Company or upon the issuance of any additional stock
including additional shares of such series or of any other series or of any
other class; and (h) any other designations, preferences and relative,
participating, optional and other special rights or qualifications, limitations
or restrictions thereof. The Series C Preferred Stock when issued in exchange
for the Series B Preferred Stock in accordance with the terms of the Exchange
Offer will be fully paid and non-assessable, and the holders thereof will have
no subscription or preemptive rights related thereto.
The Board of Directors has adopted resolutions (i) authorizing the issuance
of up to 350,000 shares of the Series C Preferred Stock, which consist of up to
115,000 shares of Series C Preferred Stock to be issued in the Exchange Offer
plus additional shares of Series C Preferred Stock which may be used to pay
dividends on the Series C Preferred Stock if the Company elects to pay dividends
in additional shares of the Series C Preferred Stock, and (ii) authorizing the
Company to file the Certificate of Designation and the Certificate of Increase
with respect to the Series C Preferred Stock with the Secretary of State of the
State of Delaware as required by Delaware law. The Certificate of Increase was
filed on September 27, 1996, with the consent of holders of a majority of the
outstanding shares of the Series B Preferred Stock and the Series C Preferred
Stock, treated as a single series and class, to increase the number of
authorized shares of Series C Preferred Stock from 325,000 shares to 350,000
shares.
Ranking
The Series C Preferred Stock, with respect to dividends and distributions
upon the liquidation, winding-up and dissolution of the Company, ranks senior to
(a) all classes of Common Stock of the Company, (b) the Cumulative Exchangeable
Preferred Stock and (c) each other class of capital stock issued by the Company
after the Exchange Offer. The Series C Preferred Stock will rank pari passu with
the Series B Preferred Stock.
Dividends
Holders of Series C Preferred Stock are entitled, when, as and if declared
by the Board of Directors out of funds legally available therefor, to receive
dividends on each outstanding share of Series C Preferred Stock, at the rate of
14.0% per annum. Dividends on the Series C Preferred Stock issued in exchange
for the Series B Preferred Stock are payable quarterly in arrears on February
15, May 15, August 15 and November 15 of each year, commencing on the first
Dividend Payment Date to holders of record 15 days preceding the Dividend
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Payment Date. Dividends on the Series C Preferred Stock issued in exchange for
the Series B Preferred Stock will be cumulative (whether or not declared) from
the later of (a) the last Dividend Payment Date on which dividends were paid on
such Series B Preferred Stock surrendered in exchange therefor, or (b) if no
dividends have been paid on such Series B Preferred Stock, from the date of
issuance of the Series B Preferred Stock. Dividends on the Series C Preferred
Stock issued as dividends in respect of the Series C Preferred Stock will be
cumulative (whether or not earned or declared) from the date of issuance of the
Series C Preferred Stock. Dividends which are not declared and paid when due
will compound quarterly on each Dividend Payment Date at the dividend rate until
payment is made.
Dividends may, at the option of the Company, be paid on any Dividend
Payment Date either in cash or by issuing fully paid and nonassessable shares of
Series C 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 outstanding Senior Notes are redeemed,
dividends shall be paid in cash at the earlier of one year from the date of such
redemption or August 31, 2002. If the Company does not pay cash dividends after
August 15, 1999 or at any other time that it is required to do so, the per annum
dividend rate will be increased by 0.25% during each quarter ended on each
Dividend Payment Date on which non-cash payment occurs, unless such non-cash
payment has occurred during more than four quarters, in which case the per annum
dividend rate will be increased by 0.5% in each additional quarter in which such
non-cash payment occurs, with a maximum rate of 17.0% per annum. If the dividend
rate has been increased as a result of a non-cash payment, the rate will not
revert to the original rate even when the Company begins to pay cash dividends.
Optional Redemption
The Series C Preferred Stock will be redeemable, at the Company's option,
in whole or in part, at any time and from time to time on or after September 1,
1999, subject to the legal availability of funds therefor, upon not less than 30
days nor more than 60 days prior notice mailed by first-class mail to each
holder's registered address, at the following redemption prices (expressed in
percentages of liquidation preference), plus accrued and unpaid dividends, if
any, to the redemption date, if redeemed during the 12-month period set forth
below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
------------------------------------------------------------------- ----------------
<S> <C>
September 1, 1999 to and including August 31, 2000................. 108%
September 1, 2000 to and including August 31, 2001................. 106%
September 1, 2001 to and including August 31, 2002................. 104%
September 1, 2002 to and including August 31, 2003................. 102%
September 1, 2003 and thereafter................................... 100%
</TABLE>
In addition, at any time prior to September 1, 1999 the Company may redeem
(pursuant to one or more redemptions) up to 35% of the aggregate liquidation
preference of the Series C Preferred Stock (and the Series B Preferred Stock,
taken together) with net proceeds received from one or more public offerings of
equity securities of the Company at a redemption price equal to 110% of the
liquidation preference thereof, plus accrued and unpaid dividends thereon to the
date of redemption. Any such redemption will be required to occur on or prior to
120 days after the receipt of such net proceeds.
Mandatory Redemption
The Company is obligated to redeem all shares of the Series C Preferred
Stock outstanding on August 31, 2006 (the "Mandatory Redemption Date"), at a
redemption price equal to the liquidation preference of the Series C Preferred
Stock, payable in cash, plus accrued and unpaid dividends, which shall also be
payable in cash (whether or not otherwise payable in cash), to the date of
redemption. The Company's obligation to redeem the Series C Preferred Stock is
subject to the legal availability at the Company of funds therefor.
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<PAGE> 83
Change of Control
Upon a Change of Control of the Company, the Company shall, only if and
only to the extent permitted by the Senior Notes, the Old Credit Facility, the
Senior Secured Credit Facility and any other long term indebtedness outstanding
at such time, make an offer to purchase the outstanding shares of the Series C
Preferred Stock at a purchase price equal to 101% of the liquidation preference
of the Series C Preferred Stock, plus accrued and unpaid dividends, if any, to
the purchase date; provided, that, such offer will not result in the Series C
Preferred Stock being deemed to be Disqualified Stock under the Indenture. If
the Company does not make an offer to purchase the Series C Preferred Stock upon
a Change of Control, the dividend rate will be increased to an annual rate of
17% per annum. The Company's obligation to redeem the Series C Preferred Stock
will be subject to the legal availability of funds therefor. A "Change of
Control" of the Company will be deemed to have occurred at such time as (i) any
person other than KKEP, Dr. Bonoma, the heirs, executors, administrators
testamentary, trustees, legatees or beneficiaries of KKEP or Dr. Bonoma, a trust
the beneficiaries of which include only persons described above and their
respective spouses and lineal descendants, the general partner and each limited
partner of KKEP and any subsidiary of either KKEP or Dr. Bonoma or both of them
jointly (collectively, the "Permitted Holders"), becomes the beneficial owner of
50% or more of the total voting power of the Company's Common Stock; (ii) prior
to a public equity offering of Common Stock, Permitted Holders collectively
dispose of more than 50% of the shares of the Common Stock owned by the
Permitted Holders in the aggregate as of the date hereof (excluding dispositions
made to any other Permitted Holders); (iii) any person other than a Permitted
Holder becomes the beneficial owner of more than 35% of the total voting power
of the Company's Common Stock and the Permitted Holders together with officers
and employees of the Company beneficially own, in the aggregate, a lesser
percentage of the total voting power of the Common Stock of the Company than
such other person and do not have the right or ability by voting power, contract
or otherwise to elect or designate for election a majority of the Board of
Directors of the Company; (iv) there shall be consummated any consolidation or
merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which the Common Stock of the Company would be
converted into cash, securities or other property, other than a merger or
consolidation of the Company in which the holders of the Common Stock of the
Company outstanding immediately prior to the consolidation or merger hold,
directly or indirectly, at least a majority of the Common Stock of the surviving
corporation immediately after such consolidation or merger; or (v) subsequent to
a public equity offering of Common Stock during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by the
stockholders of the Company has been approved by 66 2/3% of the directors then
still in office who either were directors at the beginning of such period or
whose election or recommendation or election was previously so approved) cease
to constitute a majority of the Board of Directors of the Company.
Procedure for Redemption
On and after a redemption date, unless the Company defaults in the payment
of the applicable redemption price, dividends will cease to accrue on shares of
the Series C Preferred Stock called for redemption and all rights of holders of
such shares will terminate except for the right to receive the redemption price,
without interest. The Company will send a written notice of redemption by first
class mail, postage prepaid, to each holder of record of shares of the Series C
Preferred Stock, not fewer than 30 days nor more than 60 days prior to the date
fixed for such redemption. Shares of the Series C Preferred Stock issued and
reacquired will, upon compliance with the applicable requirements of Delaware
law, have the status of authorized but unissued shares of preferred stock of the
Company undesignated as to series and may with any and all other authorized but
unissued shares of preferred stock of the Company be designated or redesignated
and issued or reissued, as the case may be, as part of any series of preferred
stock of the Company, except that any issuance or reissuance of shares of the
Series C Preferred Stock must be in compliance with the Certificate of
Designation.
In the event of partial redemptions of the Series C Preferred Stock, the
shares to be redeemed will be determined pro rata or by lot, as determined by
the Company, except that the Company may redeem such
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shares held by any holder of fewer than 100 shares (or shares held by holders
who would hold less than 100 shares as a result of such redemption), as may be
determined by the Company.
Liquidation Preference
In the event of any liquidation, dissolution or winding-up of the Company,
holders of the Series C Preferred Stock will be entitled to receive a
preferential amount equal to $1,000 per share, plus all accrued and unpaid
dividends thereon to the date fixed for liquidation, dissolution or winding-up
of the Company (including an amount equal to a prorated dividend from the last
Dividend Payment Date to the date fixed for liquidation, dissolution or
winding-up), before any distribution is made on any capital stock, including,
without limitation, on any Common Stock other than the Series B Preferred Stock.
If upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, the amounts payable with respect to the Series C Preferred Stock
are not paid in full, the holders of the Series C Preferred Stock and the Series
B Preferred Stock will share equally and ratably in any distribution of assets
of the Company in proportion to the full liquidation preference to which each is
entitled. After payment of the full amount of the liquidation preferences to
which they are entitled, the holders of shares of the Series C Preferred Stock
will not be entitled to any further participation in any distribution of assets
of the Company. However, neither the sale, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Company nor the consolidation
or merger of the Company with one or more corporations shall be deemed to be a
liquidation, dissolution or winding-up of the Company.
The Certificate of Designation for the Series C Preferred Stock does not
contain any provision requiring funds to be set aside to protect the liquidation
preference of the Series C Preferred Stock, although such liquidation preference
will be substantially in excess of the par value of such shares of Series C
Preferred Stock. In addition, the Company is not aware of any provision of
Delaware law or any controlling decision of the courts of the State of Delaware
(the state of incorporation of the Company) that requires a restriction upon the
surplus of the Company solely because the liquidation preference of the Series C
Preferred Stock will exceed its par value. Consequently, there will be no
restriction upon any surplus of the Company solely because the liquidation
preference of the Series C Preferred Stock will exceed the par value and there
will be no remedies available to holders of the Series C Preferred Stock before
or after the payment of any dividend, other than in connection with the
liquidation preference of the Company, solely by reason of the fact that such
dividend would reduce the surplus of the Company to an amount less than the
difference between the liquidation preference of the Series C Preferred Stock
and its par value.
Voting Rights
Holders of the Series C Preferred Stock (acting together with the holders
of the Series B Preferred Stock, as a single class) will have the right to
nominate three candidates for directors on the Company's Board of Directors. The
Company shall use all reasonably commercial efforts to cause the election of one
of such nominees selected by the Company. Holders of the Series C Preferred
Stock otherwise have no general voting rights except as provided by law.
Under Delaware law, holders of Series C Preferred Stock will be entitled to
vote as a class upon a proposed amendment to the certificate of incorporation,
whether or not entitled to vote thereon by the certificate of incorporation, if
the amendment would increase or decrease the par value of the shares of such
class, or alter or change the powers, preferences or special rights of the
shares of such class so as to affect them adversely.
Covenants
The Certificate of Designation generally imposes certain restrictions on
the ability of the Company to declare dividends or make distributions with
respect to, or purchase, or redeem or exchange any capital stock of the Company
other than the Series C Preferred Stock and the Series B Preferred Stock, except
in or for capital stock (other than capital stock which matures or is
mandatorily redeemable prior to the latest maturity date of the Senior Notes or
the Series C Preferred Stock ("Disqualified Capital Stock")), unless dividends
on
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<PAGE> 85
the Series C Preferred Stock have been paid in cash for the most recent
quarterly period and the payments made on capital stock shall not in the
aggregate exceed 50% of consolidated net income less 100% of consolidated net
loss of the Company from August 31, 1996 to the date of such payment. Such
restrictions do not prohibit (i) the retirement of shares of capital stock in
exchange for shares of capital stock (other than Disqualified Capital Stock) or
out of the net proceeds of substantially concurrent sales of capital stock
(other than Disqualified Capital Stock); (ii) the retirement of Disqualified
Capital Stock by exchange of shares of Disqualified Capital Stock or out of net
proceeds of substantially concurrent sales of Disqualified Capital Stock; (iii)
the payment of cash dividends on the Cumulative Exchangeable Preferred Stock if
dividends have been paid in cash on the Series C Preferred Stock for the most
recently ended quarterly period; or (iv) the payment of management or advisory
fees to KKEP or to its affiliates in an amount that, when taken with all such
previous amounts paid since April 15, 1994, does not exceed an average annual
amount of $675,000.
The Certificate of Designation prohibits the Company from exercising its
option to exchange, either in whole or in part, the Cumulative Exchangeable
Preferred Stock for notes without the prior consent of the holders of the
majority in aggregate liquidation of the Series C Preferred Stock and the Series
B Preferred Stock, voting as a single class.
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or Section 15(d) of the Exchange Act, the Company
will be obligated to provide to the holders of the Series C Preferred Stock all
annual and quarterly reports and other documents which the Company would have
been required to file with the Commission pursuant to such Sections 13(a) and
15(d) had it been so subject and provide to all holders of Series C Preferred
Stock, without costs to such holders, copies of such reports and documents.
Transfer Agent and Registrar
Firstar Trust Company is the transfer agent and registrar for the Series C
Preferred Stock.
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DESCRIPTION OF OUTSTANDING INDEBTEDNESS
The following summary of the material terms of agreements governing certain
of the outstanding long-term indebtedness of the Company does not purport to be
complete and is qualified in its entirety by reference to the provisions of such
agreements, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part.
INDENTURE
In August 1994, the Company issued $65.0 million of 13.75% Senior Notes due
2001 and 2002 (the "Senior Notes") under the Indenture, dated as of August 18,
1994, between the Company, American Bank National Association as trustee (the
"Trustee") and subsidiaries of the Company. Capitalized terms used in this
section and not otherwise defined herein shall have the meaning set forth in the
Indenture.
The Senior Notes are irrevocably and unconditionally guaranteed, on a
subordinated basis, as to principal and interest, jointly and severally by all
present and future subsidiaries of the Company. Interest on the Senior Notes is
payable semiannually in arrears on each February 15 and August 15.
The Senior Notes are not entitled to any mandatory redemption or sinking
fund payments and are not redeemable at the Company's option prior to August 15,
1998. Thereafter, the Senior Notes will be redeemable in whole or in part at the
option of the Company, at redemption prices set forth in the Indenture plus
accrued and unpaid interest thereon, if any, to the applicable date of
redemption. Notwithstanding the foregoing, prior to August 15, 1998, the Company
may redeem up to 35% of the aggregate principal amount of the Senior Notes at a
redemption price equal to 112% of the aggregate principal amount of the Senior
Notes plus accrued and unpaid interest thereon, if any, to the date of
redemption with the net proceeds of an offering of common or preferred stock
(other than Disqualified Stock) of the Company; provided, that (i) such offering
of common or preferred stock of the Company results in net proceeds to the
Company of at least $20.0 million, (ii) such redemption shall occur within 30
days of the date of the closing of such offering of common or preferred stock of
the Company and (iii) none of such proceeds are obtained, directly or
indirectly, from a subsidiary of the Company.
Upon a Change of Control, the Company will be required to offer to
repurchase the Senior Notes at a purchase price equal to 101% of the aggregate
principal amount of the Senior Notes plus accrued and unpaid interest thereon to
the date of repurchase. For purposes of the Indenture, a Change of Control will
be deemed to have occurred upon (i) the sale, lease or transfer of all or
substantially all of the Company's assets to any person or entity other than
KKEP or Dr. Bonoma (collectively, the "Principals"), (ii) the liquidation or
dissolution of the Company, (iii) the acquisition by any person or entity other
than the Principals of a direct or indirect majority interest of the aggregate
voting power of the voting stock of the Company by way of merger, consolidation
or otherwise, (iv) the occurrence of any transaction the result of which is that
Dr. Bonoma, Mr. Greene, Mr. Bowen and Mr. DeChellis (collectively, the
"Executive Officers") and the Principals, beneficially own less, directly or
indirectly, than 35% of the aggregate voting power of the voting stock of the
Company; or (v) the failure of at least three of the Executive Officers to be
actively engaged in the day-to-day operations of the Company or its subsidiaries
on a full time basis, unless both of Dr. Bonoma and Mr. Greene are so engaged.
Except as described with respect to a Change of Control, the Indenture does not
contain other provisions that permit the holders of Senior Notes to require that
the Company repurchase or redeem the Senior Notes in the event of a takeover,
recapitalization or similar restructuring.
The Indenture contains numerous affirmative and negative covenants that
restrict the activities of the Company in many respects. Among other things, the
Indenture provides that the Company may not and may not permit any of its
subsidiaries to, directly or indirectly (i) declare or pay any dividend or make
any distribution on account of the Company's or its subsidiaries' capital stock
(other than dividends payable in capital stock that is not Disqualified Stock);
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company, its subsidiaries or affiliates; (iii) purchase,
redeem, defease or otherwise acquire or retire for value any portion of the
Seller Note, or voluntarily purchase, redeem, defease or otherwise acquire or
retire for value any other indebtedness that is pari passu with or subordinated
to the Senior Notes; or (iv) make certain investments that are not expressly
permitted under the Indenture, unless (a) no Event of
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Default has occurred or would occur as a consequence thereof; (b) immediately
after such payment and after giving effect thereto on a pro forma basis, the
Consolidated Net Worth of the Company would be at least $50 million and the
Company would be permitted to incur at least $1.00 of additional indebtedness
pursuant to the Fixed Charge Coverage Ratio requirements of the Indenture; and
(c) such payments, together with the aggregate of all such payments made after
the date of the Indenture, do not exceed certain limits set forth in the
Indenture. The Indenture further provides that, subject to certain exceptions,
(i) the Company may not and may not permit any of its subsidiaries to, directly
or indirectly, create, incur, issue, assume, guaranty or otherwise become
directly or indirectly liable with respect to any Indebtedness and that the
Company may not issue any Disqualified Stock or permit any of its subsidiaries
to issue any shares of Preferred Stock (as such term is defined in the
Indenture), unless no Event of Default shall have occurred and be continuing or
would occur as a consequence thereof and certain Fixed Charge Coverage Ratio
requirements are met. "Disqualified Stock" means (ii) Cumulative Exchangeable
Preferred Stock and (iii) any other capital stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the final
date of maturity of the Senior Notes.
The Indenture restricts sales, leases, transfers or other dispositions of a
significant subsidiary of the Company or assets or properties of the Company
with an aggregate value of at least $5 million, other than sales of inventory
and materials in the ordinary course of business, and sales of equity securities
of any of the Company's subsidiaries for net proceeds in excess of $1 million
unless the Company receives consideration at least equal to fair market value of
the assets disposed of and at least 80% of the consideration received is in the
form of cash. Proceeds from such sales must be used to, among others, reduce the
outstanding principal amount of the Existing Credit Facility and make an offer
to repurchase the Senior Notes if the amount of aggregate Excess Proceeds
available for the repurchase of the Senior Notes exceeds $2 million. The
Indenture limits the capacity of the Company and of its subsidiaries (i) to
create, incur, assume or suffer to exist certain liens, (ii) to create or
otherwise cause to exist or become effective encumbrances or restrictions on the
ability of any subsidiary to make certain payments, or, (iii) enter into certain
transactions with Affiliates.
In addition, the Indenture provides that the Company shall not permit its
Consolidated Net Worth as of the end of each of two consecutive fiscal quarters
commencing December 31, 1994 to be less than the then applicable Minimum
Consolidated Net Worth. Minimum Consolidated Net Worth means for each quarter
ending (i) on or prior to December 31, 1994, $20 million and (ii) after December
31, 1994, $20 million plus 50% of the Company's Adjusted Consolidated Net Income
for the quarter ended March 31, 1995 and for each quarter thereafter for which
internal financial information is available, in which the Company's Adjusted
Consolidated Net Income for such quarter was greater than zero.
The Company and its subsidiaries acting as guarantors under the Indenture
may not consolidate or merge with or into, or sell, assign, transfer, lease or
otherwise dispose of all or substantially all of their properties or assets
unless, among others (i) the Company, or the subsidiary as the case may be, is
the surviving corporation, or the transferee or surviving corporation is a
corporation organized or existing under the laws of the United States; (ii) the
transferee or surviving corporation assumes all the obligations of the Company
or subsidiary under the Indenture and the guarantors confirm their guarantees;
and (iii) no Event of Default exists; (iv) the surviving corporation or
transferee meets certain Consolidated Net Worth and Fixed Charge Coverage Ratio
requirements.
Events of Default under the Indenture include, among other things, (i)
continuing default in the payment of interest on the Senior Notes for a period
of five days or more; (ii) default in the payment of the principal (or premium,
if any) of the Senior Notes when due and payable; (iii) the Company's or
Subsidiaries' continuing failure to comply with any of its agreements or
covenants in, or provisions of, the Indenture or the Senior Notes after the
receipt of a notice of default; (iv) continuing default after receipt of notice
of default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Subsidiaries, if such default results from
the failure to pay principal or interest or as a result of such default the
maturity of such Indebtedness has been accelerated and the principal amount of
such Indebtedness, together with the principal
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amount of any other such Indebtedness with respect to which a default has
occurred, or the maturity of which has been so accelerated, exceeds $2 million
in the aggregate; (v) the fact that a guarantee from a Subsidiary ceases to be,
or is asserted by such Subsidiary not to be, in full force and effect and
enforceable in accordance with its terms; (vi) failure to pay a final judgment
or final judgments entered by a court against the Company or any of its
Subsidiaries aggregating in excess of $1.0 million, which judgments are not
stayed or discharged within 60 days after their entry; and (vii), the occurrence
of certain events of insolvency, bankruptcy or liquidation. Upon the occurrence
of an Event of Default described in (vii), the unpaid principal of and any
accrued interest on the Senior Notes will become immediately due and payable.
Upon the occurrence of any of the other Events of Default, the Trustee or the
holders of at least 25% in principal of the outstanding Senior Notes may declare
the unpaid principal of and accrued interest on the Senior Notes to be due and
payable.
The Senior Notes were issued in units with warrants to purchase shares of
Common Stock. The Senior Notes and warrants were detached in December 1994 prior
to the filing of the Company's registration statement with respect to the Senior
Notes. See "Description of Outstanding Capital Stock -- Initial Warrants."
In connection with the Senior Notes Offer, the Company is soliciting
consents from the holders of the outstanding Senior Notes to amend the Indenture
pursuant to which the Senior Notes were issued. The proposed amendments to the
Indenture (the "Proposed Amendments") would eliminate, from and after the
termination of the Senior Notes Offer, substantially all of the restrictive
covenants contained in the Indenture.
The Proposed Amendments would delete the following restrictive covenants
and any references thereto from the Indenture:
(a) "Reports," which requires the Company, the Guarantors and any
other obligor upon the Senior Notes to file with the Commission and deliver
to the Trustee the reports required by Section 13 or 15(d) of the Exchange
Act.
(b) "Limitation on Restricted Payments," which limits the payment of
Restricted Payments, including: (i) dividends and other distributions on
the Company's or its Subsidiaries' equity interests; (ii) purchase,
redemption or other acquisition or retirement for value of any Equity
Interests of the Company or any Subsidiary or other Affiliate of the
Company; (iii) purchase, redemption, defeasance, other acquisition or
retirement for value of any portion of any indebtedness that is pari passu
with or subordinated to the Senior Notes; or (iv) any Restricted
Investment.
(c) "Limitation on Restrictions on Subsidiary Dividends," which limits
the creation of encumbrances or restrictions on the ability of Subsidiaries
to pay dividends or make other distributions on capital stock, pay
indebtedness owed to the Company or any of its Subsidiaries, make loans or
advances to the Company or any of its subsidiaries or transfer property or
assets to the Company or any of its Subsidiaries.
(d) "Limitation or Incurrence of Indebtedness and Issuance of
Preferred Stock," which limits the incurrence of indebtedness by the
Company and its Subsidiaries and the issuance by the Company of
Disqualified Stock and the issuance by any Subsidiary of Preferred Stock.
(e) "Limitation on Transactions with Affiliates," which limits
transactions by the Company and its Subsidiaries with Affiliates.
(f) "Limitation on Liens," which limits the creation or incurrence of
Liens upon the assets and properties of the Company and its Subsidiaries.
(g) "Maintenance of Consolidated Net Worth," which requires the
Company to maintain a Consolidated Net Worth not less than the applicable
Minimum Consolidated Net Worth.
(h) "Liquidation," which restricts the Company from adopting certain
plans of liquidation or dissolution.
(i) "Rule 144A Information Requirement," which requires the Company to
furnish to certain holders of the Senior Notes information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
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(j) "Limitation on Future Subsidiary Guarantors," which requires that
future Subsidiaries enter into a guaranty of the Senior Notes.
(k) "Advisory Fees," which limits the ability of the Company to pay
certain management or advisory fees.
The Proposed Amendments would also delete certain sections of "When the
Company May Merge, etc.," which requires the surviving or transferee entity in a
merger or asset transfer (a) to be able to incur at least $1.00 of debt pursuant
to "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock"
after such transaction and (b) to have Consolidated Net Worth in an amount which
is not less than the Consolidated Net Worth of such person prior to such
transactions.
The Proposed Amendments require the consent of the holders of at least a
majority in aggregate principal amount of the outstanding Senior Notes.
SENIOR SECURED CREDIT FACILITY
On December 4, 1996, Cosmar, as borrower, RCI and certain of RCI's
subsidiaries (all domestic and Canadian material subsidiaries), as guarantors,
entered into the Senior Secured Credit Facility. The summary of the material
terms of the Senior Secured Credit Facility contained herein does not purport to
be complete and is qualified in its entirety by reference to the provisions of
the Senior Secured Credit Facility, a copy of which has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. Capitalized
terms not otherwise defined in this section (or elsewhere in this Prospectus)
have the meanings given to them in the Senior Secured Credit Facility.
Pursuant to the Senior Secured Credit Facility, the Lenders lent to Cosmar
$117.5 million (the "Interim Loan"). The Interim Loan matures on December 4,
1997. The Interim Loan may be converted into a term loan (the "Term Loan" and,
together with the Interim Loan, the "Loans") on December 4, 1997 if certain
conditions are satisfied, including the payment by Cosmar to the Lenders of a
fee of 3% of the principal amount of the notes (the "Term Notes") being issued
pursuant to the Term Loan and the absence of an Event of Default or Potential
Event of Default under the Senior Secured Credit Facility. The Term Loan matures
on December 4, 2003. Amounts borrowed under the Loans will bear interest at an
initial rate of 11.5% per annum, increasing to 12.5% on June 4, 1997 and by an
additional 0.5% at the end of each 90-day period thereafter, subject to a
maximum rate per annum of 20%. If the interest rate on the Term Loan exceeds
15%, Cosmar may pay the excess interest in kind by issuing additional Term
Notes. The Senior Secured Credit Facility also requires Cosmar to pay each
Lender an extension fee in an amount equal to 0.5% of the Interim Loan
outstanding on March 5, 1997.
The Senior Secured Credit Facility contains a number of covenants that
restrict the operations of the Company, including restrictions on, among other
things, (i) certain dispositions of assets, (ii) certain changes of business,
management or ownership, (iii) the making of loans and investments and entering
into joint ventures, (iv) the payment of dividends and other restricted
payments, (v) transactions with shareholders and affiliates, (vi) the incurrence
of contingent liabilities, (vii) the incurrence or existence of certain
indebtedness, (viii) mergers, acquisitions and capital expenditures, (ix)
pledges of stock or assets, (x) capital expenditures, (xi) partial refinancings
and (xii) the creation of certain liens and encumbrances.
The Company also will be subject to certain financial covenants including
(i) a minimum interest coverage ratio of Available Cash Flow to Consolidated
Cash Interest and Dividend Expense, on a rolling four quarter basis, of 0.8 for
the four quarters ending March 31, 1997, and thereafter increasing by 0.1 each
quarter until reaching 1.6 for the four quarters ending on March 31, 1999 and
each quarter thereafter and (ii) a maximum Cash Flow Leverage Ratio, on a
rolling four quarter basis, of 9.5 for the four quarters ending March 31, 1997,
and thereafter decreasing by 0.5 for the next two quarters, by 0.75 for the
third quarter, and by 0.25 for each quarter thereafter until reaching 5.5 for
the four quarters ending on March 31, 2000 and each quarter thereafter.
Events of Default under the Senior Secured Credit Facility include, among
other things, (i) the failure to pay any installment of principal when due and
failure to pay any interest on the Loans or any other amount due under the
Senior Secured Credit Facility which failure shall have continued for five days;
(ii) the failure
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by the Company to pay principal of or interest on any other indebtedness, or the
acceleration of any other indebtedness or contingent obligation prior to its
stated maturity, aggregating $3 million or more; (iii) the failure of the
Company to comply with its covenant to offer to repay the Loans upon a Change of
Control or to preserve its corporate existence where the failure to do so would
have a material adverse effect; (iv) the breach of any representation, warranty
or certification in any material respect contained in the Senior Secured Credit
Facility; (v) the breach by the Company of certain covenants contained in the
Senior Secured Credit Facility, provided that there is no Event of Default until
a period of 30 days after notice thereof from Lenders holding at least 25% of
the principal amount of the Loans; (vi) certain events of bankruptcy, insolvency
or dissolution; (vii) the entry against the Company of any final judgment or
judgments for the payment of money in excess of $3 million in the aggregate, or
judgment granting equitable relief against the Company if such judgment or
judgments are not stayed within 60 days from the date of entry thereof; (viii)
the occurrence of certain events relating to ERISA or other pension related
matters or environmental matters that has had a material adverse effect; (ix)
material damage to the collateral or loss of any license or permit that has had
a material adverse effect; and (x) the unenforceability in any material respect
of the subordination provisions of the Loans relating to subordinated
indebtedness.
For purposes of the Senior Secured Credit Facility, a Change of Control
will be deemed to have occurred when (i) any person, including a person's
affiliates and associates, other than KKEP or Dr. Bonoma, including their heirs,
executors, administrators, testamentary trustees, legatees, beneficiaries,
trusts, their respective spouses or lineal descendants, subsidiaries, or the
general or each limited partners of KKEP (a "Permitted Holder"), becomes the
beneficial owner of 50% or more of the total voting power of RCI common stock;
(ii) prior to a Public Equity Offering, the Permitted Holders collectively shall
dispose of more than 50% of the shares of RCI common stock owned by the
Permitted Holders in the aggregate, as of December 4, 1996 (excluding
dispositions made to another Permitted Holder); (iii) any Person (including a
Person's affiliates and associates), other than a Permitted Holder, becomes the
beneficial owner of more than 35% of the total voting power of RCI common stock,
and the Permitted Holders together with officers and employees of RCI,
beneficially own, in the aggregate, a lesser percentage of the total voting
power of RCI common stock than such other Person and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of RCI; (iv) any consolidation or
merger of RCI is consummated in which RCI is not the continuing or surviving
corporation, or pursuant to which RCI common stock would be converted into cash,
securities or other property, other than a merger or consolidation of RCI in
which the holders of RCI common stock outstanding immediately prior to the
consolidation or merger hold, directly or indirectly, at least a majority of the
common stock of the surviving corporation immediately after such consolidation
or merger; (v) subsequent to a Public Equity Offering, during any period of two
consecutive years, individuals who at the beginning of such period constituted
the board of directors of RCI (together with any new directors whose election by
such Board of Directors or whose nomination for election by the stockholders of
RCI has been approved by 66 2/3% of the directors then still in office who
either were directors at the beginning of such period or whose election or
recommendation for election was previously so approved) cease to constitute a
majority of the board of directors of RCI; or (vi) the occurrence of any "Change
of Control" as defined in the Senior Secured Indenture pursuant to which any
Demand Take-Out Notes are issued.
Upon the occurrence of an Event of Default under the Senior Secured Credit
Facility, the Lenders may accelerate the maturity of the Loans and any other
amounts due under the Senior Secured Credit Facility.
The full and prompt payment and performance, when due, of the obligations
of the Company under the Senior Secured Credit Facility is secured by a pledge
of the stock of Cosmar, GAC, Houbigant (1995) Limited and Dana. The Senior
Secured Credit Facility is also secured by substantially all of the assets of
Cosmar, RCI and the other guarantors.
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DESCRIPTION OF OUTSTANDING CAPITAL STOCK
The following summary of the outstanding capital stock of the Company does
not purport to be complete and is qualified in its entirety by reference to the
detailed provisions of the following documents: (i) the Company's Restated
Certificate of Incorporation (the "Certificate of Incorporation"), including the
Certificates of Designation referred to herein and (ii) the Company's by-laws.
GENERAL
Under the Company's Certificate of Incorporation, the Company is authorized
to issue 4,000,000 shares of capital stock, of which 3,000,000 shares are common
stock, par value $.01 per share (the "Common Stock"), and 1,000,000 shares are
preferred stock, par value $.01 per share (the "Serial Preferred Stock"). As of
September 30, 1996, 825,086 shares of common stock were issued and outstanding,
198,000 shares were reserved for issuance pursuant to the Initial Warrant
Agreement (as defined herein), 341,550 shares were reserved for issuance
pursuant to the Series B Warrant Agreement (as defined herein), 204,502 shares
were reserved for issuance in connection with the Company's stock option plan
and agreements and the Company has issued options to purchase 192,987 shares
pursuant to such plan and agreements.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share of
Common Stock on all matters voted on by stockholders of the Company. Subject to
any preferential rights of any outstanding series of preferred stock designated
by the Board of Directors, the holders of Common Stock are entitled to receive
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive pro rata all assets of the Company available for
distribution to such holders after distribution in full of the preferential
amount to be distributed to holders of shares of Serial Preferred Stock. All
outstanding shares of Common Stock are validly issued, fully paid and
nonassessable. The Common Stock has no preemptive or conversion rights or other
subscription rights and there are no redemption or sinking fund provisions
applicable to the Common Stock.
SERIAL PREFERRED STOCK
The Board of Directors has the authority to issue up to 1,000,000 shares of
Serial Preferred Stock in one or more series and to fix the number of shares
constituting any such series, the voting powers, designation, preferences and
relative participation, option or other special rights and qualifications,
limitations or restrictions thereof, including the dividend rights and dividend
rate, terms of redemption (including sinking fund provisions), redemption price
or prices, conversion rights and liquidation preferences of the shares
constituting any series, without further vote or action by the shareholders. The
issuance of Serial Preferred Stock by the Board of Directors could affect the
rights of holders of Common Stock. For example, such issuance could result in a
class of securities outstanding that would have preferences with respect to
voting rights and dividends, and in liquidation, over the Common Stock, and
could (upon conversion or otherwise) enjoy all of the rights appurtenant to
Common Stock. The authority possessed by the Board of Directors to issue Serial
Preferred Stock could potentially be used to discourage attempts by others to
obtain control of the Company through a merger, tender offer, proxy contest or
otherwise by making such attempts more difficult to achieve or more costly.
Cumulative Exchangeable Preferred Stock
40,000 shares have been designated in the Certificate of Incorporation as
Cumulative Exchangeable Preferred Stock (the "Cumulative Exchangeable Preferred
Stock" or "Redeemable Preferred Stock"). The Company originally issued 10,000
shares of Cumulative Exchangeable Preferred Stock with a par value of $0.01 per
share. The outstanding liquidation preference of the Cumulative Exchangeable
Preferred Stock at September 30, 1996 was $12.4 million. The Cumulative
Exchangeable Preferred Stock was issued in units with warrants to purchase
50,000 shares of Common Stock. See "-- Warrants."
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Dividends on shares of Cumulative Exchangeable Preferred Stock are
cumulative from the date of issue and are payable quarterly in arrears on
February 15, May 15, August 15 and November 15 of each year. The initial
dividend rate on the Cumulative Exchangeable Preferred Stock was 10% per annum.
Dividends are payable in (i) cash, (ii) additional shares of Cumulative
Exchangeable Preferred Stock or (iii) any combination thereof, at the option of
the Company, up to and including the August 15, 1997 dividend, and in cash
thereafter. Commencing on August 16, 1999, the dividend rate per share will be
15% per annum.
At any time after August 15, 1997, and prior to August 16, 1999, if (i) the
Cumulative Exchangeable Preferred Stock is not exchangeable into Senior Notes
because the Fixed Charge Coverage Ratio (as described in the Indenture) for the
Company's most recently ended four full fiscal quarters for which internal
financial information is available is less than 2.0:1, or (ii) in the event that
a cash dividend is not declared and paid when due and the Cumulative
Exchangeable Preferred Stock is not then exchangeable into Senior Notes for any
reason, then, in each case, the dividend rate thereafter shall be 12.5% per
annum for the period from August 16, 1997 until August 15, 1998 and 13.75% per
annum for the period from August 16, 1998 to August 15, 1999.
The Company may at any time exchange all, but not less than all, of the
then outstanding Cumulative Exchangeable Preferred Stock for Senior Notes to be
issued under the Indenture. On or after August 15, 1997, holders of Cumulative
Exchangeable Preferred Stock may demand the exchange of any or all of their
shares for Senior Notes if (i) the Connecticut-based employees of the Company
have not increased to a minimum of 30 persons and (ii) the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for which
internal financial information is available is greater than or equal to 2.0:1.
The Cumulative Exchangeable Preferred Stock is redeemable at any time at
the option of the Company, in whole or in part, at $1,000 per share plus all
accumulated and unpaid dividends, if any, to the date of redemption. The Company
must redeem all outstanding Cumulative Exchangeable Preferred Stock on August
15, 2002.
So long as the Cumulative Exchangeable Preferred Stock is outstanding, the
holders of the Cumulative Exchangeable Preferred Stock, by the affirmative vote
of the holders of at least a majority of all outstanding Cumulative Exchangeable
Preferred Stock, voting separately as a class, will have the exclusive right to
elect one director to the Board of Directors of the Company. The holders of
Cumulative Exchangeable Preferred Stock will have no other voting rights with
respect to their Cumulative Exchangeable Preferred Stock except as may be
required by applicable law.
The Company has agreed to make an offer to purchase shares of Cumulative
Exchangeable Preferred Stock to the extent permitted by the Indenture, (i) upon
the consummation of an Asset Sale Offer, with any Excess Proceeds from an Asset
Sale that exceed the aggregate purchase price of the Senior Notes tendered
pursuant to such Asset Sale Offer, or (ii) upon the consummation of a Change of
Control Offer, in either case, at $1,000 per share plus all accumulated and
unpaid dividends, if any, to the date of such purchase. (All capitalized terms
used herein and not otherwise defined shall have the meaning set forth in the
Indenture.)
Series B Preferred Stock
350,000 shares have been designated in the Certificate of Incorporation as
Series B Preferred Stock. The Company issued an aggregate of 115,000 shares of
Series B Preferred Stock with a par value of $.01 per share on August 15, 1996,
September 16, 1996 and September 27, 1996 and 4,008 shares were issued on
November 15, 1996 as dividends in respect of the 115,000 shares. The terms of
the Series B Preferred Stock are substantially identical to the terms of the
Series C Preferred Stock, except that the shares of Series B Preferred Stock
have not been registered under the Securities Act and contain terms restricting
the transfer of such shares.
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WARRANTS
Initial Warrants
The Company issued warrants to purchase shares of Common Stock of the
Company (the "Initial Warrants") under a Warrant Agreement, dated as of August
18, 1994, between the Company and American Bank National Association as warrant
agent (the "Initial Warrant Agreement"), as part of the issuance of the Senior
Notes and Cumulative Exchangeable Preferred Stock and has reserved 180,000
shares of Common Stock for issuance pursuant to the Initial Warrants. Each
Initial Warrant, when exercised, will entitle the holder thereof to receive the
number of shares of the Company's Common Stock set forth in such Initial Warrant
at $.01 per share. The number of shares of Common Stock into which an Initial
Warrant is convertible (the "Warrant Shares") may be subject to adjustment in
certain cases referred to below and detailed in the Initial Warrant Agreement.
The Initial Warrants are exercisable at any time on or after their date of
issuance and unless exercised, will automatically expire at 5:00 p.m. Eastern
Standard Time on August 15, 2001. The Initial Warrants and the Warrant Shares
have not been registered under the Securities Act and are subject to certain
transfer restrictions.
The holders of the Initial Warrants have no right to vote on matters
submitted to the shareholders of the Company and have no right to receive
dividends. The holders of the Initial Warrants are not entitled to share in the
assets of the Company in the event of liquidation, dissolution or the winding up
of the affairs of the Company.
If the Company (i) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock or other shares of its capital stock, (ii)
subdivides its outstanding shares of Common Stock into a greater number of
shares, (iii) combines its outstanding shares of Common Stock into a smaller
number of shares, or (iv) issues by reclassification of its Common Stock any
shares of its capital stock, then the number of shares of Common Stock issuable
upon exercise of each Initial Warrant immediately prior to such action shall be
proportionately adjusted so that the holder of any Initial Warrant thereafter
exercised may receive the aggregate number and kind of shares of capital stock
of the Company that such holder would have owned immediately following such
action if such Initial Warrant had been exercised immediately prior to such
action.
If the Company distributes to all holders of its Common Stock any of its
assets (including but not limited to cash), securities (other than capital
stock), or any rights or warrants to purchase securities (including but not
limited to Common Stock) of the Company, the Company will make the same
distribution to holders of the Initial Warrants as though, immediately prior to
the record date with respect to such distribution, each such holder owned the
number of shares of Common Stock such holder could have purchased upon the
exercise of the Initial Warrants held by such holder.
Subject to certain exceptions set forth in the Initial Warrant Agreement,
if the Company issues (i) shares of Common Stock for a consideration per share
less than the Current Market Price per share (as defined in the Initial Warrant
Agreement), or (ii) any securities convertible into or exchangeable for Common
Stock for a consideration per share of Common Stock initially deliverable upon
conversion or exchange of such securities that is less than the Current Market
Price per share on the date of issuance of such securities, the Company shall
offer to sell to each holder of Initial Warrants, at the same price and on the
same terms offered to all other prospective buyers (provided that the holders of
Initial Warrants shall not be required to buy any other security in order to buy
such Common Stock or convertible securities), a portion of such Common Stock or
convertible securities that is equal to such holder's portion of the Common
Stock then outstanding if immediately prior thereto all the Initial Warrants had
been exercised. Each such holder may elect to buy all or any portion of the
Common Stock or convertible securities offered or may decline to purchase any.
Notwithstanding the foregoing, no adjustment or action need be made for (i)
a change solely in the par value or no par value of the Common Stock, provided
that the Company shall not increase the par value to exceed the exercise price
of the Initial Warrants, (ii) the conversion or exchange (other than pursuant to
a reclassification), in any case on a share-for-share basis, of Common Stock for
non-voting common stock that has rights (other than voting rights) identical to
the Common Stock, or of such non-voting stock for Common
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Stock, (iii) shares of Common Stock (or options to purchase such shares) issued
to employees of the Company or any of its Subsidiaries pursuant to certain stock
option agreements (as described in the Initial Warrant Agreement) or (iv) the
exercise of the Initial Warrants.
In case of certain consolidations or mergers of the Company, or the sale of
all or substantially all of the assets of the Company to another corporation,
each Initial Warrant will thereafter be exercisable for the right to receive the
kind and amount of shares of stock or other securities or property to which such
holder would have been entitled as a result of such consolidation, merger or
sale had the Initial Warrants been exercised immediately prior thereto.
Except under certain circumstances including, without limitation, an
underwriter's market cut-back and registration of shares to be offered pursuant
to an employee benefit plan, an exchange offer or certain merger transactions,
whenever the Company proposes to register any shares of its Common Stock under
the Securities Act, the Company will notify each holder of the Initial Warrants
or Warrant Shares of the proposed filing and if so requested by such holders,
the Company will use its best efforts to register Warrant Shares under the
Securities Act.
The holders of Initial Warrants and Warrant Shares are entitled, with
certain limitations, to demand registration rights with respect to the Warrant
Shares at any time after 90 days following an initial public offering of the
Common Stock, provided that the managing underwriter may require such period to
be extended to up to 180 days following such initial public offering.
Series B Warrants
The Company issued warrants to purchase shares of Common Stock (the "Series
B Warrants") under a Warrant Agreement, dated as of August 15, 1996, between the
Company and Firstar Trust Company as warrant agent, as amended (the "Series B
Warrant Agreement"), as part of the issuance of the Series B Preferred Stock and
has reserved 341,550 shares of Common Stock for issuance pursuant to the Series
B Warrants. Each Series B Warrant, when exercised, will entitle the holder
thereof to purchase 2.970 shares of Common Stock of the Company (each such
share, a "Series B Warrant Share") at an exercise price equal to $.01 per share
(the "Exercise Price"). The number of Series B Warrant Shares may be adjusted
from time to time upon the occurrence of certain events as provided in the
Series B Warrant Agreement. The Series B Warrants are exercisable at any time on
or after the date of issuance and, unless exercised, will automatically expire
on August 31, 2006. The Series B Warrants are detachable from the Series B
Preferred Stock and separately transferable, subject to compliance with
applicable federal and state securities laws. The Series B Warrants and the
Series B Warrant Shares have not been registered under the Securities Act and
are subject to certain transfer restrictions.
The holders of Series B Warrants have no right to vote on matters submitted
to the shareholders of the Company and have no right to receive dividends. The
holders of the Series B Warrants will not be entitled to share in the assets of
the Company in the event of dissolution, liquidation or the winding up of the
affairs of the Company.
The number of shares of Common Stock issuable upon the exercise of each
Series B Warrant (the "Series B Exercise Rate") will be subject to adjustment
from time to time in certain events including: (i) the payment or distribution
of a dividend on the Common Stock in shares of the Common Stock or other capital
stock of the Company; (ii) subdivisions, combination or reclassification of the
outstanding shares of Common Stock; (iii) the issuance of shares of Common Stock
or distribution of any right, options or warrants to any person entitling them
to purchase shares of Common Stock, or securities convertible into or
exchangeable for Common Stock, at a price per share less than the current market
value; (iv) the distribution to all holders of its Common Stock of any evidences
of indebtedness of the Company or of its subsidiaries; (v) distribution of any
assets of the Company or any of its subsidiaries (other than cash dividends or
other cash distributions or distributions from current or retained earnings and
earned surplus); or (vi) distribution of any rights, options or warrants to
acquire any of the foregoing referred to in clauses (iv) and (v).
93
<PAGE> 95
In case of certain consolidations or mergers of the Company, or the sale of
all or substantially all of the assets of the Company to another corporation,
each Series B Warrant shall thereafter be exercisable for the right to receive
the kind and amount of shares of stock or other securities or property to which
such holders would have been entitled as a result of such consolidation, merger
or sale had the Series B Warrants been exercised immediately prior thereto.
If, at any time prior to the Company's public offering of stock resulting
in gross proceeds to the Company of at least $10.0 million (the "Drag-Along
Termination Date"), holders of Common Stock and/or rights, warrants, options,
convertible securities or convertible indebtedness, exchangeable securities or
exchangeable indebtedness, or other rights, exercisable for or convertible or
exchangeable into Common Stock, whether at the time or upon the occurrence of
some future event (collectively, "Common Stock Equivalents") determine to sell
shares of Common Stock and/or Common Stock equivalents representing more than
50% of the shares of Common Stock outstanding and the shares of Common Stock
into or for which rights, options, warrants or other securities outstanding are
exercisable or convertible (other than the Series B Warrants) (collectively, the
"Fully Diluted Shares"), the holders of a majority of such shares shall have the
right to require holders of the Series B Warrants (including any Series B
Warrant Shares) to sell their shares on a pro rata basis on the same terms.
If, at any time, prior to the earlier of the Drag-Along Termination Date or
August 31, 2002, any holder of Series B Warrants and/or Series B Warrant Shares
transfer more than 5% of the Fully Diluted Shares, the holders of the Series B
Warrants shall be entitled to sell the Series B Warrants and/or the Series B
Warrant Shares on a pro rata basis and on the same terms.
Five years following the date of issuance of the Series B Warrants, the
holders of 25% of the Series B Warrants and/or Series B Warrant Shares will have
the right, subject to the Company's right to purchase such shares at their fair
market value, to demand registration of not less than 25% of the Series B
Warrant Shares, such offering to be consummated by a nationally recognized
investment banking firm selected by the Company and reasonably acceptable to the
holders of the Series B Warrants. The holders of the Series B Warrants also
shall be entitled to piggyback registration rights if at any time after the
Company's initial public offering of Common Stock, the Company proposes to file
a registration statement under the Securities Act with respect to an offering by
the Company (other than certain enumerated exceptions) subject to cutback by
underwriters.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of certain of the anticipated federal income tax
consequences of an exchange of the Series B Preferred Stock for Series C
Preferred Stock and of the purchase, ownership, and disposition of the Series C
Preferred Stock and Warrants is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the final, temporary, and
proposed regulations promulgated thereunder, and administrative rulings and
judicial decisions now in effect, all of which are subject to change (possibly
with retroactive effect) or different interpretations. This summary does not
purport to deal with all aspects of federal income taxation that may be relevant
to a particular investor, nor any tax consequences arising under the laws of any
state, locality, or foreign jurisdiction, and it is not intended to be
applicable to all categories of investors, some of which, such as dealers in
securities, banks, insurance companies, tax-exempt organizations, foreign
persons, persons that hold Series C Preferred Stock or Warrants as part of a
straddle or conversion transaction, or holders subject to the alternative
minimum tax, may be subject to special rules. In addition, the summary is
limited to persons that will hold the Series C Preferred Stock and Warrants as
"capital assets" (generally, property held for investment) within the meaning of
Section 1221 of the Code. ALL INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISERS REGARDING THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF
THE EXCHANGE AND THE OWNERSHIP AND DISPOSITION OF SERIES C PREFERRED STOCK AND
WARRANTS.
94
<PAGE> 96
TAXATION OF HOLDERS ON EXCHANGE
Although the matter is not free from doubt, an exchange of shares of Series
B Preferred Stock for shares of Series C Preferred Stock should not be a taxable
event to holders of Series B Preferred Stock, and holders should not recognize
any taxable gain or loss as a result of such an exchange. Accordingly, a holder
would have the same adjusted basis and holding period in the Series C Preferred
Stock as it had in the Series B Preferred Stock immediately before the exchange.
Further, the tax consequences of ownership and disposition of any shares of
Series C Preferred Stock should be the same as the tax consequences of ownership
and disposition of shares of the Series B Preferred Stock.
ALLOCATION OF PURCHASE PRICE
The purchase of the Series B Preferred Stock with the Warrants was treated
as the purchase of an investment unit for Federal income tax purposes. In order
to determine the issue price for each security, the aggregate issue price of the
Series B Preferred Stock and Warrants was allocated between each of the
securities based on their relative fair market values on the date of issuance.
The issue price of the Series C Preferred Stock should be the same as the issue
price of the Series B Preferred Stock (adjusted to take into account any
constructive distributions on the Series B Preferred Stock under Section 305 of
the Code, as described below) immediately before the exchange.
DISTRIBUTIONS ON SERIES C PREFERRED STOCK AND EXCESS REDEMPTION PRICE
The amount of any distribution with respect to the Series C Preferred Stock
will be equal to the amount of cash or the fair market value of the shares of
Series C Preferred Stock distributed. A stockholder's initial tax basis in any
additional shares of Series C Preferred Stock distributed by the Company will be
equal to the fair market value of such additional shares of Series C Preferred
Stock on the date of distribution. A stockholder's holding period for such
additional shares of Series C Preferred Stock will commence on the day following
the date of distribution and will not include such stockholder's holding period
for the shares of Series C Preferred Stock with respect to which the additional
shares of Series C Preferred Stock were distributed. The amount of any
distribution with respect to the Series C Preferred Stock, whether paid in cash
or in additional shares of Series C Preferred Stock, will be a dividend, taxable
as ordinary income to the recipient thereof, to the extent of the Company's
current or accumulated earnings and profits ("earnings and profits") as
determined under U.S. federal income tax principles. To the extent that the
amount of such a distribution exceeds the current and accumulated earnings and
profits of the Company, such excess will be treated as a nontaxable recovery of
the holder's basis in the stock in respect of which the distribution is made (to
the extent thereof), with any remaining excess treated as a gain from the sale
or exchange of such stock.
In addition, under Section 305 of the Code and the Treasury Regulations
authorized thereunder, if the redemption price of preferred stock exceeds its
issue price by more than a de minimis amount, such excess may under certain
circumstances, be taxable as a constructive distribution to the holder (treated
as a dividend to the extent of the Company's current and accumulated earnings
and profits and otherwise subject to the treatment described above for
distributions in excess of current and accumulated earnings and profits). A
holder of such preferred stock is required to treat such excess as a
constructive distribution received by the holder over the life of the preferred
stock under a constant interest (economic yield) method that takes into account
the compounding of yield. The excess of the liquidation preference over the
issue price of the Series C Preferred Stock will be treated as a constructive
distribution, as described above, by a holder on a constant yield basis over its
term. In the case of the Series C Preferred Stock initially issued to the
purchaser, the issue price will be determined as described above under
"-- Allocation of Purchase Price." In the case of any additional shares of
Preferred Stock distributed by the Company in lieu of a cash payment, the issue
price generally will equal the fair market value of such shares of Series C
Preferred Stock on the date of distribution, with the result that the amount of
any redemption premium, and the tax consequences thereof, may need to be
separately determined for each such distribution. Holders should consult their
own tax advisers regarding the application of the redemption premium rules to
their particular situation.
95
<PAGE> 97
DIVIDENDS TO CORPORATE SHAREHOLDERS
In general, an actual or constructive distribution that is treated as a
dividend for federal income tax purposes and that is made to a corporate
shareholder with respect to the Series C Preferred Stock will qualify for the
70% dividends-received deduction. Holders should note, however, that the Company
does not currently have any accumulated earnings and profits and that there can
be no assurance regarding the amount of current or accumulated earnings and
profits of the Company in the future. As a result, there can be no assurance
that the dividends-received deduction will apply to distributions on the Series
C Preferred Stock.
In addition, there are many exceptions and restrictions relating to the
availability of such dividends-received deduction such as restrictions relating
to (i) the holding period of stock the dividends on which are sought to be
deducted, (ii) debt-financed portfolio stock, (iii) dividends treated as
"extraordinary dividends" for purposes of Section 1059 of the Code, and (iv)
taxpayers that pay alternative minimum tax. Corporate shareholders should
consult their own tax advisers regarding the extent, if any, to which such
exceptions and restrictions may apply to their particular factual situation.
Additionally, recently proposed legislation would reduce the applicable
dividends-received deduction from 70% to 50% and could also affect the
availability of such deduction to corporate shareholders that do not meet
applicable holding period requirements. It is uncertain whether or in what form
such legislation will be enacted into law. Corporate shareholders should consult
their own tax advisers regarding the extent, if any, to which any such
legislation may apply to their particular factual situation.
REDEMPTION, SALE, OR EXCHANGE OF PREFERRED STOCK
Upon a sale or other disposition (other than a redemption) of the shares of
Series C Preferred Stock, a holder will generally recognize capital gain or loss
equal to the difference between the sum of the amount of cash and the fair
market of any property received by the holder and such holder's adjusted tax
basis in such shares. Such gain or loss will be long-term if the holding period
for such shares is more than one year.
A holder's initial tax basis in the Series C Preferred Stock will equal its
tax basis in the Series B Preferred Stock, as described above under "Taxation of
Holders on Exchange." Thereafter, such initial tax basis will be (i) increased
by the amount (if any) of any constructive distributions the holder is treated
as having received pursuant to the rules described above under "Distributions on
Series C Preferred Stock and Excess Redemption Price" and (ii) decreased by the
portion of any (actual or constructive) distribution that is treated as a
tax-free recovery of basis as described above under "Distributions on Series C
Preferred Stock and Excess Redemption Price."
Upon a redemption of the shares of Series C Preferred Stock in a situation
where the holder has no other interest in the Company, actually or
constructively, following such redemption, the holder will generally recognize
capital gain or loss (except to the extent of cash payments received on the
exchange that are attributable to declared dividends which will be treated in
the same manner as distributions described above). If the holder does continue
to own an interest in the Company, actually or constructively, the redemption
payment could be treated as a dividend subject to the rules described above.
BACKUP WITHHOLDING
In general, a noncorporate holder of Series C Preferred Stock or Warrant
will be subject to backup withholding at the rate of 31% with respect to
reportable payments of dividends accrued with respect to, or the proceeds of a
sale, exchange, or redemption of, Series C Preferred Stock or Warrants, if the
holder fails to provide a taxpayer identification number or certification of
foreign or other exempt status or fails to report in full dividend and interest
income. Amounts paid as backup withholding do not constitute an additional tax
and will be credited against the holder's federal income tax liabilities.
THE UNITED STATES FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY OR MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISERS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE EX-
96
<PAGE> 98
CHANGE OF SERIES B PREFERRED STOCK FOR SERIES C PREFERRED STOCK AND OF THE
OWNERSHIP AND DISPOSITION OF THE SERIES C PREFERRED STOCK AND THE WARRANTS,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
LEGAL OPINION
Certain legal matters in connection with the exchange of the Series B
Preferred Stock for the Series C Preferred Stock will be passed upon for the
Company by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York.
EXPERTS
The financial statements of the Company as of March 31, 1996 and 1995 and
for the years then ended and of Cosmar Corporation and Affiliate for the period
from January 1, 1994 to August 17, 1994, included in this Prospectus and the
related financial statement schedules included elsewhere in the Registration
Statement have been audited by Deloitte & Touche, LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the Registration
Statement, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
The financial statements of the Cosmar Corporation and Affiliate (the prior
owners of the assets of the Company's Cosmar subsidiary) as of December 31, 1993
and for the year then ended included in this Prospectus have been audited by
Windes & McClaughry Accountancy Corporation, independent auditors, as stated in
their report appearing herein and elsewhere in the Registration Statement, and
have been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of GAC as of December 31, 1995 and December 31,
1994 and for the years then ended included in this Prospectus have been audited
by Deutsch, Marin & Company, independent auditors, as stated in their report
appearing herein and elsewhere in the Registration Statement, and have been so
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The consolidated financial statements of MEM at December 31, 1995 and 1994
and for each of the three years in the period ended December 31, 1995, appearing
in this Prospectus and Registration Statement have been audited by Ernst &
Young, LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
97
<PAGE> 99
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
RENAISSANCE COSMETICS INC. AND SUBSIDIARIES:
Consolidated Balance Sheets -- September 30, 1996 (Unaudited) (As Restated) and March 31,
1996......................................................................................... F-2
Consolidated Statements of Operations -- Six Months Ended September 30, 1996 and 1995
(Unaudited) (As Restated).................................................................... F-3
Consolidated Statements of Cash Flows -- Six Months Ended September 30, 1996 and 1995
(Unaudited) (As Restated).................................................................... F-4
Notes to Consolidated Financial Statements..................................................... F-5
Independent Auditors' Report................................................................... F-8
Consolidated Balance Sheets -- March 31, 1996 and 1995......................................... F-9
Consolidated Statements of Operations -- Year Ended March 31, 1996 and Period from April 15,
1994 (Inception) to March 31, 1995........................................................... F-10
Consolidated Statements of Stockholders' Equity -- Year Ended March 31, 1996 and Period
from April 15, 1994 (Inception) to March 31, 1995............................................ F-11
Consolidated Statements of Cash Flows -- Year Ended March 31, 1996 and
Period from April 15, 1994 (Inception) to March 31, 1995..................................... F-12
Notes to Consolidated Financial Statements..................................................... F-13
COSMAR CORPORATION AND AFFILIATE (PREDECESSOR):
Independent Auditors' Report................................................................... F-26
Combined Statement of Operations of Assets Acquired and Liabilities Assumed and Changes in
Excess of Assets Acquired Over Liabilities Assumed -- Period from January 1, 1994 to
August 17, 1994.............................................................................. F-27
Combined Statement of Cash Flows of Assets Acquired and Liabilities Assumed -- Period from
January 1, 1994 to August 17, 1994........................................................... F-28
Notes to the Combined Financial Statements..................................................... F-29
Independent Auditors' Report................................................................... F-31
Combined Statement of Income -- For the Year Ended December 31, 1993........................... F-32
Combined Statement of Cash Flows -- For the Year Ended December 31, 1993....................... F-33
Notes to the Combined Financial Statements..................................................... F-34
GREAT AMERICAN COSMETICS, INC.:
Balance Sheet as at June 30, 1996 (Unaudited).................................................. F-36
Statements of Income and Retained Earnings -- For the Six Months Ended June 30, 1996 and 1995
(Unaudited).................................................................................. F-37
Statements of Cash Flows -- For the Six Months Ended June 30, 1996 and 1995 (Unaudited)........ F-38
Notes to Financial Statements.................................................................. F-39
Report of Independent Accountants.............................................................. F-40
Balance Sheet as at December 31, 1995 and 1994................................................. F-41
Statements of Income and Retained Earnings -- For the Years Ended December 31, 1995
and 1994..................................................................................... F-42
Statements of Cash Flows -- For the Years Ended December 31, 1995 and 1994..................... F-43
Notes to Financial Statements.................................................................. F-44
MEM COMPANY INC. AND SUBSIDIARIES:
Consolidated Balance Sheet -- September 30, 1996 (Unaudited) and December 31, 1995............. F-47
Consolidated Statements of Operations -- Nine Months Ended September 30, 1996 and 1995
(Unaudited).................................................................................. F-48
Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 1996 and 1995
(Unaudited).................................................................................. F-49
Notes to Consolidated Financial Statements..................................................... F-50
Report of Independent Auditors................................................................. F-51
Consolidated Statements of Operations -- Years Ended December 31, 1995, 1994 and 1993.......... F-52
Consolidated Balance Sheets -- December 31, 1995 and 1994...................................... F-53
Consolidated Statements of Changes in Stockholders' Equity -- Years Ended December 31, 1995,
1994 and 1993................................................................................ F-54
Consolidated Statements of Cash Flows -- Years Ended December 31, 1995, 1994 and 1993.......... F-55
Notes to Consolidated Financial Statements..................................................... F-56
</TABLE>
F-1
<PAGE> 100
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER
30,
1996
(AS MARCH 31,
RESTATED) 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 69,523,193 $ 1,431,809
Marketable securities.................................................... 241,780 173,604
Accounts receivable -- Net............................................... 47,208,838 34,557,409
Inventories.............................................................. 39,981,339 30,236,739
Prepaid expenses and other current assets................................ 7,300,459 6,539,828
----------- -----------
Total current assets.................................................. 164,255,609 72,939,389
PROPERTY, PLANT AND EQUIPMENT -- Net....................................... 14,536,325 14,535,363
DEFERRED FINANCING COSTS -- Net............................................ 7,128,127 8,006,782
OTHER ASSETS -- Net........................................................ 11,588,769 12,242,090
INTANGIBLE ASSETS -- Net................................................... 91,044,910 76,895,294
----------- -----------
TOTAL ASSETS............................................................... $288,553,740 $184,618,918
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable............................................................ $ 54,200,000 $ 57,000,000
Accounts payable......................................................... 13,911,275 19,462,868
Accrued expenses......................................................... 19,384,828 15,157,127
Other current liabilities................................................ -- 2,700,000
----------- -----------
Total current liabilities............................................. 87,496,103 94,319,995
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt........................................................... 67,491,890 67,322,944
Minimum royalty obligation............................................... 4,917,756 4,686,039
Deferred tax liability................................................... -- 140,619
----------- -----------
Total long-term liabilities........................................... 72,409,646 72,149,602
----------- -----------
TOTAL LIABILITIES.......................................................... 159,905,749 166,469,597
----------- -----------
COMMITMENTS AND CONTINGENCIES
SENIOR REDEEMABLE PREFERRED STOCK -- SERIES B:
Par value $.01 -- authorized, 350,000 shares; issued, 115,000 shares at
September 30, 1996.................................................... 78,320,860 --
----------- -----------
REDEEMABLE PREFERRED STOCK:
Par value $.01 -- authorized, 40,000 shares; issued, 12,181 shares at
September 30, 1996; 11,594 shares at March 31, 1996................... 12,410,719 11,697,624
----------- -----------
COMMON STOCKHOLDERS' EQUITY:
Common stock, par value $.01 -- authorized, 3,000,000 shares; issued,
830,736 shares at September 30, 1996; 726,818 shares at March 31,
1996.................................................................. 8,308 7,268
Notes receivable from sale of common stock............................... (517,609) (517,609)
Additional paid-in capital............................................... 69,403,049 26,786,732
Treasury stock, at cost (5,650 shares)................................... (210,000) (210,000)
Deficit.................................................................. (29,924,894) (19,563,738)
Cumulative translation adjustment........................................ (842,442) (50,956)
----------- -----------
Total common stockholders' equity..................................... 37,916,412 6,451,697
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................. $288,553,740 $184,618,918
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 101
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
(AS RESTATED)
-----------------------------
1996 1995
------------ -------------
<S> <C> <C>
NET SALES......................................................... $ 77,709,451 $ 61,924,026
COST OF GOODS SOLD................................................ 28,753,676 23,548,929
----------- -----------
GROSS PROFIT...................................................... 48,955,775 38,375,097
----------- -----------
OPERATING EXPENSES:
Selling......................................................... 30,652,722 22,080,406
General and administrative...................................... 10,070,629 7,892,040
Amortization of intangible and other
assets....................................................... 3,122,369 2,414,437
----------- -----------
Total operating expenses..................................... 43,845,720 32,386,883
----------- -----------
OPERATING INCOME.................................................. 5,110,055 5,988,214
INTEREST EXPENSE (INCOME):
Interest expense................................................ 10,838,227 9,003,810
Interest income................................................. (734,550) (156,563)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES................................. (4,993,622) (2,859,033)
INCOME TAX PROVISION.............................................. 308,000 697,467
----------- -----------
NET INCOME (LOSS)................................................. (5,301,622) (3,556,500)
PREFERRED STOCK DIVIDENDS......................................... 5,059,534 660,698
----------- -----------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS........................ $(10,361,156) $ (4,217,198)
=========== ===========
NET LOSS PER COMMON SHARE......................................... $ (14.08) $ (5.86)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING............................... 735,648 720,093
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 102
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
(AS RESTATED)
-----------------------------
1996 1995
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................................... $ (5,301,622) $ (3,556,500)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation................................................................. 1,678,877 1,112,872
Amortization of intangible assets............................................ 1,558,903 1,641,257
Amortization of minimum royalty and other assets............................. 1,563,466 773,180
Amortization of deferred financing costs..................................... 1,605,064 1,162,145
Accrued interest on senior notes, subordinated seller notes and minimum
royalty obligation......................................................... 657,162 643,687
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable.......................................................... (10,609,410) (21,169,361)
Inventories.................................................................. (8,169,750) (3,880,797)
Prepaid expenses and other assets............................................ (1,187,951) (2,865,851)
Accounts payable............................................................. (6,686,654) (1,342,339)
Accrued expenses............................................................. 887,765 1,676,336
Other current liabilities.................................................... (2,700,000) --
Other........................................................................ (930,105) 131,434
------------ ------------
Net cash used in operating activities...................................... (27,634,255) (25,673,937)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities............................................ -- 253,849
Sale of marketable securities................................................ (68,176) --
Capital expenditures......................................................... (1,635,287) (4,135,521)
Acquisition of business -- net of cash acquired.............................. (15,379,768) --
------------ ------------
Net cash used in investing activities...................................... (17,083,231) (3,881,672)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable.............................................. -- 25,000,000
Payment of minimum royalty obligation........................................ (256,499) --
Net proceeds of issuance of preferred stock -- Series A...................... 18,955,000 --
Payment of deferred financing costs.......................................... (726,409) (900,000)
Net repayment of notes payable............................................... (2,800,000) --
Redemption of preferred stock -- Series A.................................... (20,433,973) --
Net proceeds of issuance of redeemable preferred stock -- Series B........... 108,320,751 --
Net proceeds from issuance of common stock................................... 9,750,000 --
------------ ------------
Net cash provided by financing activities.................................. 112,808,870 24,100,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 68,091,384 (5,455,609)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................. 1,431,809 7,001,170
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................................... $ 69,523,193 $ 1,545,561
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................................... $ 8,188,701 $ 6,741,894
============ ============
Income taxes............................................................... $ 994,868 $ 597,208
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING TRANSACTIONS:
Accrued dividends and accretion on redeemable preferred stocks............... $ 5,059,534 $ 660,698
============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 103
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements of Renaissance Cosmetics, Inc. (the
"Company") have been prepared by the Company and are unaudited and 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 six
months ended September 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 operations 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:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1996
------------- ----------
<S> <C> <C>
Raw material and advertising supplies..................... $ 11,370,826 $16,956,874
Work in process........................................... 651,407 2,860,139
Finished goods............................................ 27,959,106 10,419,726
---------- ----------
$ 39,981,339 $30,236,739
========== ==========
</TABLE>
The above components are shown net of excess and obsolete inventory
reserves of $1,980,000 and $1,540,000 at September 30, 1996 and March 31, 1996,
respectively. At September 30, 1996 and March 31, 1996 approximately 62.1% 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 September 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 April 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 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.
F-5
<PAGE> 104
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
4. SETTLEMENT OF LITIGATION
On July 23, 1996, the Houbigant litigation previously disclosed in our
Annual Report on Form 10K, was settled. The Company paid $1,850,000 owed to
Houbigant, net of the settlement of $850,000.
The Settlement Agreement also included certain modifications of existing
royalty agreements with Houbigant, in order to consolidate the worldwide
exclusive rights to sell the Houbigant Fragrances.
5. ACQUISITION
On August 21, 1996, RCI, through its Cosmar subsidiary, completed its
acquisition of all of the issued and outstanding capital stock of Great American
Cosmetics Company ("GAC") pursuant to a Stock Purchase Agreement (the "GAC
Acquisition Agreement"), dated June 27, 1996, with GAC and Messrs. Pallini and
Carbone, the sole shareholders of GAC (the "Sellers").
GAC 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.
The purchase price for the GAC Acquisition was $15,250,000 in cash,
approximately $14,209,000 of which was paid to the Sellers at closing,
approximately $41,000 of which was retained by Cosmar to fund possible
post-closing severance bonuses to certain GAC employees and the remaining
$1,000,000 of which was placed into escrow to secure the Sellers' post-closing
obligation to indemnity Cosmar for breaches of the Sellers' representations,
warranties and covenants contained in the GAC Acquisition Agreement. Concurrent
with the closing, RCI repaid $796,000 of GAC indebtedness. Immediately prior to
the closing, GAC repaid $184,000 of loans owed to its shareholders. In
connection with the closing, the Company agreed to fund up to $141,000 (with up
to $100,000 of its own funds and up to $41,000 of the purchase price held back
from the Sellers for this purpose) of possible post-closing severance bonuses to
certain GAC employees, if earned.
6. PENDING ACQUISITION
On August 6, 1996, RCI, its newly formed wholly-owned subsidiary,
Renaissance Acquisition, Inc. ("RAI"), and MEM Company, Inc., a New York
corporation ("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
settled in cash 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). Due to the seasonality of MEM's
business, such amount of indebtedness could be materially higher depending on
the date the MEM Acquisition is closed.
7. PREFERRED AND COMMON STOCK ISSUANCES
In August and September 1996, the Company completed a private placement of
115,000 Units, each of which consists of one share of the Company's 14.0% Senior
Redeemable Preferred Stock, Series B par value $.01 per share (the "Series B
Preferred Stock"), and Warrants to purchase 2.970 shares of the Company's Common
Stock. On August 15, 1996, 85,000 units were sold, prior to the closing of the
GAC Acquisition noted above. The remaining units were sold on September 16, 1996
and September 27, 1996.
The net proceeds from the sale of the Units were used to redeem the
outstanding shares of the Company's Series A Preferred Stock (issued during the
first quarter) including accrued dividends thereon, to
F-6
<PAGE> 105
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
finance the GAC Acquisition and to repay approximately $7.0 million of
indebtedness under the Existing Credit Facility. Additionally, approximately
$33.8 million was placed in a certificate of deposit (included in cash and cash
equivalents at September 30, 1996) set aside for the MEM Acquisition, and the
remaining net proceeds were used for general corporate purposes. Furthermore,
the Company issued 103,918 shares of its Common Stock for net proceeds of
$9,750,000.
8. SUBSEQUENT EVENTS
On October 30, 1996, the Company entered into an Agreement to purchase from
Procter & Gamble Company ("P&G") its mass-market fragrance brands. The Company
is currently in the process of securing a new credit facility or similar
financing (the "New Credit Facility") in order to refinance its Current Credit
Facility which matures in December 1996. The Company does not expect to
consummate the MEM acquisition or the P&G brand acquisition until it obtains the
New Credit Facility.
9. RESTATEMENT OF OPERATING RESULTS
In January 1997, the Company determined that its previously-reported
results of operations for the six months ended September 30, 1996 and September
30, 1995 and its previously-reported balance sheet data as of September 30, 1996
and September 30, 1995 required restatement. The changes relate to the Company's
determination that it should not have recognized approximately $3.3 million of
net sales of Dana (or 4.1% of the Company's previously-reported net sales for
the six months ended September 30, 1996) in September 1996 and approximately
$1.9 million of net sales (or 3.0% of the Company's previously-reported net
sales for the six months ended September 30, 1995) in September 1995,
respectively, because certain products that were shipped from the Company's
facilities to a third-party packer's warehouse prior to September 30 in each
year (based in each case on firm orders from the Company's customers) were not
reshipped by the packer to such customers until after such date. However,
because these products were delivered to the customers in October of each year
and the Company has received payment for substantially all such sales, the
effect of the restatement is limited to changing the timing of the Company's
recognition of these sales and the related earnings (a reduction of EBITDA and
an increase in net loss applicable to common stockholders of approximately $1.2
million and $747,000 for the six months ended September 30, 1996 and 1995,
respectively), which will now be recognized in the third quarter of each fiscal
year. The foregoing revisions resulted in decreases to total assets and total
liabilities and common stockholders' equity as of September 30, 1996 and
September 30, 1995 of less than 1%. The restatement of the six-month-period data
did not require any restatement of the Company's previously-reported audited
financial statements for Fiscal 1995 and will not have any impact on the
Company's results of operations for Fiscal 1996 or its balance sheet as of March
31, 1997.
F-7
<PAGE> 106
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Renaissance Cosmetics, Inc.:
We have audited the accompanying consolidated balance sheets of Renaissance
Cosmetics, Inc. and subsidiaries as of March 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year ended March 31, 1996 and for the period from April 15, 1994 (Inception)
to March 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Renaissance Cosmetics, Inc. and
subsidiaries as of March 31, 1996 and 1995, and the results of their operations
and their cash flows for the year ended March 31, 1996 and the period from April
15, 1994 (Inception) to March 31, 1995 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
New York, New York
June 14, 1996
F-8
<PAGE> 107
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 1,431,809 $ 7,001,170
Marketable securities........................................... 173,604 814,554
Accounts receivable -- Net...................................... 34,557,409 15,557,859
Inventories..................................................... 30,236,739 21,906,326
Prepaid expenses and other current assets....................... 6,539,828 4,030,231
----------- -----------
Total current assets......................................... 72,939,389 49,310,140
PROPERTY, PLANT AND EQUIPMENT -- Net.............................. 14,535,363 8,508,123
DEFERRED FINANCING COSTS -- Net................................... 8,006,782 9,590,535
OTHER ASSETS -- Net............................................... 12,242,090 12,345,686
INTANGIBLE ASSETS -- Net.......................................... 76,895,294 82,498,616
----------- -----------
TOTAL ASSETS...................................................... $184,618,918 $162,253,100
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable................................................... $ 57,000,000 $ --
Accounts payable................................................ 19,462,868 12,699,355
Accrued expenses................................................ 15,157,127 13,008,982
Other current liabilities....................................... 2,700,000 2,700,000
----------- -----------
Total current liabilities.................................... 94,319,995 28,408,337
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt.................................................. 67,322,944 67,032,468
Notes payable................................................... -- 30,000,000
Minimum royalty obligation...................................... 4,686,039 6,158,000
Deferred tax liability.......................................... 140,619 100,000
----------- -----------
Total long-term liabilities.................................. 72,149,602 103,290,468
----------- -----------
TOTAL LIABILITIES................................................. 166,469,597 131,698,805
----------- -----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK:
Par value $.01 -- authorized, 40,000 shares; issued, 11,594
shares at March 31, 1996; 10,503 shares at March 31, 1995.... 11,697,624 10,364,802
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 (1996 -- 5,650 shares; 1995 -- 6,725
shares)...................................................... (210,000) (250,000)
Deficit......................................................... (19,563,738) (6,174,085)
Cumulative translation adjustment............................... (50,956) 337,187
----------- -----------
Total common stockholders' equity............................ 6,451,697 20,189,493
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................ $184,618,918 $162,253,100
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 108
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 15, 1994
YEAR ENDED (INCEPTION)
MARCH 31, TO MARCH 31,
1996 1995
----------- --------------
<S> <C> <C>
NET SALES......................................................... $131,285,624 $ 57,714,409
COST OF GOODS SOLD................................................ 51,169,043 24,552,991
-----------
GROSS PROFIT...................................................... 80,116,581 33,161,418
-----------
OPERATING EXPENSES:
Selling......................................................... 52,780,737 18,245,950
General and administrative...................................... 13,679,180 10,127,482
Amortization of intangible and other assets..................... 5,207,046 2,043,960
-----------
Total operating expenses..................................... 71,666,963 30,417,392
-----------
OPERATING INCOME.................................................. 8,449,618 2,744,026
INTEREST EXPENSE (INCOME):
Interest expense................................................ 19,458,278 8,693,822
Interest income................................................. (255,500) (455,431)
-----------
LOSS BEFORE INCOME TAXES.......................................... (10,753,160) (5,494,365)
INCOME TAX PROVISION (BENEFIT).................................... 1,303,671 (35,081)
-----------
NET LOSS.......................................................... (12,056,831) (5,459,284)
PREFERRED STOCK DIVIDENDS......................................... 1,332,822 714,801
-----------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS........................ $(13,389,653) $ (6,174,085)
===========
NET LOSS PER COMMON SHARE......................................... $(18.62) $(8.50)
===========
WEIGHTED AVERAGE SHARES OUTSTANDING............................... 719,138 726,374
===========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 109
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
RECEIVABLE ADDITIONAL TREASURY STOCK CUMULATIVE TOTAL COMMON
FROM SALE OF PAID-IN ------------------ TRANSLATION STOCKHOLDERS'
SHARES AMOUNT COMMON STOCK CAPITAL SHARES AMOUNT DEFICIT ADJUSTMENT EQUITY
------- ------ ------------ ---------- ------ --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock............ 726,818 $7,268 $ (517,609) $27,010,341 -- $ -- $ -- $ -- $26,500,000
Issuance of
warrants in
conjunction with
senior notes and
redeemable
preferred stock.. -- -- -- 1,260,000 -- -- -- -- 1,260,000
Accrued dividend,
and accretion on
redeemable
preferred stock.. -- -- -- -- -- -- (714,801) -- (714,801)
Predecessor basis
accounting
adjustment....... -- -- -- (1,483,609) -- -- -- -- (1,483,609)
Purchase of
treasury stock... -- -- -- -- 6,725 (250,000) -- -- (250,000)
Cumulative
translation
adjustment....... -- -- -- -- -- -- -- 337,187 337,187
Net loss........... -- -- -- -- -- -- (5,459,284) -- (5,459,284)
------- ------ --------- ---------- ------ --------- ---------- ------ ---------
BALANCE, MARCH 31,
1995............. 726,818 7,268 (517,609) 26,786,732 6,725 (250,000) (6,174,085) 337,187 20,189,493
Accrued dividends
and accretion on
redeemable
preferred stock.. -- -- -- -- -- -- (1,332,822) -- (1,332,822)
Purchase of
treasury stock... -- -- -- -- 3,632 (135,000) -- -- (135,000)
Sale of treasury
stock............ -- -- -- -- (4,707) 175,000 -- -- 175,000
Cumulative
translation
adjustment....... -- -- -- -- -- -- -- (388,143) (388,143)
Net loss........... -- -- -- -- -- -- (12,056,831) -- (12,056,831)
------- ------ --------- ---------- ------ --------- ---------- ------ ---------
BALANCE, MARCH 31,
1996............. 726,818 $7,268 $ (517,609) $26,786,732 5,650 $(210,000) $(19,563,738) $ (50,956) $ 6,451,697
======= ====== ========= ========== ====== ========= ========== ====== =========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 110
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 15,
1994
(INCEPTION)
YEAR ENDED TO MARCH
MARCH 31, 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................. $(12,056,831) $(5,459,284)
Adjustments to reconcile net loss to net cash used in operating
activities:
Deferred taxes........................................................... 40,619 (96,927)
Depreciation............................................................. 2,843,535 787,733
Amortization of intangible assets........................................ 3,208,320 1,860,310
Amortization of minimum royalty and other assets......................... 1,998,726 183,650
Amortization of deferred financing costs................................. 2,616,472 993,307
Accrued interest on senior notes, subordinated seller notes and minimum
royalty obligation.................................................... 1,311,420 866,802
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable...................................................... (16,635,634) (8,520,720)
Inventories.............................................................. (7,560,525) (6,802,298)
Prepaid expenses and other current assets................................ (2,977,456) (1,026,695)
Other assets............................................................. 427,349 (477,344)
Accounts payable......................................................... 6,284,133 2,135,227
Accrued expenses......................................................... (3,288,380) 5,605,116
Other current liabilities................................................ -- (1,881,420)
Other.................................................................... (388,143) 304,605
----------- -----------
Net cash used in operating activities................................. (24,176,395) (11,527,938)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of businesses, net of cash acquired......................... 1,384,120 (100,707,219)
Sale of marketable securities............................................ 640,950 134,863
Capital expenditures..................................................... (8,165,699) (629,062)
----------- -----------
Net cash used in investing activities................................. (6,140,629) (101,201,418)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock................................................. -- 26,500,000
Issuance of senior notes................................................. -- 63,378,900
Net proceeds from notes payable.......................................... 27,000,000 30,000,000
Payment of minimum royalty obligation.................................... (1,259,618) (225,000)
Issuance of redeemable preferred stock................................... -- 9,650,000
Issuance of warrants..................................................... -- 1,260,000
Payment of deferred financing costs...................................... (1,032,719) (10,583,374)
Purchase of treasury stock............................................... (135,000) (250,000)
Sale of treasury stock................................................... 175,000 --
----------- -----------
Net cash provided by financing activities............................. 24,747,663 119,730,526
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....................... (5,569,361) 7,001,170
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 7,001,170 --
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ 1,431,809 $ 7,001,170
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.............................................................. $14,603,651 $ 5,111,171
=========== ===========
Income taxes.......................................................... $ 880,415 $ 93,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING TRANSACTIONS:
Accrued dividends and accretion on redeemable preferred stock............ $ 1,332,822 $ 714,801
Sale of common stock for notes........................................... $ -- $ 517,609
Issuance of seller notes................................................. $ -- $ 3,500,000
Other current liability -- installment obligation for purchase of
inventory and accounts receivable from Houbigant, Inc................. $ -- $ 2,700,000
Other liability -- present value of minimum royalties.................... $ 1,398,080 $ 6,623,283
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE> 111
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
The consolidated financial statements of Renaissance Cosmetics, Inc. (the
"Company") include the accounts of the Company for the period from April 15,
1994 (date of Inception), and its wholly-owned subsidiaries from their
respective dates of acquisition, Cosmar Corporation from August 18, 1994,
Parfums Parquet Incorporated ("Parfums Parquet") from July 1, 1994, Houbigant
Ltee from December 13, 1994, Dana Perfumes Corporation ("Dana") from December
23, 1994 and Perfums Dana Do Brasil ("Dana Brazil") from December 31, 1995. All
significant intercompany activity has been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business -- The Company manufactures and sells its fragrance and
nail care products principally through the mass-market or self-select
distribution channel which includes drug stores, mass merchandisers, discount
stores, supermarkets and combination supermarket/drug stores, throughout the
United States.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and the reported amounts of revenues and expenses during the
reporting period. The preparation of financial statements in conformity with
generally accepted accounting principles also requires management to make
estimates and assumptions that affect the disclosures of contingent assets and
liabilities at the date of the financial statements. Actual results could differ
from those estimates.
Cash Equivalents -- Cash equivalents consist of highly liquid investments
with an original maturity of three months or less.
Marketable Securities -- The Company classifies its investments in debt and
equity securities as available for sale, and accordingly, reflects unrealized
holding gains and losses as a separate component of stockholders' equity.
Inventories -- Inventories are stated at the lower of cost (on the
first-in, first-out (FIFO) and last-in, first-out (LIFO) methods) or market.
Property, Plant and Equipment -- Property, plant and equipment additions
are stated at cost and depreciation is computed using the straight-line and the
declining-balance methods over the estimated useful lives of the assets, ranging
from three to forty years. Amortization of leasehold improvements is computed
using the straight-line and the declining-balance methods over the lesser of the
estimated useful lives of the assets or the remaining life of the lease.
Deferred Financing Costs -- Deferred financing costs represent direct costs
relating to closing on the long-term debt and notes payable. These costs are
being amortized over the life of the related debt.
Foreign Currency Translation -- For the Company's international operations,
assets and liabilities are translated at year-end exchange rates and income
statement amounts are translated at average exchange rates prevailing during the
year. Gains and losses resulting from translating foreign currency financial
statements are recorded as a separate component of stockholders' equity.
Transaction gains and losses are included in results of operations and were not
material for any period presented.
Intangible Assets -- Costs of acquisitions of net tangible assets acquired
are stated at cost less accumulated amortization and include trademarks and
goodwill. These costs are being amortized using the straight-line method over
the periods benefited, ranging from 25 to 40 years. The Company assesses the
recoverability of these costs on a regular basis by evaluating the carrying
value of the intangible assets based upon projected net income and undiscounted
future cash flows.
F-13
<PAGE> 112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition -- Sales are recognized when goods are shipped. An
accrual for customer returns is recorded based upon historical experience.
Income Taxes -- The Company uses an asset and liability approach to the
computation of income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the estimated future tax consequences
of temporary differences between the financial reporting and tax bases of assets
and liabilities based upon enacted tax rates in effect when such amounts are
expected to be realized or settled. The effects of changes in tax laws or rates
on deferred tax assets and liabilities are recognized in the period that
includes the enactment date.
Loss Per Common Share -- Loss per common share is based on the weighted
average number of common shares outstanding during the year. The dilutive effect
of stock options and warrants were not considered since the effect would be
antidilutive.
Fair Value of Financial Instruments -- The carrying values of cash and cash
equivalents, marketable securities, accounts receivable, accounts payable and
accrued expenses approximate fair value because of the short-term maturities of
those instruments. The fair values of the Company's long-term debt, notes
payable and preferred stock are disclosed in the notes.
Accounting Pronouncements -- In March 1995, the Financial Accounting
Standards Board issued SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. This statement is effective
for fiscal years beginning after December 15, 1995. The Company does not expect
that the adoption of this statement will have a material affect on its
consolidated financial condition or results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation. This statement is effective for
fiscal years beginning after December 15, 1995. The new standard defines a "fair
value" method of accounting for stock options and other equity instruments.
Under the fair value method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized over the service period,
which is usually the vesting period.
Pursuant to this Standard, companies are encouraged, but not required, to
adopt the fair value method of accounting for employee stock-based transactions.
The new standard also requires increased footnote disclosures, regardless of the
method chosen to measure and recognize compensation, for employee stock-based
arrangements. The Company has not yet determined if it will elect to change to
the fair value method, nor has it determined the effect the new Standard will
have on net loss and loss per share should it elect to make such a change.
Reclassifications -- Certain reclassifications were made to the 1995
financial statements to conform to the current year's presentation.
3. ACQUISITIONS
The Company, Houbigant, Inc. ("Houbigant") and other parties entered into
license and sublicense agreements (the "Agreements"), the first of which became
effective as of July 1, 1994, whereby the Company has obtained certain exclusive
rights to manufacture and sell on a worldwide basis (excluding Canada -- see
below) certain fragrance products owned and licensed by Houbigant (the
"Houbigant Fragrances"), for initial periods of five and seven years. The
Company agreed to pay royalties generally at the rate of seven percent of net
sales, with annual minimums aggregating $2,730,000 during the initial terms of
the Agreements. Total minimum payments under the terms of the Agreements are
$15,360,000, including the $5,000,000 prepayment. The Company has the option to
renew the Agreements generally for up to seven successive five-year periods.
During each renewal period, annual minimum royalties are adjusted based on
increases in the Consumer Price Index.
F-14
<PAGE> 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additionally, under the terms of the Agreements, the Company also agreed to
pay $6,000,000 in installments, for the existing inventory, certain trade
receivables and all product returns received subsequent to the closing date of
the Agreements. As of March 31, 1996, $3,300,000 has been paid.
On August 18, 1994, the Company purchased certain assets and assumed
certain liabilities of Cosmar Corporation and its Affiliate, Precision Molded
Plastics, Inc. ("Cosmar") for $64,827,978. Consideration consisted of
$61,327,978 in cash and sellers notes with a face value of $5,000,000 and an
estimated market value of $3,500,000 based on an effective interest rate of
14.48%. Because the acquisition qualifies as a highly-leveraged transaction and
certain shareholders of Cosmar have or had a continuing interest as shareholders
of the Company, application of leveraged buyout accounting resulted in a
predecessor basis adjustment to common stockholders' equity of $1,483,609.
On December 13, 1994, the Company acquired substantially all of the assets
of Houbigant Ltee for an aggregate purchase price of $5,800,000. Houbigant Ltee
includes three companies engaged in the manufacture and sales of Houbigant
Fragrances in Canada. There are no minimum royalties required to be paid in
connection with these license rights.
On December 23, 1994, Dana purchased the assets and business of a group of
companies that manufactured and marketed internationally the Dana line of
fragrance products, for an aggregate cash purchase price of $21,900,000. Such
transaction was financed through term loan borrowings from a financial
institution, with an aggregate value of $30,000,000.
On December 31,1995, Dana exercised its option to purchase the assets and
liabilities of Dana Brazil for $100,000.
The above acquisitions were all accounted for by the purchase method of
accounting for business combinations.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisitions had occurred at the beginning of each
period and do not purport to be indicative of what would have occurred had the
acquisitions been made as of that date or of results which may occur in the
future.
<TABLE>
<CAPTION>
PRO FORMA
----------------------------
PERIOD FROM
APRIL 15, 1994
YEAR ENDED (INCEPTION)
MARCH 31, TO MARCH 31,
1996 1995
----------- --------------
<S> <C> <C>
Net sales................................................. $140,741,000 $ 109,912,000
===========
Net loss.................................................. $(12,645,000) $ (17,313,000)
===========
Net loss per common share................................. $ (17.58) $ (23.83)
===========
</TABLE>
4. MARKETABLE SECURITIES
Marketable securities consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Mutual funds.............................................. $ 173,604 $ 772,554
Bonds..................................................... -- 42,000
-----------
$ 173,604 $ 814,554
===========
</TABLE>
At March 31, 1996 and 1995, fair value of marketable securities
approximated cost.
F-15
<PAGE> 114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Raw materials and advertising supplies.................... $16,956,874 $11,859,958
Work in process........................................... 2,860,139 1,423,799
Finished goods............................................ 10,419,726 8,622,569
---------- ----------
$30,236,739 $21,906,326
========== ==========
</TABLE>
The above components are shown net of excess and obsolete inventory
reserves of approximately $1,540,000 and $3,449,000 at March 31, 1996 and 1995,
respectively. At March 31, 1996 and 1995, 60.7% and 27.5%, 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 March 31,
1996 and 1995.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1996 1995
----------- ----------
<S> <C> <C>
Land....................................................... $ 476,691 $ 182,297
Buildings.................................................. 4,896,008 5,570,042
Machinery and equipment.................................... 7,451,977 3,145,677
Computer equipment......................................... 4,880,815 --
Leasehold improvement...................................... 461,140 397,840
---------- ---------
18,166,631 9,295,856
Accumulated depreciation................................... 3,631,268 787,733
---------- ---------
$14,535,363 $8,508,123
========== =========
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Trademarks................................................ $42,144,000 $42,144,000
Goodwill.................................................. 39,819,924 42,214,926
----------- -----------
81,963,924 84,358,926
Accumulated amortization.................................. 5,068,630 1,860,310
----------- -----------
$76,895,294 $82,498,616
=========== ===========
</TABLE>
Trademarks relate principally to Cosmar and Dana and are being amortized,
on a straight-line basis, over their estimated useful lives, 25 and 40 years,
respectively. Goodwill represents the excess of the cost of purchased businesses
over the fair value of their net assets at date of acquisition and is being
amortized by the straight-line method over a 25-year period. Upon completion of
all the required valuations associated with the acquisitions, goodwill increased
during the period from April 15, 1994 (Inception) to March 31, 1995 by
approximately $5,000,000 from the Company's original estimate. Negative goodwill
of approximately
F-16
<PAGE> 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$2.3 million which was generated as a result of the acquisition of Dana Brazil,
and is being amortized over a life of 5 years, is also included in goodwill
above.
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Current portion of minimum royalty obligation............. $3,597,884 $ 966,000
Accrued interest payable.................................. 2,380,384 1,675,176
Acquired plant consolidation and restructuring costs...... 244,000 1,842,000
Accrued marketing and advertising expenses................ 2,492,720 1,424,952
Accrued financing and acquisition costs................... -- 1,955,000
Other..................................................... 6,442,139 5,145,854
----------- -----------
$15,157,127 $13,008,982
=========== ===========
</TABLE>
9. LONG-TERM DEBT
Long-term debt consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Senior Notes............................................ $63,623,473 $63,465,317
Subordinated seller notes............................... 3,699,471 3,567,151
----------- -----------
$67,322,944 $67,032,468
=========== ===========
</TABLE>
The Senior notes are senior unsecured obligations of the Company with a
principal amount of $65,000,000 at a stated interest rate of 13.75% with
interest payable semi-annually beginning February 15, 1995 and due August 15,
2001. The notes were issued in units with warrants to purchase 130,000 shares of
common stock. The notes were issued with an original discount of $711,100 and
were further discounted as a result of an allocation of $910,000 to the common
stock warrants. The effective interest rate on the Senior notes is 14.33%.
The Senior notes and warrants were detached in December 1994 prior to the
filing of the Company's registration statement with respect to the Senior notes.
The warrants are exercisable at any time and expire on August 15, 2001. The
exercise price of the warrants is $.01 per share.
The Senior notes are fully and unconditionally guaranteed, on a
subordinated basis, as to principal and interest, jointly and severally by all
present and future subsidiaries of the Company.
The Seller notes are subordinated promissory notes of the Company amounting
to $5,000,000 and accruing interest at 8% initially and escalating to 11% over
an eight-year period with a balloon payment of principal and accrued interest on
August 15, 2002. Based on an estimate of their fair market value, these notes
were recorded at a discount of $1,500,000, yielding an effective interest rate
of 14.48%.
The fair value of the Senior notes at March 31, 1996 and 1995 were
$65,000,000 and $61,750,000, respectively. The fair value of the warrants at
March 31, 1996 and 1995 were $2,925,000 and $1,950,000, respectively. Such fair
value are estimated based on quoted market prices for such notes and warrants.
F-17
<PAGE> 116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of the Subordinated seller notes is estimated based on rates
currently available to the Company for debt with similar terms and remaining
maturities. Such fair value was approximately $4,617,000 and $3,721,000 at March
31, 1996 and 1995, respectively.
10. NOTES PAYABLE
On December 22, 1994, as amended, the Company and a financial institution
entered into a note purchase agreement (the "Current Credit Facility"), which
provides for revolving credit in an aggregate principal amount of $30,000,000,
and term loans in an aggregate principal amount of $30,000,000. Such loans bear
interest at the bank base rate (8.25% at March 31, 1996) plus 3% until June 30,
1995, 3.5% thereafter until December 31, 1995, 4% thereafter until June 30, 1996
and 4.5% thereafter. The weighted average interest rates on the notes payable
were 12.19% and 11.66% for the year ended March 31, 1996 and for the period from
December 23, 1994 to March 31, 1995, respectively. The Company paid a commitment
fee of $500,000, a structuring fee of $500,000 and a funding fee of $600,000
which was equal to 2% of the aggregate unpaid principal of the term notes in
excess of fees already paid. During fiscal 1996 the Company paid funding fees on
the available portion of the original revolving credit of $20,000,000,
aggregating $400,000. On September 8, 1995, the Company paid an additional
commitment fee of $400,000. The Company paid a continuation fee of $100,000 on
each of July 1, 1995 and January 2, 1996 and will be required to pay an
additional continuation fee of $100,000 on July 1, 1996 unless the loans have
been terminated.
Borrowings under the revolving credit portion are subject to a borrowing
base availability consisting of eligible inventory and receivables. As of March
31, 1996, $3,000,000 of the revolving credit portion of the Current Credit
Facility was available to the Company for additional borrowings.
The Current Credit Facility includes numerous affirmative and negative
covenants applicable to the Company, including restrictions on indebtedness and
payment of dividends, liens and capital expenditures, and compliance with net
worth, operating earnings and various other financial ratios and covenants.
Based on rates currently available to the Company for debt with similar
terms and remaining maturities, fair value of the notes payable is estimated to
be $29,638,000 at March 31, 1995. At March 31, 1996, carrying value of the notes
payable approximated fair value.
The Current Credit Facility matures in December 1996 and is collateralized
by substantially all of the assets of the Company. The Company is currently
pursuing several financing alternatives, including both equity and debt
financing to replace the Current Credit Facility and to provide funds for new
acquisitions. The Company is currently in discussions with several financial
institutions and believes that it will be able to obtain such financing.
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.
11. INCOME TAXES
The Company records deferred tax liabilities and assets for estimated
future tax consequences attributable to temporary differences. Such temporary
differences exist when the tax basis differs from the financial reporting amount
of assets or liabilities. A valuation allowance is recorded to reduce deferred
tax assets to amounts which, in management's judgment, are more likely than not
to be realized.
The income tax expense is comprised of state tax in the amount of $311,467
and foreign taxes of $1,270,993, and a federal income tax benefit of $278,789
resulting from a carryback of a net operating loss. There is no Federal tax
liability as a result of Federal tax operating losses in the amount of
approximately
F-18
<PAGE> 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$13,677,000. Such losses expire in accordance with provisions of applicable tax
law and expire beginning in 2010 as follows:
<TABLE>
<CAPTION>
EXPIRATION DATE AMOUNT
-------------------------------------------------------- ----------
<S> <C>
2010.................................................... $3,646,000
2011.................................................... 10,031,000
</TABLE>
The income tax expense (benefit) is composed of the following:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 15, 1994
YEAR ENDED (INCEPTION)
MARCH 31, TO MARCH 31,
1996 1995
---------- --------------
<S> <C> <C>
Current:
Federal.................................................. $ (278,789) $ (200,000)
State.................................................... 411,467 251,605
Foreign.................................................. 1,111,025 10,241
---------- ----------
1,243,703 61,846
---------- ----------
Deferred:
Federal.................................................. -- (175,000)
State.................................................... (100,000) 78,073
Foreign.................................................. 159,968 --
---------- ----------
59,968 (96,927)
---------- ----------
Total income tax expense (benefit)......................... $1,303,671 $ (35,081)
========== ==========
</TABLE>
The following reconciles the income tax expense (benefit) computed at the
Federal statutory income tax rate to the benefit recorded in the statements of
operations:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 15,
1994
(INCEPTION)
YEAR ENDED TO
MARCH 31, MARCH 31,
1996 1995
----------- -----------
<S> <C> <C>
Federal benefit at statutory rate......................... $(3,656,074) $(1,923,028)
Limitation of utilization of tax benefits................. 5,164,532 1,528,300
Benefit of carryback not previously recorded.............. (278,790) --
State income taxes........................................ 311,467 329,678
Foreign income............................................ (1,508,457) --
Foreign income taxes...................................... 1,270,993 10,241
Other..................................................... -- 19,728
------------
$ 1,303,671 $ (35,081)
============
</TABLE>
F-19
<PAGE> 118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1996 1995
--------- ---------
<S> <C> <C>
Current deferred income tax assets (liabilities):
Allowance for sales returns............................. $2,195,425 $1,297,280
Inventory reserves...................................... 697,305 (207,500)
Other non-deductible reserves........................... 1,997,260 539,500
Royalties............................................... 866,485 --
Other, net.............................................. 46,630 --
------------ ------------
5,803,105 1,629,280
Less valuation allowance................................ (5,803,105) (1,629,280)
------------ ------------
$ -- $ --
============ ============
Non-current deferred income tax assets (liabilities):
Depreciation............................................ (1,091,625) (1,522,220)
Amortization of intangible assets....................... (1,058,915) (654,455)
Federal net operating loss carryforwards................ 4,650,170 1,647,590
State net operating loss carryforwards.................. 1,276,565 --
Foreign tax credit carryforwards........................ 790,065 --
Other -- net............................................ -- 749,075
------------ ------------
4,566,260 219,990
Less valuation allowance................................ (4,566,260) (219,990)
------------ ------------
$ -- $ --
============ ============
Deferred state tax liability.............................. $ -- $ 100,000
============ ============
Deferred foreign tax liability............................ $ 140,619 $ --
============ ============
</TABLE>
Foreign pretax income (loss) was $4,446,593 and $(551,200) for the year
ended March 31, 1996 and for the period from April 15, 1994 (Inception) to March
31, 1995.
12. CAPITAL STOCK
a. Serial Preferred Stock--The Board of Directors has the authority to
issue up to 1,000,000 shares of Preferred Stock in one or more series of which
40,000 shares have been designated as redeemable preferred stock.
b. Stock Option Plan--The Company's stock option plan provides for
nonqualified stock options for employees. All options have been granted at
exercise prices at or above fair market value at the date of grant and vest over
periods of up to ten years. At March 31, 1996, 4,762 shares were available for
future grants under the plan.
F-20
<PAGE> 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the activity of options in the stock option
plan:
<TABLE>
<CAPTION>
SHARES PRICE
------- ------
<S> <C> <C>
Options granted................................................... 75,181 $37.17
Options canceled.................................................. (9,318) 37.17
------- ------
Total options outstanding at March 31,1995........................ 65,863 37.17
Options granted................................................... 31,377 37.17
Options canceled.................................................. (13,512) 37.17
------- ------
Total options outstanding at March 31, 1996....................... 83,728 37.17
======= ======
Total exercisable options at March 31, 1996....................... 14,832 $37.17
======= ======
</TABLE>
No compensation expense was recognized in 1996 or 1995 relating to such
options.
13. REDEEMABLE PREFERRED STOCK
The Company issued for $10,000,000, 10,000 shares of cumulative
exchangeable preferred stock with a par value of $.01 per share. Such preferred
stock has an initial dividend of 10% per annum. Commencing August 16, 1999 the
dividend rate changes to 15% per annum. The preferred stock was issued in units
with warrants to purchase 50,000 shares of common stock. Dividends are payable
in cash, additional shares of redeemable preferred stock or any combination
thereof, at the option of the Company, up to and including the August 15, 1997
dividend, and in cash thereafter. The proceeds from issuance of the preferred
stock were reduced by an allocation of $350,000 to the common stock warrants.
Such warrants are exercisable at any time and expire on August 15, 2001. These
warrants have an exercise price of $.01 per share. The effective dividend rate
on the preferred stock is approximately 12.01%.
The redeemable preferred stock must be redeemed on August 15, 2002 for
$10,000,000, plus all accumulated and unpaid dividends. The redeemable preferred
stock is exchangeable for senior notes by the Company at any time and under
certain circumstances by the holders of the preferred stock on or after August
15, 1997.
Based on rates currently available to the Company for debt with similar
terms, the fair value of the redeemable preferred stock is estimated to be
$10,907,000 and $8,673,000 at March 31, 1996 and 1995, respectively. Based on
quoted market prices at March 31, 1996 and 1995 of the warrants, the fair value
is estimated to be $1,125,000 and $750,000, respectively.
14. COMMITMENTS AND CONTINGENCIES
a. Leases -- The Company leases certain warehouses, office facilities, and
automobiles, under operating lease agreements, certain of which are subject to
escalation, expiring at various dates through 2001.
Future minimum lease payments under noncancellable operating leases as of
March 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31, AMOUNT
------------------------------------------------------- ---------
<S> <C>
1997................................................... $1,914,119
1998................................................... 1,486,949
1999................................................... 1,155,570
2000................................................... 748,700
2001................................................... 471,677
----------
$5,777,015
==========
</TABLE>
F-21
<PAGE> 120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense associated with operating leases for the year ended March 31,
1996 and the period from April 15, 1994 (Inception) to March 31, 1995 was
$1,998,893 and $336,945, respectively.
b. Royalties -- Future minimum royalty payments at March 31, 1996, which
resulted from acquisitions of companies, together with the present value of
minimum royalty payments, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31, AMOUNT
----------------------------------------------------------------------- ---------
<S> <C>
1997................................................................... $3,597,884
1998................................................................... 3,017,500
1999................................................................... 550,000
2000................................................................... 462,500
2001................................................................... 2,572,500
Thereafter............................................................. 562,500
----------
10,762,884
Amounts representing interest.......................................... 2,478,961
----------
Present value of minimum royalty payments.............................. 8,283,923
Current portion........................................................ 3,597,884
----------
Long-term portion...................................................... $4,686,039
==========
</TABLE>
Royalty expense totaled $1,930,785 and $1,489,465 for the year ended March
31, 1996 and the period from April 15, 1994 (Inception) to March 31, 1995,
respectively.
c. Other Employee Stock Options -- Dr. Thomas V. Bonoma has been granted
stock options whereby he has the right to acquire a total of 93,182 shares of
Common Stock of the Company. The earliest date on which these options can become
exercisable generally is August 18, 1997, based on the value of the Company's
equity reaching certain thresholds; however, the valuation date is accelerated
prior to that date (and if the thresholds are reached the options become
exercisable) upon a sale or merger of the Company or public offering of the
Company's Common Stock. Notwithstanding whether the earnings of the Company meet
any of the tests enunciated in the stock option agreement, Dr. Bonoma will be
entitled to exercise these options commencing on August 18, 2000. The exercise
price for each purchasable share under this stock option is $37.17237.
The above stock options have been authorized by the Board of Directors and
granted outside of the Company's stock option plan. No options have been
exercised as of March 31, 1996.
15. LEGAL PROCEEDINGS
a. In April 1995 the Company and Houbigant Inc. commenced an action against
the ACB Companies (the former holders of Houbigant's Canadian licenses) and
their agents (the "Resellers"), alleging that the ACB companies manufactured and
sold Houbigant trademarked products in the US through the Resellers. This
violated both Houbigant's and the Company's rights pursuant to the Agreements,
as well as certain US federal laws. The claims against the Resellers were
settled. The ACB Companies filed counterclaims, most of which were subsequently
dismissed.
Additionally, in May 1995, Houbigant Ltee filed an action against the ACB
companies for approximately $8,000,000 (Canadian) for breach of contract and
fraud. The ACB companies have not as yet asserted any counter claims. The
parties to both of the above cases have agreed in principle to a settlement
whereby the ACB companies will dismiss its remaining asserted and unasserted
counterclaims, and will pay $850,000 to the Company in settlement of all the
remaining claims.
The Company does not believe that this litigation will have a material
adverse effect on its financial condition or its results of operations.
F-22
<PAGE> 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
b. The Company is a defendant in a lawsuit where the plaintiff alleges
defamation and interference with business relationships, and is seeking
$7,000,000 in damages. The Company intends to vigorously defend this lawsuit and
believes it has substantial and meritorious defenses. Management believes that
the outcome of this litigation will not have a material effect on the results of
operations or financial condition of the Company.
c. The Company is subject to legal proceedings and claims which arise in
the normal course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position or results of operations of the Company.
16. RETIREMENT PROGRAMS
In June 1995, the Company established a 401(k) Pension Plan (the "Company
Plan") for all U.S. employees, with the exception of Dana union members for
which the Company maintains a separate 401(k) plan. The prior plan covering Dana
non-union members was merged into the Company Plan. Plans are available to all
employees who have been employed continuously for at least one year. The
participants contribution ceiling is 20% of their annual compensation, as
defined, and a matching contribution is provided by the Company at 50% of the
first 6% of the participants' salary for the non-union members and 12 1/2% of
the first 6% of the participants' salary for the union plan. The participants
become fully vested after four years of service. The contributions made by the
Company during the year ended March 31, 1996 and the three months ended March
31, 1995 (for the Dana Plans) were $166,290 and $11,705, respectively. Certain
of the administrative expenses are paid by the Company, the Plans' sponsor.
17. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and trade accounts
receivable. The Company places its cash with high quality financial
institutions.
Credit risk with respect to trade accounts receivable is generally
diversified due to the large number of entities comprising the Company's
customer base and their dispersion throughout the United States. The Company
generally does not require collateral, and the majority of its trade receivables
are unsecured. The Company does, however, perform ongoing credit evaluations of
its customers' financial condition.
The Company sells a significant portion of its products through third-party
drug store and discount retailers and as a result, maintains individually
significant accounts receivable balances with major retailers. If the financial
condition and operation of these retailers deteriorate below critical levels,
the Company's operating results could be adversely affected. An allowance for
doubtful accounts and sales returns is maintained at a level which management
believes is sufficient to cover potential credit losses. The ten largest
accounts receivable balances collectively represented 54% and 50% of total
accounts receivable at March 31, 1996 and 1995, respectively. Sales to ten
customers represented 50% and 46% of gross revenues during the year ended March
31, 1996 and the period April 15, 1994 (Inception) to March 31, 1995. No single
customer accounted for greater than 10% of the Company's revenues for the year
ended March 31, 1996 or for the period April 15, 1994 (Inception) to March 31,
1995.
18. RELATED PARTIES
Pursuant to a management agreement, the Company pays management fees to
Kidd, Kamm & Company ("KK & Co."), a related party, subject to certain operating
and financial ratios being met. During the year ended March 31, 1996 and the
period April 15, 1994 (Inception) to March 31, 1995, the Company paid $-0-and
$225,000, respectively, in management fees to KK & Co. Deferred financing costs
include approximately $675,000 of financing fees paid to KK & Co.
In December 1995, the holders of the Sellers Notes sold such notes to a
third party who is a holder of a substantial portion of the Company's redeemable
preferred stock (the "Holder"). In a related transaction, the
F-23
<PAGE> 122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company signed an agreement with the Holder, whereby in exchange for $225,000,
the Company agreed not to pursue any claims against the Holder relating to the
acquisition of Cosmar. All other terms and provisions of the sellers' note
remained the same.
19. INFORMATION CONCERNING FINANCIAL REPORTING FOR SEGMENTS AND OPERATIONS IN
GEOGRAPHIC AREAS
The Company is engaged in two main businesses, the manufacturing and
marketing of fragrances and associated products and the manufacturing and
marketing of artificial fingernail care products.
<TABLE>
<CAPTION>
FRAGRANCES NAIL CARE CORPORATE CONSOLIDATED
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended March 31, 1996:
Net sales (A)....................... $83,152,748 $48,132,876 $ -- $131,285,624
============= ============= ============= =============
Operating income (loss)............. $7,607,931 $9,159,638 $(8,317,951) $ 8,449,618
Interest expense -- net............. 3,738,863 12,169,302 3,294,613 19,202,778
Income tax provision (benefit)...... 1,328,163 3,593 (28,085) 1,303,671
------------- ------------- ------------- -------------
Net income (loss)................... $2,540,905 $(3,013,257) $(11,584,479) $(12,056,831)
============= ============= ============= =============
Identifiable assets................. $90,709,215 $83,074,198 $10,835,505 $184,618,918
============= ============= ============= =============
Depreciation and amortization....... $4,534,781 $3,304,496 $ 211,304 $ 8,050,581
============= ============= ============= =============
Capital expenditures................ $4,338,514 $1,942,510 $ 1,884,675 $ 8,165,699
============= ============= ============= =============
Period April 15, 1994 (Inception) to
March 31, 1995:
Net sales (A)....................... $33,602,772 $24,111,637 $ -- $57,714,409
============= ============= ============= =============
Operating income (loss)............. $2,889,464 $4,387,301 $(4,532,739) $ 2,744,026
Interest expense -- net............. 665,192 924,145 6,649,054 8,238,391
Income tax provision (benefit)...... -- -- (35,081) (35,081)
------------- ------------- ------------- -------------
Net income (loss)................... $2,224,272 $3,463,156 $(11,146,712) $(5,459,284)
============= ============= ============= =============
Identifiable assets................. $71,092,482 $74,730,544 $16,430,074 $162,253,100
============= ============= ============= =============
Depreciation and amortization....... $ 878,383 $1,953,310 $ -- $ 2,831,693
============= ============= ============= =============
Capital expenditures................ $ 33,243 $ 478,197 $ 117,622 $ 629,062
============= ============= ============= =============
</TABLE>
- ---------------
(A) There were no material intersegment sales during the year ended March 31,
1996 and the period from April 15, 1994 (Inception) to March 31, 1995.
F-24
<PAGE> 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information related to the Company's operations in different geographic
areas is shown below:
<TABLE>
<CAPTION>
UNITED LATIN
STATES CANADA AMERICA EUROPE CONSOLIDATED
----------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1996:
Net sales (B)(C)........ $115,299,244 $8,026,473 $4,824,576 $3,135,331 $131,285,624
=========== ========= ========= ========== ===========
Net income (loss)....... $(15,332,431) $ 260,038 $1,435,796 $1,579,766 $(12,056,831)
=========== ========= ========= ========== ===========
Identifiable assets..... $156,951,317 $9,674,562 $7,107,409 $10,885,630 $184,618,918
=========== ========= ========= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
UNITED LATIN
STATES CANADA AMERICA EUROPE CONSOLIDATED
----------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Period April 15, 1994 (Inception) to March 31, 1995:
Net sales (B)(C)........ $56,152,467 $ 633,411 $ 385,392 $ 543,139 $ 57,714,409
=========== ========= ========= ========== ===========
Net income (loss)....... $(5,145,843) $(277,611) $(185,732) $ 149,902 $ (5,459,284)
=========== ========= ========= ========== ===========
Identifiable assets..... $155,389,035 $ 609,403 $1,891,969 $4,362,693 $162,253,100
=========== ========= ========= ========== ===========
</TABLE>
(B) There were no material intercompany sales between geographic areas during
the year ended March 31, 1996 and the period from April 15, 1994
(Inception) to March 31, 1995.
(C) The above-mentioned revenues for the United States include export sales of
$6,924,161 and $4,706,980 during the year ended March 31, 1996 and the
period from April 15, 1994 (Inception) to March 31, 1995 respectively.
20. SUBSEQUENT EVENTS
On May 29, 1996, the Company entered into a Securities Purchase Agreement
with an investor, under which the Company can issue up to $20,000,000 of Senior
Exchangeable Preferred Stock, Series A. On May 30, 1996, the Company issued
$10,000,000 of such preferred stock. The Preferred Stock has a dividend rate of
12% per annum, payable quarterly, in cash or additional preferred stock, at the
option of the Company. If the Preferred Stock 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. Under certain circumstances the Holder of the
Preferred Stock, may exercise an option to acquire Common Stock in exchange for
a portion of the Preferred Stock held.
On June 14, 1996 the financial institution with which the Company has its
Current Credit Facility, has agreed to increase its revolving credit from the
current $30,000,000 aggregate principal amount to $40,000,000, upon the issuance
of $20,000,000 of Senior Exchangeable Preferred Stock, Series A.
F-25
<PAGE> 124
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Cosmar Corporation and Affiliate
We have audited the accompanying combined statements of operations of
assets acquired and liabilities assumed and changes in excess of assets acquired
over liabilities assumed and of cash flows of the assets acquired and
liabilities assumed of Cosmar Corporation and Affiliate (the "Company") for the
period from January 1, 1994 to August 17, 1994. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the results of operations and cash flows of the assets
acquired and liabilities assumed of Cosmar Corporation and Affiliate for the
period from January 1, 1994 to August 17, 1994, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Long Beach, California
October 28, 1994
F-26
<PAGE> 125
COSMAR CORPORATION AND AFFILIATE
COMBINED STATEMENT OF OPERATIONS OF ASSETS
ACQUIRED AND LIABILITIES ASSUMED
AND CHANGES IN EXCESS OF ASSETS ACQUIRED OVER LIABILITIES ASSUMED
PERIOD FROM JANUARY 1, 1994 TO AUGUST 17, 1994
<TABLE>
<S> <C>
NET SALES (Note 1).............................................................. $18,300,944
COST OF SALES................................................................... 7,394,576
-----------
GROSS PROFIT.................................................................... 10,906,368
-----------
OPERATING EXPENSES:
Selling and marketing......................................................... 3,876,975
Shipping and warehousing...................................................... 729,212
General and administrative (Note 3)........................................... 2,272,700
Research and development (Note 1)............................................. 701,513
-----------
Total operating expenses................................................... 7,580,400
-----------
OPERATING INCOME................................................................ 3,325,968
-----------
OTHER INCOME (EXPENSE):
Interest expense.............................................................. (60,500)
Other income, net (Note 1).................................................... 185,988
-----------
Total other income......................................................... 125,488
-----------
INCOME BEFORE PROVISION FOR INCOME TAXES........................................ 3,451,456
PROVISION FOR INCOME TAXES (Note 1)............................................. 87,297
-----------
NET INCOME...................................................................... $3,364,159
Distributions to shareholders................................................... (2,151,871)
BALANCE, JANUARY 1, 1994 (Note 1)............................................... 3,296,371
-----------
BALANCE, AUGUST 17, 1994........................................................ $4,508,659
===========
</TABLE>
See accompanying notes to combined financial statements
F-27
<PAGE> 126
COSMAR CORPORATION AND AFFILIATE
COMBINED STATEMENT OF CASH FLOWS OF ASSETS
ACQUIRED AND LIABILITIES ASSUMED
PERIOD FROM JANUARY 1, 1994 TO AUGUST 17, 1994
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $3,364,159
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for doubtful accounts and sales returns........................ 105,719
Depreciation............................................................. 337,784
Changes in operating assets and liabilities:
Accounts receivable.................................................... 1,136,778
Inventory.............................................................. (390,079)
Prepaid expenses and other current assets.............................. 8,181
Other assets........................................................... 1,149
Accounts payable....................................................... 941,241
Accrued expenses....................................................... 478,584
Deferred income........................................................ (43,750)
----------
Net cash provided by operating activities........................... 5,939,766
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................................... (247,682)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of line of credit................................................. (1,300,000)
Repayment of notes payable.................................................. (466,059)
Cash distributions.......................................................... (2,151,871)
----------
Net cash (used in) financing activities............................. (3,917,930)
----------
NET INCREASE IN CASH.......................................................... 1,774,154
CASH, BEGINNING OF PERIOD..................................................... 140,426
----------
CASH, END OF PERIOD, NOT ACQUIRED (Note 1).................................... $1,914,580
==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION --
Cash paid during the period for:
Interest................................................................. $ 60,500
==========
Income taxes............................................................. $ 67,231
==========
</TABLE>
See accompanying notes to combined financial statements.
F-28
<PAGE> 127
COSMAR CORPORATION AND AFFILIATE
NOTES TO THE COMBINED FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1, 1994 TO AUGUST 17, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- On August 18, 1994, CP Holding Company acquired substantially
all of the assets and assumed substantially all of the liabilities of Cosmar
Corporation and its Affiliate, Precision Molded Plastics ("PMP"), who are
engaged in the manufacture and marketing of artificial nail care products and
related accessories. The assets acquired and liabilities assumed comprised all
of the operating assets and liabilities of Cosmar Corporation and PMP except for
cash and certain other assets of $2,043,541 and certain legal claims asserted
against Cosmar Corporation or PMP. Cosmar Corporation and PMP sell their
products to chain drug stores and mass merchandisers principally located
throughout the United States and Europe.
Principles of Combination -- Cosmar Corporation and PMP are controlled by
common shareholders. The combined financial statements include the accounts of
Cosmar Corporation and PMP, collectively referred to as the "Company". All
significant intercompany transactions have been eliminated.
Revenue Recognition -- Revenue is recognized upon shipment of product to
the customer, with appropriate allowance for estimated returns and other
allowances. The Company also has a consulting and exclusive production agreement
with a customer. The agreement provides for royalties to be received each
calendar quarter in the amount of $65,625. Royalties received in advance are
deferred and recognized as income in the month earned. Consulting income earned
for the period from January 1, 1994 to August 17, 1994 was $175,000 which is
included in other income in the accompanying combined statement of operations.
Research and Development Costs -- Research and development costs related to
the designing, development and testing of new products are charged to expense as
incurred.
Income Taxes -- The Company has elected to be taxed as an S Corporation
under the provisions of the Internal Revenue Code through August 17, 1994. Under
those provisions, the Company does not pay federal or state corporate income
taxes on its taxable income. Instead, the shareholders are liable for federal
and state income taxes on the Company's taxable income. Under California state
law the S Corporation are subject to a 1 1/2 percent franchise tax charged at
the corporate level.
2. COMMITMENTS
Operating Leases -- The Company leases certain warehouse and office
facilities and automobiles under operating lease agreements certain of which are
subject to escalations, expiring at various dates through 1996. Rent expense
associated with operating leases for the period from January 1, 1994 to August
17, 1994 was $219,362.
Future minimum lease payments under noncancellable operating leases as of
August 17, 1994 are:
<TABLE>
<S> <C>
1994................................................... $ 155,408
1995................................................... 434,417
1996................................................... 416,320
----------
$1,006,145
==========
</TABLE>
F-29
<PAGE> 128
COSMAR CORPORATION AND AFFILIATE
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PERIOD FROM JANUARY 1, 1994 TO AUGUST 17, 1994
Under the terms of a license agreement, the Company is obligated to pay to
the licensors royalties equal to a specified percentage of the sales of the
Company's products subject to the license agreement. The Company is obligated to
pay minimum royalties aggregating approximately $767,000 through 2004. Royalty
expense recognized under this agreement totaled $116,000 for the period from
January 1, 1994 to August 17, 1994.
3. RELATED PARTY TRANSACTIONS
The Company paid consulting fees to a shareholder in the amount of $40,000
for the period ended August 17, 1994, which are included in general and
administrative expenses in the accompanying statement of operations.
F-30
<PAGE> 129
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Cosmar Corporation and Affiliate
We have audited the accompanying combined statements of income and cash
flows of Cosmar Corporation and Affiliate for the year ended December 31, 1993.
These combined statements of income and cash flows are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined statements of income and cash flows based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statements of income and cash
flows are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the statements of
income and cash flows. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall combined statements of income and cash flows
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined statements of income and cash flows referred
to above present fairly, in all material respects, the results of operations and
cash flows of Cosmar Corporation and Affiliate for the year ended December 31,
1993 in conformity with generally accepted accounting principles.
Windes & McClaughry
Long Beach, California
April 26, 1994
F-31
<PAGE> 130
COSMAR CORPORATION AND AFFILIATE
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
SALES........................................................................... $25,844,062
COST OF SALES................................................................... 10,852,670
----------
GROSS PROFIT.................................................................... 14,991,392
----------
OPERATING EXPENSE
Shipping and warehouse........................................................ 1,076,022
Selling....................................................................... 5,198,714
Administrative................................................................ 3,085,282
Research and development...................................................... 567,968
----------
9,927,986
----------
INCOME FROM OPERATIONS.......................................................... 5,063,406
----------
OTHER INCOME (EXPENSE)
Interest (expense)............................................................ (131,711)
Other income.................................................................. 5,797
----------
(125,914)
----------
INCOME BEFORE STATE FRANCHISE TAX............................................... 4,937,492
STATE FRANCHISE TAX............................................................. 136,000
----------
NET INCOME...................................................................... $4,801,492
==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-32
<PAGE> 131
COSMAR CORPORATION AND AFFILIATE
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................... $4,801,492
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization............................................. 476,766
(Increase) decrease in:
Accounts receivable..................................................... 255,072
Inventory............................................................... (1,162,557)
Prepaid expenses........................................................ (118,587)
Other assets............................................................ (5,027)
Increase (decrease) in:
Accounts payable........................................................ (44,851)
Accrued expenses........................................................ 219,499
----------
Net Cash Provided By Operating Activities............................... 4,421,807
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment........................................... (877,025)
----------
Net Cash Used In Investing Activities..................................... (877,025)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings.......................................... 300,000
Proceeds from notes payable.................................................. 238,000
Repayment of notes payable................................................... (94,501)
Repayment of due to shareholders............................................. (457,175)
Distributions to shareholders................................................ (3,689,099)
----------
Net Cash Used In Financing Activities..................................... (3,702,775)
----------
NET CHANGE IN CASH............................................................. (157,993)
CASH AT BEGINNING OF YEAR...................................................... 298,419
----------
CASH AT END OF YEAR............................................................ $ 140,426
==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-33
<PAGE> 132
COSMAR CORPORATION AND AFFILIATE
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Cosmar Corporation and
Affiliate (the Company) is presented to assist in understanding the Company's
combined financial statements.
Organization and Operation
Cosmar Corporation and Precision Molded Plastics are incorporated under the
laws of the State of California and are controlled by common shareholders. The
Company's principal business activity is the manufacture and distribution of
fingernail products. The Company has a diversified customer base including
national and international retailers.
Principles of Combination
The combined financial statements include the accounts of Cosmar
Corporation and Precision Molded Plastics. All material intercompany accounts
and transactions have been eliminated.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided by
using the straight-line and accelerated methods over the estimated useful lives
of three to 31 1/2 years.
Expenditures for fixed asset additions and major improvements are
capitalized, and expenditures for maintenance and repairs are expensed as
incurred.
Income Taxes
Both Cosmar Corporation and Precision Molded Plastics shareholders elected
to be taxed as S Corporations for federal and California tax purposes, and as
such, the income is primarily taxed directly to the shareholders. There is a
2 1/2 percent California franchise tax charged at the corporate level and
reflected in the provision for state franchise tax expense. Cash paid for taxes
amounted to approximately $223,000 for 1993.
NOTE 2 -- COMMITMENTS
Operating Leases
The Company leases certain warehouse, office facilities, automobile and
office equipment under operating lease agreements expiring at various dates
through 1996. Rent expense associated with operating leases for the year ended
December 31, 1993 was $276,950.
Noncancellable operating lease obligations as of December 31, 1993 are:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31, LEASES
------------------------------------------------------- ---------
<S> <C>
1994................................................... $ 303,730
1995................................................... 360,225
1996................................................... 352,178
----------
$1,016,133
==========
</TABLE>
F-34
<PAGE> 133
COSMAR CORPORATION AND AFFILIATE
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
NOTE 3 -- RELATED PARTY TRANSACTION
The Company paid consulting fees to a shareholder in the amount of $60,000
for the year ended December 31, 1993.
NOTE 4 -- MAJOR CUSTOMERS
During 1993, the Company had three major customers each representing
approximately 10% of sales.
NOTE 5 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Noncash financing activities:
The Company refinanced $300,000 of notes payable during the year ended
December 31, 1993.
F-35
<PAGE> 134
GREAT AMERICAN COSMETICS, INC.
BALANCE SHEET
AS AT JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash........................................................................... $1,019,888
Accounts receivable............................................................ 1,607,763
Merchandise inventories -- submitted........................................... 2,686,789
Prepaid expenses and other current assets...................................... 9,437
----------
Total Current Assets................................................... 5,323,877
Fixed Assets..................................................................... 131,503
Accumulated depreciation....................................................... 81,141
----------
50,362
Intangible assets, net of accumulated amortization of $817,679................... 1,157,321
Deposits......................................................................... 8,139
----------
Total Assets........................................................... $6,539,699
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt......................................... $ 220,440
Accounts payable............................................................... 737,886
Due to shareholders............................................................ 81,500
Accrued expenses and taxes payable............................................. 1,640,621
----------
Total Current Liabilities.............................................. 2,680,447
Long-term debt................................................................... 591,590
Commitments and contingencies....................................................
Shareholders' Equity
Capital stock.................................................................. 2,000
Retained earnings.............................................................. 3,265,662
----------
Total Shareholders' Equity............................................. 3,267,662
----------
Total Liabilities and Shareholders' Equity............................. $6,539,699
=========
</TABLE>
See notes to financial statements.
F-36
<PAGE> 135
GREAT AMERICAN COSMETICS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
INCOME
From Sales -- net................................................. $7,029,488 $3,702,990
COST OF GOODS SOLD
Inventories -- January 1.......................................... 2,201,359 789,786
Purchases......................................................... 4,266,476 2,725,329
Freight and duty.................................................. 258,559 94,821
Other direct costs................................................ 9,180 24,240
---------- ----------
TOTAL AVAILABLE FOR SALES................................. 6,735,574 3,634,176
Inventories -- June 30............................................ 2,686,789 1,537,086
Cost of Goods Sold........................................ 4,048,785 2,097,090
GROSS MARGIN ON SALES............................................... 2,980,703 1,605,900
OPERATING EXPENSES
Selling........................................................... 810,896 353,786
General and administrative........................................ 303,714 195,381
Officers' salaries................................................ 128,546 65,910
Taxes............................................................. 22,833 13,289
Depreciation and amortization..................................... 131,069 128,557
---------- ----------
TOTAL OPERATING EXPENSES.................................. 1,397,058 756,923
---------- ----------
NET OPERATING INCOME FOR PERIOD BEFORE
OTHER INCOME...................................................... 1,583,645 848,977
Gain on restructuring of debt..................................... 409,000 --
Interest income................................................... 3,959 451
---------- ----------
NET INCOME FOR PERIOD BEFORE PROVISION
FOR INCOME TAXES.................................................. 1,996,604 849,428
Provision for income taxes........................................ 601,400 322,000
---------- ----------
NET INCOME FOR PERIOD............................................... 1,395,204 527,428
Retained earnings -- January 1...................................... 1,870,458 818,859
---------- ----------
Retained earnings -- June 30........................................ $3,265,662 $1,346,287
========== ==========
</TABLE>
See notes to financial statements.
F-37
<PAGE> 136
GREAT AMERICAN COSMETICS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income for period............................................... $1,395,204 $ 527,428
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization....................................... 131,069 128,557
Gain on restructuring of debt....................................... (409,000) --
Changes in assets and liabilities:
Accounts receivable.............................................. (736,565) (631,207)
Inventory........................................................ (485,430) (747,300)
Prepaid expenses................................................. 16,029 (722)
Accounts payable................................................. 176,352 420,284
Accrued expenses and taxes payable............................... 1,008,828 354,563
---------- ----------
Net cash provided by operating activities................... 1,096,487 51,603
Cash Flows from Investing Activities:
Purchase of fixed assets............................................ (25,127) (12,406)
Repayment of loans from shareholders................................ (100,000) (30,000)
---------- ----------
Net cash (used in) investing activities..................... (125,127) (42,406)
---------- ----------
Cash Flows from Financing Activities:
Proceeds of notes payable........................................... 1,500,000 200,000
Repayment of installation indebtedness.............................. (1,762,375) (134,190)
---------- ----------
Net cash (used in) financing activities..................... (262,375) 65,810
---------- ----------
Net Changes in Cash................................................... 708,985 75,007
Cash balance -- January 1,............................................ 310,903 130,081
---------- ----------
Cash balance -- June 30,.............................................. $1,019,888 $ 205,088
========== ==========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest......................................................... $ 26,334 $ 2,225
Income taxes..................................................... $ 22,770 $ 6,840
========== ==========
</TABLE>
See notes to financial statements.
F-38
<PAGE> 137
GREAT AMERICAN COSMETICS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1 -- BASIS OF PRESENTATION
In the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows of Great American Cosmetics, Inc. (the
"Company") are presented on a consistent basis. The results of operations for
the six months ended June 30, 1996 are not necessarily indicative of the results
of be expected for any other interim period or for the entire year. Certain
information and footnote disclosures have been condensed or omitted. The
financial statements should be read in conjunction with the financial statements
for the years ended December 31, 1995 and 1994.
NOTE 2 -- INVENTORIES
The components of inventories at June 30, 1996 are as follows:
<TABLE>
<S> <C>
Raw materials.................................................................... $ 775,898
Finished goods................................................................... 1,910,891
----------
$2,686,789
==========
</TABLE>
The Company's inventories are stated at the lower of cost (FIFO) or market.
NOTE 3 -- SUBSEQUENT EVENTS
On June 27, 1996, the Company and Messrs. Larry Pallini and Vincent
Carbone, the sole shareholders of the Company entered into a stock purchase
agreement with Cosmar Corporation, a wholly owned subsidiary of Renaissance
Cosmetics, Inc. to sell all the issued and outstanding capital stock of the
Company. The transaction closed on August 21, 1996.
F-39
<PAGE> 138
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Great American Cosmetics, Inc.
Port Washington, New York
We have audited the accompanying Balance Sheets of Great American
Cosmetics, Inc. as of December 31, 1995 and 1994 and the related Statements of
Income, Retained Earnings, and Cash Flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
We did not observe the taking of the physical inventory at December 31,
1993, 1994, and 1995 since we were not engaged to audit the Company's records
until after that date. We were able to satisfy ourselves by means of other
procedures concerning inventory quantities.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Great American Cosmetics,
Inc. as of December 31, 1995 and 1994 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Deutsch, Marin & Company
July 11, 1996
F-40
<PAGE> 139
GREAT AMERICAN COSMETICS, INC.
BALANCE SHEETS
AS AT DECEMBER 31
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash.............................................................. $ 310,903 $ 130,081
Accounts receivable............................................... 871,198 715,052
Merchandise inventories (Note 1).................................. 2,201,359 789,786
Prepaid expenses and other current assets......................... 25,466 5,402
---------- ----------
Total Current Assets........................................... 3,408,926 1,640,321
Fixed Assets (Note 1, 3)............................................ 44,637 46,508
Intangible assets, net of accumulated amortization of $706,012
and $482,678 (Note 2)............................................. 1,268,988 1,492,322
Deposits............................................................ 8,139 7,750
---------- ----------
Total Assets........................................................ $4,730,690 $3,186,901
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt (Note 4)................... $ 425,000 $ 250,000
Accounts payable.................................................. 561,533 310,164
Due to shareholders (Note 5)...................................... 100,000 80,000
Accrued expenses and taxes payable................................ 631,794 183,783
---------- ----------
Total Current Liabilities...................................... 1,718,327 823,947
Long-term debt (Note 4)............................................. 1,058,405 1,360,595
Due to shareholders (Note 5)........................................ 81,500 181,500
Commitments and contingencies (Note 7)..............................
Shareholders' Equity
Common stock -- no par value; 200 shares issued and outstanding... 2,000 2,000
Retained earnings................................................. 1,870,458 818,859
---------- ----------
Total Shareholders' Equity..................................... 1,872,458 820,859
---------- ----------
Total Liabilities and Shareholders' Equity.......................... $4,730,690 $3,186,901
========== ==========
</TABLE>
The accompanying letter and notes are an integral part of these statements.
F-41
<PAGE> 140
GREAT AMERICAN COSMETICS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
INCOME
From Sales...................................................... $7,885,916 $4,175,342
COST OF GOODS SOLD
Inventories -- January 1,....................................... 789,786 411,337
Purchases....................................................... 5,557,433 2,716,179
Freight and duty................................................ 341,459 130,156
Other direct costs.............................................. 50,735 22,948
---------- ----------
TOTAL AVAILABLE FOR SALES.................................... 6,739,413 3,280,620
Inventories -- December 31,..................................... 2,201,359 789,786
---------- ----------
COST OF GOODS SOLD........................................... 4,538,054 2,490,834
---------- ----------
GROSS MARGIN ON SALES............................................. 3,347,862 1,684,508
---------- ----------
OPERATING EXPENSES
Selling......................................................... 837,947 512,944
General and administrative...................................... 429,035 272,023
Management fees................................................. -- 84,500
Taxes........................................................... 28,018 18,722
Officers' salaries.............................................. 134,850 94,000
Depreciation and amortization................................... 257,113 238,573
---------- ----------
TOTAL OPERATING EXPENSES..................................... 1,686,963 1,220,762
---------- ----------
NET INCOME FOR YEAR BEFORE PROVISION FOR INCOME TAXES............. 1,660,899 463,746
Provision for income taxes...................................... 609,300 147,633
---------- ----------
NET INCOME FOR YEAR............................................... 1,051,599 316,113
Retained earnings -- January 1,................................... 818,859 502,746
---------- ----------
Retained earnings -- December 31,................................. $1,870,458 $ 818,859
========== ==========
</TABLE>
The accompanying letter and notes are an integral part of these statements.
F-42
<PAGE> 141
GREAT AMERICAN COSMETICS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income for year.............................................. $ 1,051,599 $ 316,113
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization................................. 257,113 238,573
Changes in assets and liabilities:
Accounts receivable......................................... (156,146) (197,316)
Inventories................................................. (1,411,573) (378,449)
Prepaid expenses............................................ (20,064) 231
Deposits.................................................... (389) (7,750)
Accounts payable............................................ 251,369 238,841
Accrued expenses and taxes payable.......................... 448,011 79,299
----------- ---------
Net cash provided by operating activities................ 419,920 289,542
----------- ---------
Cash Flows from Investing Activities:
Repayment of shareholder loans................................... (80,000) (54,500)
Purchase of fixed assets......................................... (31,908) (30,630)
----------- ---------
Net cash (used in) investing activities.................. (111,908) (85,130)
----------- ---------
Cash Flows from Financing Activities:
Proceeds of notes payable........................................ 150,000 --
Repayment of installment indebtedness............................ (277,190) (236,961)
----------- ---------
Net cash (used in) financing activities.................. (127,190) (236,961)
----------- ---------
Net Changes in Cash................................................ 180,822 (32,549)
Cash balance -- January 1,......................................... 130,081 162,630
----------- ---------
Cash balance -- December 31,....................................... $ 310,903 $ 130,081
=========== =========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest...................................................... $ 8,496 $ 6,011
=========== =========
Taxes......................................................... $ 93,275 $ 29,021
=========== =========
</TABLE>
The accompanying letter and notes are an integral part of these statements.
F-43
<PAGE> 142
GREAT AMERICAN COSMETICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1: -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company's Activities -- The Company is a New York corporation, organized in
May, 1990, and formerly known as Unforgettable Cosmetics, Inc. The Company is a
wholesaler of health, beauty aids and fragrances selling to predominantly chain
drugstores, mass merchandisers and other wholesalers.
Merchandise Inventories -- Inventories consist of finished goods,
unpackaged product components (bulk), and displays, materials and supplies and
are valued at the lower of cost or market, primarily on a first-in, first-out
(FIFO) cost basis. All obsolete or non saleable merchandise has been valued at
net realizable value.
Fixed Assets and Depreciation -- Fixtures and equipment are stated at cost
and are depreciated for both financial reporting and income tax purposes under
the Modified Accelerated Cost Recovery System (MACRS). In accordance with this
provision, equipment is being depreciated using the double declining balance
method over a five/seven-year period. These procedures differ from generally
accepted accounting principles, which require depreciation to be provided over
the estimated average useful lives of the assets. Any difference in the current
year's provision for depreciation on these assets, based upon the usage of
MACRS, rather than the estimated average useful lives, is not significant.
Property sold or retired is eliminated from the asset and reserve accounts
in the year of disposition. Any differences between the proceeds on disposition
and undepreciated cost are reflected in other income.
Expenditures for maintenance, repairs and minor renewals which do not
naturally extend the life of assets are charged against earnings when incurred.
Additions and major renewals are capitalized.
Concentration of Credit Risk -- The Company's credit risks primarily
consist of accounts receivable from various drug store chains. Management
performs ongoing credit evaluations of its customers and provides allowances as
deemed necessary.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NOTE 2: -- ACQUISITION OF NAT ROBBINS LTD.
On December 1, 1992, the Company acquired the operations and substantially
all assets of Nat Robbins Ltd., a New York corporation in a business similar to
their own.
Assets included were as follows:
<TABLE>
<S> <C>
Trademark................................................ $ 1,000,000
Customer list............................................ 400,000
Goodwill................................................. 75,000
Equipment................................................ 25,000
----------
$ 1,500,000
==========
</TABLE>
In addition, a four-year non-competition agreement was entered into between
the seller and the Company, at a cost of $500,000. With the exception of the
noncompete covenant and equipment, each asset acquired is amortized over a
fifteen-year period in accordance with the Revenue Reconciliation Act of 1993.
F-44
<PAGE> 143
GREAT AMERICAN COSMETICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 3: -- FIXED ASSETS
Fixed assets and depreciation are comprised as follows:
<TABLE>
<CAPTION>
ACCUMULATED BOOK
COST DEPRECIATION VALUE DEPRECIATION
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
December 31, 1995
Machinery and equipment............. $ 81,254 $ 38,915 $ 42,339 $ 13,304
Furniture and fixtures.............. 10,975 10,975 -- 9,753
Shelves and racks................... 14,147 11,849 2,298 10,722
-------- ------- ------- -------
Total............................... $106,376 $ 61,739 $ 44,637 $ 33,779
======== ======= ======= =======
December 31, 1994
Machinery and equipment................ $60,282 $ 25,611 $ 34,671 $ 12,892
Furniture and fixtures................. 8,551 1,222 7,329 1,222
Shelves and racks...................... 5,635 1,127 4,508 1,127
------- ------- ------- -------
Total.................................. $74,468 $ 27,960 $ 46,508 $ 15,241
======= ======= ======= =======
</TABLE>
NOTE 4: -- LONG-TERM DEBT
Long-term debt is comprised as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Various installment notes for equipment and intangibles..... $1,333,405 $1,610,595
Notes payable -- Quality Supply Corp., with interest
at 13%, due November 5, 1996.............................. 100,000 --
Notes payable -- Christine Tsaktsirlis, with interest
at 13%, due November 5, 1996.............................. 50,000 --
---------- ----------
1,483,405 1,610,595
Amounts due within one year................................. 425,000 250,000
---------- ----------
$1,058,405 $1,360,595
========== ==========
</TABLE>
The various installment notes result from an agreement dated December 1,
1992 for the purchase of the name and sundry assets of Nat Robbins, Ltd. (Note
2). The total purchase price was $2,000,000, which included the assumption by
the Company of certain liabilities of the seller in the amount of $328,000. The
payments due under the note are calculated at 8% of the net sales of Nat Robbins
products and are payable on a monthly basis. The seller has received a security
interest in the acquired assets, which the seller assigned to Extebank. At the
direction of the seller, the Company had been remitting any amounts due under
the agreement equally to pay both the assumed liabilities and Extebank. At
December 31, 1994, the assumed liabilities were paid in full.
Management has been negotiating with a third party lender a refinancing of
the Extebank indebtedness so as to achieve more favorable principal repayment
terms. (See Note 8.)
Management, based upon its 1995 and 1994 sales of "Nat Robbins" products,
has classified $275,000 and $250,000 respectively, of the obligation as a
current maturity of long-term debt.
F-45
<PAGE> 144
GREAT AMERICAN COSMETICS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 5: -- RELATED PARTY TRANSACTIONS
The shareholders of the Company have made various advances of working
capital, when needed, to the Company. These advances are payable on demand,
without collateral, and interest is charged at prevailing market rates.
The shareholders have agreed not to withdraw portions of their respective
loans to the company for the next twelve (12)-month period. As such, these
amounts have been classified as long-term.
NOTE 6: -- INCOME TAXES
The provision for income taxes consist of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Federal income tax, at applicable rates........................ $453,400 $119,588
New York State franchise tax................................... 155,900 28,045
--------
Total........................................................ $609,300 $147,633
========
</TABLE>
The Company is currently being audited by the Internal Revenue Service for
years 1993 and 1994. Management does not feel that any adjustment will be
material. The issues under review, if adjusted by the IRS, will merely result in
a timing difference as to the deduction of certain costs.
NOTE 7: -- COMMITMENTS AND CONTINGENCIES
In November of 1994, the Company moved to a new location where the minimum
annual rental commitment in effect at December 31, 1995 is as follows:
<TABLE>
<S> <C>
1996....................................................................... $48,205
1997....................................................................... 50,065
1998....................................................................... 51,925
1999....................................................................... 53,785
2000....................................................................... 4,495
</TABLE>
The lease requires payment of real estate taxes, electric and other
expenses. The Company also leases additional office space in Florida under a
lease expiring February, 1997, which provides for the lessee to be responsible
for all insurance, utilities and real estate taxes. Rent expense relating to
these arrangements aggregated $58,511 and $21,539 for 1995 and 1994
respectively.
NOTE 8: -- SUBSEQUENT EVENT
Refinancing -- In April 1996, the Company obtained a $600,000 loan from
Chase Manhattan Bank, which funds were used for the purpose of repayment of the
existing notes with Extebank. In accordance with an agreement with Extebank, the
Company received a $350,000 discount on the early retirement of the debt. In
addition, the Company entered into a revolving credit agreement with Chase that
provides for advances up to a maximum of $900,000.
Pending Sale -- The shareholders of the Company have entered into a stock
purchase agreement dated June 27, 1996 with Cosmar Corporation (the Buyer).
Pursuant to the agreement, the Buyer is acquiring from the shareholders all of
the outstanding capital stock of Great American Cosmetics, Inc. The transaction
contemplated under the agreement is scheduled to close by August 31, 1996.
* * * * *
F-46
<PAGE> 145
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
9/30/96 12/31/95
----------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash.......................................................... $ 468,725 $ 957,562
Accounts receivable, less allowance for doubtful accounts of
$644,621 at 9/30/96 and $680,319 at 12/31/95................ 12,966,038 13,381,468
Inventories, at lower of cost (first-in, first-out) or market:
Finished goods.............................................. 8,528,299 6,021,947
Raw materials and work in process........................... 9,510,215 8,582,573
Prepaid expenses.............................................. 987,029 825,377
------------ ------------
Total current assets.......................................... 32,460,306 29,768,927
Property, plant and equipment, at cost........................ 19,437,440 19,106,128
Less accumulated depreciation................................. (14,770,521) (13,924,996)
------------ ------------
Net property, plant and equipment............................. 4,666,919 5,181,132
Other assets:
Advance royalty payments -- net............................... 460,530 567,450
Other assets.................................................. 76,717 208,132
Intangibles -- net............................................ 9,740,707 10,098,702
------------ ------------
Total assets.................................................. $47,405,179 $45,824,343
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Loans payable to financial institutions and banks............. $15,879,572 $10,791,385
Accounts payable.............................................. 5,178,849 3,523,504
Accrued expenses.............................................. 2,576,427 1,928,989
Notes payable -- current portion.............................. 1,554,043 1,553,990
------------ ------------
Total current liabilities..................................... 25,188,891 17,797,868
Long-term notes............................................... 2,047,294 3,369,813
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, $.05 par value; 6,000,000 shares authorized,
3,000,000 shares issued..................................... 150,000 150,000
Additional paid-in capital.................................... 3,090,110 3,090,110
Retained earnings............................................. 21,850,673 26,460,779
Less: Common stock in treasury, at cost....................... (4,488,680) (4,597,430)
Cumulative translation adjustment....................... (433,109) (446,797)
------------ ------------
Total stockholders' equity.................................... 20,168,994 24,656,662
------------ ------------
Total liabilities and stockholders' equity.................... $47,405,179 $45,824,343
============ ============
</TABLE>
F-47
<PAGE> 146
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1996 1995 1995
QUARTER YEAR TO DATE QUARTER YEAR TO DATE
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net sales................................... $13,396,336 $ 22,577,167 $16,699,114 $ 27,684,336
Costs and expenses:
Cost of sales............................... 8,182,743 13,846,143 8,894,995 15,097,363
Selling and shipping expense................ 3,969,150 8,178,273 5,407,422 10,215,308
General and administrative expense.......... 1,224,904 3,904,142 1,323,450 3,764,704
----------- ----------- -----------
Total costs and expenses.................. 13,376,797 25,928,558 15,625,867 29,077,375
----------- ----------- -----------
19,539 (3,351,391) 1,073,247 (1,393,039)
Other income (expense):
Royalties, interest and other income........ 107,492 239,572 77,013 254,183
Amortization of intangibles................. (119,382) (358,143) (119,394) (358,083)
Merger expenses............................. (419,178) (707,454) -- --
Proceeds from settlement of lawsuit......... 691,669 691,669 -- --
Interest expense............................ (433,826) (1,018,872) (440,244) (1,028,138)
Financing expense........................... (30,026) (105,487) (36,586) (116,881)
----------- ----------- -----------
Net profit (loss)........................... $ (183,712) $ (4,610,106) $ 554,036 $ (2,641,958)
----------- ----------- -----------
Net profit (loss) per share................. $ (.07) $ (1.78) $ .22 $ (1.02)
----------- ----------- -----------
Average shares outstanding.................. 2,594,059 2,587,534 2,580,184 2,580,184
</TABLE>
Net income (loss) per share was determined by dividing net income (loss) by
the average number of shares outstanding during the respective period.
See accompanying notes.
F-48
<PAGE> 147
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)............................................... $(4,610,106) $(2,641,958)
Depreciation and amortization................................... 1,304,785 1,268,186
Provision for losses on accounts receivable..................... 225,398 163,589
(Increase) decrease in accounts receivable...................... 193,760 (2,649,881)
(Increase) decrease in inventory................................ (3,418,488) (5,208,810)
(Increase) decrease in other current assets..................... (153,747) 118,870
(Increase) decrease in other assets............................. 131,415 (13,854)
Increase (decrease) in accounts payable......................... 1,652,764 473,229
Increase (decrease) in accrued expenses......................... 646,790 1,742,695
----------- -----------
Net cash provided by (used in) operating activities............. (4,027,429) (6,747,934)
Cash Flows from Investing Activities:
Additions to plant and equipment................................ (324,488) (783,343)
----------- -----------
Net cash (used in) investing activities......................... (324,488) (783,343)
Cash Flows from Financing Activities:
Short-term borrowings........................................... 11,495,718 14,238,231
(Repayments of) short-term borrowings........................... (6,416,264) (6,316,076)
Sale of treasury stock on exercise of stock options............. 108,750 --
(Payments of) long-term notes................................... (1,323,339) (1,311,868)
----------- -----------
Net cash (used in) provided by financing activities............. 3,864,865 6,610,287
Effect of exchange rate changes on cash......................... (1,785) 25,340
----------- -----------
Net (decrease) in cash.......................................... (488,837) (895,650)
Cash at the beginning of the year............................... 957,562 1,128,897
----------- -----------
Cash at the end of the period................................... $ 468,725 $ 233,247
=========== ===========
</TABLE>
See accompanying notes.
F-49
<PAGE> 148
MEM COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-and nine-month
periods ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto of MEM Company, Inc. and Subsidiaries for the year ended December 31,
1995 included herein.
NOTE 2 -- SETTLEMENT OF LITIGATION
In September, 1996, the Company received $692,000 as the result of a final
judgment lettered by the Supreme Court of the State of New York in an action
brought by the Company against the owners of the Heaven Sent trademark. The
court held that the defendant failed to protect the Company's United States
trademark license by refusing to participate in efforts to stop the gray-market
import of goods into the United States.
*****
F-50
<PAGE> 149
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
MEM Company, Inc.
We have audited the accompanying consolidated balance sheets of MEM
Company, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
MEM Company, Inc. and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Hackensack, New Jersey
February 21, 1996
F-51
<PAGE> 150
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales........................................... $44,825,314 $53,094,217 $38,453,774
Costs and expenses:
Cost of sales....................................... 25,618,098 28,541,205 22,622,236
Selling and shipping expense........................ 15,108,538 19,612,873 13,281,251
General and administrative expense.................. 5,215,135 5,202,902 4,892,234
------------ ------------ ------------
Total costs and expenses.......................... 45,941,771 53,356,980 40,795,721
------------ ------------ ------------
(1,116,457) (262,763) (2,341,947)
Other income (expense):
Royalty income...................................... 361,085 264,535 409,119
Interest income..................................... 18,726 226,226 247,245
Amortization of intangibles......................... (477,460) (306,326) (57,936)
Other income (expense).............................. 5,124 11,816 (48,617)
Interest expense.................................... (1,602,038) (1,112,403) (489,363)
Financing expense................................... (170,957) (149,362) (288,407)
------------ ------------ ------------
Net (loss).......................................... $(2,981,977) $(1,328,277) $(2,569,906)
============ ============ ============
Per share, based on weighted average shares
outstanding....................................... $ (1.16) $ (.52) $ (1.00)
============ ============ ============
</TABLE>
See accompanying notes.
F-52
<PAGE> 151
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................. $ 957,562 $1,128,897
Accounts receivable, less allowance for doubtful accounts of
$680,319 in 1995 and $661,654 in 1994........................... 13,381,468 12,843,943
Inventories, at lower of cost (first-in, first-out) or market:
Finished goods.................................................. 6,021,947 6,095,908
Raw materials & work in process................................. 8,582,573 9,228,083
Prepaid expenses.................................................. 825,377 1,163,589
---------- ----------
Total current assets.............................................. 29,768,927 30,460,420
Property, plant & equipment, at cost:
Land.............................................................. 341,752 340,829
Buildings & improvements.......................................... 4,466,224 4,250,376
Machinery & equipment............................................. 11,812,562 11,174,123
Furniture & fixtures.............................................. 2,485,590 2,347,180
---------- ----------
19,106,128 18,112,508
Less accumulated depreciation..................................... (13,924,996) (12,788,644)
---------- ----------
Net property, plant & equipment................................... 5,181,132 5,323,864
Other assets:
Advance royalty payments & license agreements -- net of
accumulated amortization of $747,050 in 1995 and $604,490 in
1994............................................................ 567,450 710,010
Net cash value of life insurance and other assets................. 208,132 193,729
Intangible assets -- net of accumulated amortization of $1,240,107
in 1995 and $761,765 in 1994.................................... 10,098,702 10,572,940
---------- ----------
Total assets...................................................... $45,824,343 $47,260,963
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable..................................................... $10,791,385 $6,528,016
Accounts payable.................................................. 3,523,504 4,488,160
Accrued expenses.................................................. 853,001 1,004,720
Accrued advertising and promotion................................. 1,075,988 1,303,667
Notes payable-current portion..................................... 1,553,990 1,534,066
---------- ----------
Total current liabilities......................................... 17,797,868 14,858,629
Long-term notes:
8% -- payable to 1997......................................... 644,000 1,288,000
8.19% -- payable to 1998......................................... 620,521 642,039
10.5% -- payable to 1999......................................... 2,105,292 2,976,585
---------- ----------
Total long-term notes............................................. 3,369,813 4,906,624
Commitments and contingencies
Stockholders' equity:
Common stock, $.05 par value; shares authorized: 6,000,000;
issued: 3,000,000............................................... 150,000 150,000
Additional paid-in capital........................................ 3,090,110 3,090,110
Retained earnings................................................. 26,460,779 29,442,756
---------- ----------
29,700,889 32,682,866
Less common stock in treasury, at cost (1995 -- 416,816 shares;
1994 -- 419,816)................................................ (4,597,430) (4,607,180)
Cumulative translation adjustment................................. (446,797) (579,976)
---------- ----------
Total stockholders' equity........................................ 24,656,662 27,495,710
---------- ----------
Total liabilities and stockholders' equity........................ $45,824,343 $47,260,963
========== ==========
</TABLE>
See accompanying notes.
F-53
<PAGE> 152
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY TRANSLATION
STOCK CAPITAL EARNINGS STOCK ADJUSTMENT TOTAL
-------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1992... $150,000 $3,090,110 $33,340,939 $(4,644,010) $(348,135) $31,588,904
Issuance of treasury
shares.................... -- -- -- 6,500 -- 6,500
Translation adjustment...... -- -- -- -- (106,859) (106,859)
Net income (loss)........... -- -- (2,569,906) -- -- (2,569,906)
-------- ---------- ----------- ----------- --------- -----------
Balance December 31, 1993... 150,000 3,090,110 30,771,033 (4,637,510) (454,994) 28,918,639
Issuance of treasury
shares.................... -- -- -- 30,330 -- 30,330
Translation adjustment...... -- -- -- -- (124,982) (124,982)
Net income (loss)........... -- -- (1,328,277) -- -- (1,328,277)
-------- ---------- ----------- ----------- --------- -----------
Balance December 31, 1994... 150,000 3,090,110 29,442,756 (4,607,180) (579,976) 27,495,710
Issuance of treasury
shares.................... -- -- -- 9,750 -- 9,750
Translation adjustment...... -- -- -- -- 133,179 133,179
Net income (loss)........... -- -- (2,981,977) -- -- (2,981,977)
-------- ---------- ----------- ----------- --------- -----------
Balance December 31, 1995... $150,000 $3,090,110 $26,460,779 $(4,597,430) $(446,797) $24,656,662
======== ========== =========== =========== ========= ===========
</TABLE>
See accompanying notes.
F-54
<PAGE> 153
MEM COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss).................................. $(2,981,977) $(1,328,277) $(2,569,906)
Depreciation and amortization...................... 1,719,514 1,640,308 1,451,331
Provision for losses on accounts receivable........ 368,330 445,065 119,098
(Increase) decrease in accounts receivable......... (901,284) (4,762,020) 1,705,326
(Increase) decrease in inventory................... 748,628 (3,512,810) 2,079,755
(Increase) decrease in other current assets........ 337,909 20,741 270,840
Increase (decrease) in accounts payable............ (964,631) 2,205,017 (377,412)
Increase (decrease) in other accrued expenses...... (383,047) 980,500 (315,929)
(Increase) decrease in other assets................ (14,403) (15,253) (27,941)
------------- ------------- -------------
Net cash (used in) provided by operating
activities....................................... (2,070,961) (4,326,729) 2,335,162
Cash Flows from Investing Activities
Additions to plant and equipment................... (946,333) (1,023,003) (719,030)
Payment in lieu of future royalties................ -- -- (500,000)
Acquisition of intangibles......................... -- (6,409,215) --
Collection of note receivable...................... -- 2,635,989 240,473
------------- ------------- -------------
Net cash (used in) investing activities............ (946,333) (4,796,229) (978,557)
Cash Flows from Financing Activities
Short-term borrowings.............................. 16,894,091 14,709,272 7,326,415
(Repayments of) short-term borrowings.............. (12,622,580) (9,209,825) (9,121,954)
Proceeds from long-term notes...................... -- 7,050,000 --
(Payments of) long-term notes...................... (1,535,260) (3,220,833) (12,691)
Issuance of treasury stock......................... 9,750 8,250 6,500
------------- ------------- -------------
Net cash provided by (used in) financing
activities....................................... 2,746,001 9,336,864 (1,801,730)
Effect of exchange rate changes on cash............ 99,958 (77,028) (11,643)
------------- ------------- -------------
Net increase (decrease) in cash.................... (171,335) 136,878 (456,768)
Cash at the beginning of the year.................. 1,128,897 992,019 1,448,787
------------- ------------- -------------
Cash at the end of the year........................ $ 957,562 $1,128,897 $ 992,019
============= ============= =============
Supplemental cash flow data: Interest paid......... $ 1,581,743 $ 995,727 $ 530,488
============= ============= =============
</TABLE>
See accompanying notes.
F-55
<PAGE> 154
MEM COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1. ACCOUNTING POLICIES
Nature of business: The Company's business consists of manufacturing,
selling and distributing a diversified line of toiletries and accessories to
retailers of all sizes. The Company operates in one industry segment. One
national customer represented 13% of net sales in 1995 and 14% in 1994. The
Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Financial information about
geographic data is disclosed in Item 1(b) of the Company's 1995 Form 10-K.
Consolidation: The consolidated financial statements include the accounts
of the Company's subsidiaries. All material intercompany items have been
eliminated. The assets and liabilities of foreign subsidiaries have been
translated at the exchange rate at the balance sheet date. Revenues, expenses,
gains and losses are translated at the average rate for the year, determined by
averaging the rates at the end of each calendar quarter.
Deferred financing costs: Deferred financing costs are included in prepaid
expenses and are being amortized over the life of the loans.
Intangible assets: Intangible assets arising from the excess of purchase
price of subsidiaries acquired prior to 1971 over the fair value of the net
assets acquired have not been amortized. Other intangible assets are being
amortized on a straight-line basis over twenty to forty years. Impairments are
recognized whenever events or changes in circumstances indicate that the
carrying amount of intangible assets may not be recoverable and the future
undiscounted cash flows attributable to the asset are less than its carrying
value. In 1995, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 121 and utilized its provisions in the evaluation of intangible and
other long-lived assets. The adoption of SFAS No. 121 had no effect on the
financial statements.
Depreciation: For financial accounting purposes, depreciation is provided
on the straight-line basis as follows: buildings and improvements -- 3 to 25
years; machinery and equipment -- 5 to 12 years; furniture and fixtures -- 4 to
10 years. For income tax purposes, the Company generally uses accelerated
depreciation.
Advance royalty payments and license agreements: License agreements and
nonrefundable royalty payments in connection with a licensing agreement are
being amortized as selling expense on a straight-line basis which averages
seventeen years.
Royalty income: Royalty income represents amounts earned by licensing the
English Leather and Tinkerbell trademarks for use by various third parties.
Revenue recognition: Revenues are recorded at the time of shipment of
merchandise.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts in the financial
statements and accompanying notes. These estimates principally include
provisions for sales returns and allowances. Actual results could differ from
those estimates.
NOTE 2. BRITISH STERLING ASSET PURCHASE
On May 20, 1994, the Company acquired certain assets relating to the
British Sterling fragrance line of products from the Speidel Division of
Textron, Inc. for $9,182,000, of which $8,145,000 was for intangibles,
$1,029,000 for inventories and $8,000 for other assets. Other direct costs of
the acquisition were $196,215. The purchase was financed by a term loan of
$7,050,000 and a note for $1,932,000 payable to Textron. The balance of $396,215
was paid from the Company's working capital.
F-56
<PAGE> 155
MEM COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE 3. CREDIT ARRANGEMENTS AND NOTES PAYABLE
In March, 1993, the Company obtained a three-year secured financing
agreement with a financial institution which provided for a revolving line of
credit of up to $15,000,000 based on eligible collateral, for working capital
purposes. The agreement contains certain covenants generally associated with
this type of financing including the pledging of substantially all assets as
collateral, a prohibition on the payment of dividends and considers a material
adverse change as a potential event of default. Interest on borrowings is at the
Bank of America prime rate (8 1/2% at December 31, 1995) plus 2% and an unused
line fee of 1/4% is payable at various levels of borrowing. Previous to June,
1995, the interest rate had been prime plus 2.5%.
In connection with the acquisition described in Note 2 above, the agreement
was amended in May, 1994 to provide for a five-year term loan of $7,050,000,
extend the maturity of the agreement by two years to April, 1998 and increase
the total permitted borrowings at any time to $17,500,000 (including the
outstanding term loan). During peak seasonal periods, this limit may be
increased to $20,000,000. The term loan was reduced by $2,465,076 in October,
1994 from the collection of a note receivable held by the Company. Principal of
the term loan is payable in equal monthly installments over five years, and
interest is determined on the same basis as the revolving line of credit. The
agreement was amended in June, 1995 to lower the interest rate and extend the
maturity by one year to April, 1999.
Under the terms of the acquisition, the seller received an unsecured note
payable for $1,932,000 at 8% interest. This note is payable in three equal
annual installments which began June 1, 1995.
The Company's Canadian subsidiary has pledged its land and building as
security for a 8.19% note payable which is payable in monthly principal
installments of $3,233 until October, 1998 when the balance is due.
The aggregate payments due on all long-term notes payable during each of
the three years subsequent to December 31, 1996 are: 1997 -- $1,553,990;
1998 -- $1,452,931; 1999 -- $362,892.
The Company's United Kingdom subsidiary has a line of credit of $932,000
for short-term financing at various interest rates, of which $494,935 was
outstanding at December 31, 1995. This line is secured by the subsidiary's
accounts receivable and inventory.
The weighted average interest rate on short-term borrowings outstanding at
December 31, 1995 and 1994 was 10.4% and 11%, respectively.
NOTE 4. INCOME TAXES
At December 31, 1995, the Company had loss carryforwards for U.S. tax
purposes of approximately $9,609,000 of which $679,000 expires in 2006,
$3,834,000 in 2007, $1,703,000 in 2008, $625,000 in 2009 and $2,768,000 in 2010.
The Company also had approximately $1,541,000 of foreign tax loss carryforwards
as of December 31, 1995. Approximately $751,000 of these loss carryforwards will
expire between 1998 and 2002 while the remaining $790,000 can be carried forward
indefinitely. Under the provisions of SFAS No. 109, a valuation allowance is
established if, based on the weight of available evidence, it is more likely
than not that a portion of the deferred asset will not be realized.
Consequently, at December 31, 1995, the Company has established a valuation
allowance against a portion of the above loss carryforwards.
F-57
<PAGE> 156
MEM COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
Income (loss) before income taxes is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Domestic.......................................... $(2,892,596) $(1,151,029) $(1,974,147)
Foreign........................................... (89,381) (177,248) (595,759)
----------- ----------- -----------
$(2,981,977) $(1,328,277) $(2,569,906)
=========== =========== ===========
</TABLE>
The components of the net deferred tax asset and liability as of December
31, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment................................. $ 419,000 $ 443,000
----------- -----------
Total deferred tax liability.................................. $ 419,000 $ 443,000
=========== ===========
Deferred tax assets:
Net operating loss carryforwards.............................. $4,460,000 $3,360,000
Valuation allowance for deferred tax assets................... (4,041,000) (2,917,000)
----------- -----------
Net deferred tax asset.......................................... 419,000 443,000
----------- -----------
Net deferred tax liability...................................... $ -- $ --
=========== ===========
</TABLE>
The reconciliation of the (benefit) for federal income tax in the financial
statements and the (benefit) computed at the statutory rates are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
(Benefit) at statutory rate.......................... $(1,013,872) $(451,614) $(873,768)
Limitation on utilization of domestic losses......... 937,583 347,150 632,110
Limitation on utilization of foreign losses.......... 30,389 60,264 202,558
Other -- Net......................................... 45,900 44,200 39,100
------------ ---------- ----------
$ -- $ -- $ --
============ ========== ==========
</TABLE>
NOTE 5. LEASES
The Company rents warehouse and office space under a lease which expires in
2003. The Company is also responsible for the payment of insurance, taxes and
maintenance of the property. The future minimum rental commitment for this lease
is as follows: 1996 -- $62,000; 1997 -- $62,000; 1998 -- $62,000;
1999 -- $62,000; 2000 -- $62,000; thereafter -- $186,000. Rental expense
amounted to $305,000 in 1995, $351,000 in 1994 and $342,000 in 1993.
NOTE 6. STOCK OPTIONS
Under the 1987 Non-Qualified Stock Option Plan, 240,000 shares were
authorized for issuance. No options have been granted under the Plan.
Under the 1991 Stock Incentive Plan, 200,000 shares of common stock were
authorized for issuance to key employees at an option price which is the fair
market value on the date of the grant. Awards made under the Plan may be options
or contingent options. Contingent options will become exercisable in whole or in
part based upon an evaluation of the employee's performance during the year in
which the option is granted.
F-58
<PAGE> 157
MEM COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
Under the 1993 Non-Employee Stock Incentive Plan, 50,000 shares of common
stock were authorized for issuance to nonemployee members of the Board of
Directors and certain individuals who provide consulting services to the Company
at an option price which is the fair market value on the date of grant.
Options issued under the Plans to date are exercisable in various
installments, and are exercisable in full after two years from grant.
Information with respect to options is as follows:
<TABLE>
<CAPTION>
OPTION PRICE
NUMBER OF SHARES PER SHARE
---------------- -------------
<S> <C> <C>
Outstanding -- December 31, 1992........................... 43,375 $5.00
Granted.................................................... 35,750 $4.13 -- $5.00
Exercised.................................................. (500) $5.00
Cancelled.................................................. (7,000) $5.00
----------------
Outstanding -- December 31, 1993........................... 71,625 $4.13 -- $5.00
Granted.................................................... 20,700 $4.13
Cancelled.................................................. (10,000) $4.13 -- $5.00
----------------
Outstanding -- December 31, 1994........................... 82,325 $4.13 -- $5.00
Granted.................................................... 31,000 $3.50 -- $3.88
Cancelled.................................................. (4,000) $3.50 -- $5.00
----------------
Outstanding -- December 31, 1995........................... 109,325 $3.50 -- $5.00
================
</TABLE>
Options on 74,275 shares were exercisable at December 31, 1995.
NOTE 7. POSTRETIREMENT BENEFITS
The Company does not provide any postretirement health care, life insurance
or other welfare benefit programs to current or former employees except that the
Company maintains a defined benefit pension plan for employees who meet certain
eligibility requirements. Benefits under the plan are based on salary and years
of service. For the past three years, no contributions have been required.
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service cost-benefits earned during the period........ $ 190,300 $ 182,915 $ 226,383
Interest cost on projected benefit obligation......... 291,383 291,992 308,755
Investment return on plan assets...................... (929,056) 204,838 (471,152)
Other................................................. 452,161 (710,709) (31,352)
--------- --------- ---------
Net pension cost (benefit)............................ $ 4,788 $ (30,964) $ 32,634
========= ========= =========
Assumptions:
Discount rate....................................... 8% 8% 8%
Compensation increases.............................. 5% 5% 5%
Rate of return on assets............................ 8% 8% 8%
</TABLE>
F-59
<PAGE> 158
MEM COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
A reconciliation between the plan's funded status and the pension asset as
recorded in the Company's balance sheet is presented below:
<TABLE>
<S> <C> <C> <C>
Plan's assets at fair value, primarily stocks and
bonds........................................... $5,115,894 $4,295,427 $5,121,274
Plan's projected benefit obligation............... (3,676,167) (3,699,488) (3,898,265)
----------- ----------- -----------
Funded status..................................... 1,439,727 595,939 1,223,009
Unrecognized net asset to be amortized over 13
years........................................... (565,624) (676,531) (787,438)
Unrecognized prior service cost................... 85,093 95,864 106,635
Unrecognized asset (gain) over expected return.... (947,985) 727 (557,171)
----------- ----------- -----------
Prepaid (accrued) pension cost.................... $ 11,211 $ 15,999 $ (14,965)
=========== =========== ===========
Actuarial present value of accumulated benefit
obligation:
Vested.......................................... $2,557,886 $2,636,587 $2,532,562
Not yet vested.................................. 160,700 148,055 175,622
----------- ----------- -----------
Accumulated benefit obligation.................... $2,718,586 $2,784,642 $2,708,184
=========== =========== ===========
</TABLE>
NOTE 8. QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a schedule of key financial data by quarter for the years 1995
and 1994.
<TABLE>
<CAPTION>
AVERAGE SHARES
NET SALES GROSS PROFIT NET INCOME NET INCOME OUTSTANDING
QUARTERS ENDED (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) PER SHARE (DOLLARS IN THOUSANDS)
- ----------------- ---------------------- ---------------------- ---------------------- ---------- ----------------------
<S> <C> <C> <C> <C> <C>
03/31/94......... $ 5,241 $ 2,159 $ (1,087) $ (.42) 2,573
06/30/94......... $ 5,647 $ 1,870 $ (2,129) $ (.83) 2,573
09/30/94......... $ 19,057 $ 9,797 $ 1,162 $ .45 2,575
12/31/94......... $ 23,149 $ 10,727 $ 726 $ .28 2,576
03/31/95......... $ 6,282 $ 2,813 $ (994) $ (.39) 2,580
06/30/95......... $ 4,704 $ 1,970 $ (2,202) $ (.85) 2,580
09/30/95......... $ 16,699 $ 7,804 $ 554 $ .22 2,580
12/31/95......... $ 17,140 $ 6,620 $ (340) $ (.14) 2,581
</TABLE>
Since the Company's business is seasonal in nature, comparisons among
quarters of the year are not necessarily indicative of a trend in the results of
operations, but principally reflect this seasonality.
*****
F-60
<PAGE> 159
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 4
Prospectus Summary.................... 5
Risk Factors.......................... 12
Recent Developments................... 19
Use of Proceeds....................... 22
Capitalization........................ 23
Selected Historical Financial Data.... 25
Unaudited Pro Forma Consolidated
Financial Data...................... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 36
Business.............................. 43
Management............................ 63
Security Ownership of Certain
Beneficial Owners and Management.... 70
Certain Relationships and Related
Transactions........................ 71
Exchange Offer........................ 72
Plan of Distribution.................. 79
Description of Series C Preferred
Stock............................... 80
Description of Outstanding
Indebtedness........................ 85
Description of Outstanding Capital
Stock............................... 90
Certain Federal Income Tax
Considerations...................... 94
Legal Opinion......................... 97
Experts............................... 97
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
RENAISSANCE
COSMETICS, INC.
------------------------
PROSPECTUS
------------------------
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 160
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") grants a
Delaware corporation the power to indemnify any director, officer, employee or
agent against reasonable expenses (including attorneys' fees) incurred by him in
connection with any proceeding brought by or on behalf of the corporation and
against judgments, fines, settlements and reasonable expenses (including
attorneys' fees) incurred by him in connection with any other proceeding, if (a)
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and (b) in the case of any
criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful. Except as ordered by a court, however, no indemnification is to be
made in connection with any proceeding brought by or in the right of the
corporation where the person involved is adjudged to be liable to the
corporation.
Article VII of the registrant's restated certificate of incorporation
provides that the registrant shall, to the fullest extent permitted by section
145 of the DGCL, indemnify any and all persons whom it shall have the power to
indemnify under that section 145 from and against any and all of the expenses,
liabilities or other matters referred to in or covered by that section.
Section 102 of the DGCL permits the limitation of directors' personal
liability to the corporation or its stockholders for monetary damages for breach
of fiduciary duties as a director except for (i) any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of the law, (iii) breaches under section 174 of the DGCL, which relate to
unlawful payments of dividends or unlawful stock repurchase or redemptions, and
(iv) any transaction from which the director derived an improper personal
benefit.
Article VIII of the registrant's restated certificate of incorporation
limits the personal liability of directors of the registrant to the fullest
extent permitted by paragraph (7) of subsection (b) of section 102 of the DGCL.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, the registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
Pursuant to section 11.8 of the Indenture, the holders of the Senior Notes
have agreed to waive and release all liability of the directors, officers and
controlling persons of the registrant which may arise in connection with any
obligations of the registrant or any guarantors in connection with the Senior
Notes or the Indenture.
Pursuant to section 9 of the registration rights agreement relating to the
Senior Notes, section 7 of the registration rights agreement relating to the
Series B Preferred Stock, section 5 of the common stock registration rights
agreement relating to the Series B Warrant Shares, section 5 of the common stock
registration rights agreement relating to the shares of Common Stock purchased
by CIBC Fund, and section 5 of the common stock registration rights agreement
relating to the shares of Common Stock purchased by Bastion under the New Common
Stock Sale, the holders of such securities have agreed to indemnify the
directors, officers and controlling persons of the registrant against certain
liabilities, costs and expenses that may be incurred in connection with the
registration of such securities, to the extent that such liabilities, costs and
expenses that may be incurred in connection with the registration of such
securities, to the extent that such liabilities, costs and expenses arise from
an omission or untrue statement contained in information provided to the
registrant by the holders of such securities.
The Company's Directors' and Officers' Liability and Reimbursement
Insurance Policies are designed to reimburse the Company for any payments made
by it pursuant to the foregoing indemnification. Such policies have aggregate
coverage of $5.0 million. The Securities Purchase Agreements, dated as of May
29, 1996 and
II-1
<PAGE> 161
August 8, 1996 respectively, between the Company, the CIBC Fund and the Initial
Purchaser (collectively, the "Buyers"), contain provisions by which the Buyers
agree to indemnify the Company and its affiliates (including its officers,
directors, employees, agents and controlling persons) against certain
liabilities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------
<S> <C>
2.1 (6) Stock Purchase Agreement among Cosmar Corporation, a Delaware corporation
("Cosmar Corporation"), Larry Pallini, Vincent Carbone and Great American
Cosmetics, Inc., a New York corporation ("GAC"), entered into on June 27, 1996,
providing for the acquisition by Cosmar Corporation of all of the capital stock
of GAC.
2.2 (6) Agreement and Plan of Merger, among Renaissance Cosmetics, Inc., a Delaware
corporation (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.
2.3 (13) Asset Sale and Purchase by and among the Procter & Gamble Company (as Seller)
and Dana Perfumes Corp. (as Buyer) and solely for purposes of Sections 4.6, 6.6
and 6.12 hereof Renaissance Cosmetics, Inc. and Cosmar Corporation dated as of
October 25, 1996.
2.4 (13) Form of Asset Sale and Purchase Agreement among P&G foreign affiliate sellers
and Dana Perfumes Corp., dated as of October 29, 1996.
3.1 (1) Restated certificate of incorporation of the Company filed with the Secretary of
State of the State of Delaware on August 17, 1994.
3.1.2 (8) Certificate of Designation of Preferences and Rights of Senior Exchangeable
Redeemable Preferred Stock, Series A, of the Company, filed with the Secretary
of State of the State of Delaware on May 29, 1996.
3.1.3 (7) Certificate of Designation of Preferences and Rights of Senior Redeemable
Preferred Stock, Series B, of the Company, filed with the Secretary of State of
the State of Delaware on August 15, 1996.
3.1.4 Certificate of Increase of Certificate of Designation of Preferences and Rights
of Senior Redeemable Preferred Stock, Series B filed with the Secretary of State
of the State of Delaware on September 27, 1996.
3.2 (1) By-laws of the Company.
4.1 (7) Certificate of Designation of Preferences and Rights of Senior Redeemable
Preferred Stock, Series C, par value $.01 per share, of the Company filed with
the Secretary of State of the State of Delaware on August 15, 1996.
4.2 Certificate of Increase of Certificate of Designation of Preferences and Rights
of Senior Redeemable Preferred Stock, Series C filed with the Secretary of State
of the State of Delaware on September 27, 1996.
4.3 Specimen certificate of share of Series C Preferred Stock.
5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison, regarding the legality of
the securities being registered.
10.1 Intentionally Omitted
10.2 (1) License agreement (the "Houbigant U.S. License Agreement"), dated May 1994,
between Houbigant Inc., a Delaware corporation ("Houbigant") and Parfums Parquet
Incorporated (f.k.a. New Fragrance License Corp.) ("Parfums Parquet").
10.3 Intentionally Omitted
10.4 (2) Amendment to the Houbigant U.S. License Agreement, dated May 12, 1994.
10.5 (2) Amendment to the Houbigant U.S. License Agreement, dated June 1, 1994.
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10.6 (1) Amendment to the Houbigant U.S. License Agreement, dated June 24, 1994.
10.7 (1) Three letter agreements relating to the Houbigant U.S. License Agreement, each
dated July 1, 1994.
10.8 (1) Letter of Agreement dated July 1, 1994, between Houbigant and Parfums Parquet
relating to the Houbigant U.S. License Agreement.
10.9 (10) Right of Last Refusal Agreement dated July 1, 1994 among Houbigant, Luigi
Massironi, Michael Sherman and Parfums Parquet relating to the Houbigant U.S.
License Agreement.
10.10 (1) Guaranty, dated July 1, 1994, by Cosmar in favor of Houbigant of all obligations
of Parfums Parquet under the Houbigant U.S. License Agreement.
10.11 (10) Security Agreement -- Trademarks, dated July 1, 1994, among Houbigant, Parfums
Parquet, Chemical Bank New Jersey N.A. and National Westminster Bank, U.S.A.
10.12 (10) Assignment for Security, dated July 1, 1994, between Houbigant and Parfums
Parquet.
10.13 (1) Letter agreement, dated August 18, 1994, between Parfums Parquet and Houbigant,
with respect to Assumption and Assignment Agreement.
10.14 (2) Restated and Amended License Agreement (the "Harby's License Agreement"), dated
August 16, 1994, between Harby's Corporation NV ("Harby's") and Houbigant.
10.15 (1) Assumption and assignment agreement (the "Assumption and Assignment Agreement"),
dated August 18, 1994, among Houbigant, Harby's and Parfums Parquet.
10.16 (1) Amendment, dated September 19, 1994, to the Assumption and Assignment Agreement.
10.17 (1) Letter Agreement, dated August 18, 1994, among Harby's, Houbigant and Parfums
Parquet, regarding certain rights under the Harby's License Agreement.
10.18 (2) License Agreement (the "Worldwide License Agreement"), dated August 10, 1994, by
and between Houbigant, Houbigant GmbH and Parfums Parquet.
10.19 (2) Amendment dated August 16, 1994 to the License Agreement dated August 10, 1994
between Houbigant, Houbigant GmbH and Parfums Parquet.
10.20 (2) Amendment dated September 16, 1994 to the License Agreement dated August 10,
1994, between Houbigant, Houbigant GmbH and Parfums Parquet Incorporated.
10.21 (10) Letter Agreement, dated February 14, 1995, relating to the License Agreement
dated August 10, 1994 between Houbigant and Parfums Parquet.
10.22 (10) Right of Last Refusal Agreement, dated February 14, 1995, among Houbigant, Luigi
Massironi, Michael Sherman and Parfums Parquet relating to the Worldwide License
Agreement.
10.23 (10) Guaranty, dated February 28, 1995, by Cosmar in favor of Houbigant of all
obligations of Parfums Parquet under the License Agreement dated August 10, 1994
between Houbigant, Houbigant GmbH and Parfums Parquet.
10.24 (10) Security Agreement -- Trademarks, dated February 28, 1995, among Houbigant,
Parfums Parquet, Chemical Bank New Jersey N.A. and National Westminster Bank,
USA.
10.24.1 (10) Assignment for Security Agreement, dated February 14, 1995, between Houbigant
and Parfums Parquet.
10.25 (2) Letter Agreement dated September 21, 1994 amending the Worldwide License
Agreement, the Houbigant U.S. License Agreement and the Harby's License
Agreement by and between Parfums Parquet Incorporated, Harby's, Houbigant, and
Houbigant GMBH.
10.26 (2) Purchase Agreement dated December 12, 1994 by and among Houbigant (1995) Limitee
(formerly 3088766 Canada Limited), ACB Fragrances and Cosmetics, Inc., ACB
Mercantile, Inc., Houbigant Limitee, Augustine Celaya, Giacomo Giuliano, and
Gilles Pellerin.
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10.26.1 (3) Escrow Agreement, dated December 12, 1994, between ACB Fragrances and Cosmetics,
Inc., ACB Mercantile, Inc., Houbigant Limitee, Augustine Celaya, Giacomo
Giuliano, Gilles Pellerin, Houbigant (1995) Limited and Lavery de Billis.
10.27 (2) Employment Agreement dated December 12, 1994, between Houbigant (1995) Limitee
and Giacomo Giuliano.
10.28 (2) Employment Agreement dated December 12, 1994, between Houbigant (1995) Limitee
and Gilles Pellerin.
10.29 (2) Non-Competition Agreement dated December 12, 1994, between Houbigant (1995)
Limitee and Augustine Celaya.
10.30 (11) Amendment, Modification and Settlement Agreement, dated July 31, 1996, among
Houbigant, Dana Perfumes Corp. (fka. Parfums Parquet) ("Dana") and Houbigant
(1995) Limitee amending the Worldwide License Agreement and the Houbigant U.S.
License Agreement and providing for the execution of a new license agreement for
Canada.
10.31 (11) License Agreement (the "Canadian License"), dated July 31, 1996, between
Houbigant and Houbigant (1995) Limitee.
10.32 (11) Letter Agreement, dated July 1996, among Houbigant, Dana and Houbigant (1995)
Limitee, amending the provisions for royalty payments under the Worldwide
License Agreement, the Houbigant U.S. License Agreement and the Canadian License
Agreement.
10.33 (11) Amendment No. 1 to License Agreements, dated July 31, 1996, among Houbigant,
Dana and Houbigant (1995) Limitee, amending the Worldwide License Agreement, the
Houbigant U.S. License Agreement and the Canadian License Agreement.
10.34 Amendment No. 1 to Security Agreement -- Trademarks, dated July 31, 1996, among
Houbigant, Parfums Parquet, Chemical Bank New Jersey N.A. and NatWest Bank NA.
10.35 (10) License Agreement, dated August 18, 1994, between Cosmar Corporation and
Renaissance Cosmetics, Inc.
10.36 (1) Letter agreement, dated August 18, 1994, between the Company and Dr. Thomas V.
Bonoma, granting Dr. Bonoma stock options.
10.37 (6) Employment agreement, dated August 6, 1996, between the Company and Dr. Thomas
V. Bonoma.
10.38 (1) Stockholders agreement, dated August 18, 1994, among the Company and the
stockholders listed in schedule 1 thereto.
10.40 Employee Stock Option Plans.
10.41 (10) Management Services Agreement, dated August 16, 1994, between Kidd, Kamm &
Company and Renaissance Cosmetics, Inc.
10.42 (1) Industrial Warehouse lease between Princeland Development Company and Cosmar
California, dated May 17, 1993, and an assignment of that lease, dated August
18, 1994, by Cosmar California in favor of Cosmar Corporation.
10.43 (1) Industrial building lease between Princeland Development Company and Cosmar
California, dated July 15, 1991, and an assignment of that lease, dated August
18, 1994, by Cosmar California in favor of Cosmar Corporation.
10.44 (1) Industrial building lease between Sparks Industrial Joint Venture and Precision
Molded Plastics, Inc., dated November 20, 1991, and a consent to assignment of
that lease, dated June 7, 1994, executed by Precision Molded Plastics, Inc. and
Sparks Industrial Joint Venture.
10.45 (1) Office lease between Fortune Financial and Cosmar California, dated January 1,
1992, and a consent to assignment of that lease, dated June 21, 1994, executed
by Cosmar California and Fortune Financial.
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10.46 (1) Various subleases for office space at 635 Madison Avenue, New York, New York,
between Saatchi & Saatchi Holdings (USA) as sublessor, and Dana Perfumes Corp.,
as sublessee.
10.47 (8) Standard Industrial Lease (the "Lease") relating to property known as 11700
Monarch Street, Garden Grove, California, between Bixby Western Properties as
Lessor and A.H. Robins Company, Incorporated as Lessee (the "Lessee"), dated
June 25, 1979.
10.48 (8) First Amendment to the Lease, between Trust Company of the West as Trustee for
TCW Realty Fund IV as successor Lessor (the "Lessor") and the Lessee, dated
November 10, 1989.
10.49 (8) Second Amendment to the Lease, between the Lessor and the Lessee, dated as of
January 1, 1993.
10.50 (8) Sublease of the Lessee's rights under the Lease to Cosmar Corporation, dated as
of March 1, 1996 (the "Sublease").
10.51 (8) Consent of the Lessor to the Sublease, dated as of March 1, 1996.
10.52 (10) Agreement of Lease between Groupe Gestion Luger as Lessor and Houbigant Ltee as
Lessee (the "Lessee"), relating to the immovable property situated at 1593 to
1645 Cunard Street, City of Chomedey (Laval), Province of Quebec, dated June 25,
1979 and assignment of that lease, dated December 12, 1994, by the Lessee in
favor of 3088766 Canada Limited.
10.53 Lease, between Bonanno Real Estate Group II, L.P. and Parfums Parquet, dated
February 10, 1995 relating to the property situated at 734 Grand Avenue, in the
Borough of Ridgefield, New Jersey.
10.53.1 (10) Standard Form Commercial Lease, between Sally A. Starr and Lisa A. Brown as
Trustees of Massachusetts 955 Realty trust for the Benefit of 955 Massachusetts
Avenue Associates (as lessor) and Renaissance Cosmetics, Inc. relating to the
property located in Cambridge, Massachusetts.
10.53.2 (10) Lease Agreement Between Ghent Limited Partnership (as lessor) and Renaissance
Cosmetics, Inc. (as tenant) relating to the property situated in Greenwich,
Connecticut.
10.54 (1) Option Agreement between New Dana Acquisition Corp. and Trust Naniases, a
Liechtenstein trust, dated November 3, 1994, for the purchase of all the issued
and outstanding shares of capital stock of Perfumes Dana do Brasil, S.A.
10.54.1(2) Management Services Agreement, dated December 22, 1994, between New Dana
Acquisition Corp. and Perfumes Dana do Brazil, S.A.
10.55 (9) Notice dated November 29, 1995 of exercise of option to purchase Parfums Dano do
Brazil, S.A.
10.56 (1) Agreement for the purchase of all the capital stock of Dana S.A., dated November
3, 1994, between New Dana Acquisition Corp. and Fimasa S.A., a Panamanian
corporation.
10.57 (1) Agreement for the purchase of all the capital stock of Les Parfums de Dana,
Inc., dated November 3, 1994, between New Dana Acquisition Corp. and Fidelia
S.A., a Swiss corporation.
10.58 (1) Agreement for the purchase of all of the capital stock of Marcafin S.A. et al.,
dated November 3, 1994, between New Dana Acquisition Corp. and Trust Naniases, a
Liechtenstein trust.
10.59 (2) Letter agreement, dated December 21, 1994, amending the Dana purchase agreements
referred to in Exhibits 10.54 to 10.58.
10.60 (2) Tie-in letter, dated November 3, 1994, from New Dana to each of the Dana
subsidiaries.
10.62 (2) Agreement for the purchase and sale of the assets of Cosmar Corporation and
Precision Molded Plastics, Inc., dated as of May 19, 1994, by and among Cosmar
California, Precision Molded Plastics, Inc., their respective shareholders, C.P.
Cosmetics, Inc. and C.P. Holding Corp.
10.63 (1) Employment Agreement, dated as of August 18, 1994, among Renaissance Cosmetics,
Inc., Cosmar Corporation and Robert H. Schnell.
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10.64 (10) Letter Agreement, dated June 1, 1995, between Renaissance Cosmetics, Inc. and
Aldran H. Lajoie.
10.65 (1) Employment Agreement, dated as of August 18, 1994, among Renaissance Cosmetics,
Inc., Cosmar Corporation and Marc Schnell.
10.66 Non-Competition Agreement, dated as of August 18, 1994, among Renaissance
Cosmetics, Inc., Cosmar Corporation and Jerry D. Kayne.
10.67 Non-Competition Agreement, dated as of August 18, 1994, among Renaissance
Cosmetics, Inc., Cosmar Corporation and Fred Kayne.
10.68 (2) Note Purchase Agreement ("Note Purchase Agreement") regarding Variable Rate
Senior Secured Revolving Notes Due 1996 and Variable Rate Senior Secured Term
Notes due 1996, dated as of December 21, 1994 by and among Cosmar Corporation,
Renaissance Cosmetics, Inc., and Nomura Holding America Inc.
10.69 (5) Amendment No. 1 and Waiver to Note Purchase Agreement, dated as of April 7,
1995, among Nomura Holding America Inc., Cosmar Corporation and the Company.
10.70 (10) Amendment No. 2 to Note Purchase Agreement, dated as of September 8, 1995, among
Nomura Holding America Inc., Cosmar Corporation and the Company.
10.71 (10) Amendment No. 3 and Consent to Note Purchase Agreement, dated as of January 8,
1996, among Nomura Holding America Inc., Cosmar Corporation and the Company.
10.72 (10) Amendment No. 4 and Waiver to Note Purchase Agreement and Amendment No. 2 to
Security Documents, dated as of May 29, 1996, among Nomura Holding America Inc.,
Cosmar Corporation and the Company.
10.73 (10) Amendment No. 5 to Note Purchase Agreement, dated as of June 14, 1995, among
Nomura Holding America Inc., Cosmar Corporation and the Company.
10.74 (10) Waiver to Note Purchase Agreement, dated as of August 8, 1996, among Nomura
Holding America Inc., Cosmar Corporation and the Company.
10.75 (2) Variable Rate Senior Secured Revolving Note Due 1996 to Nomura Holding America
Inc., by Cosmar Corporation.
10.76 (2) Variable Rate Senior Secured Term Notes Due 1996 to Nomura Holding America Inc.,
by Cosmar Corporation.
10.77 (2) Guarantee, dated December 22, 1994, by Renaissance Cosmetics, Inc., for and in
consideration of the purchase by Nomura Holding America Inc. of the Notes issued
and to be issued by Cosmar Corporation pursuant to the Note Purchase Agreement
dated as of December 21, 1994.
10.78 (2) Guarantee, dated December 22, 1994, by Dana Perfumes Corp., for and in
consideration of the purchase by Nomura Holding America Inc. of the Notes issued
and to be issued by Cosmar Corporation pursuant to the Note Purchase Agreement
dated as of December 21, 1994.
10.79 (2) Guarantee, dated December 22, 1994, by New Dana Acquisition Corp., for and in
consideration of the purchase by Nomura Holding America Inc. of the Notes issued
and to be issued by Cosmar Corporation pursuant to the Note Purchase Agreement
dated as of December 21, 1994.
10.80 (2) Guarantee, dated December 22, 1994, by Les Parfums de Dana, Inc., for and in
consideration of the purchase by Nomura Holding America Inc. of the Notes issued
and to be issued by Cosmar Corporation pursuant to the Note Purchase Agreement
dated as of December 21, 1994.
10.81 (2) Guarantee, dated December 22, 1994, by Roslyn Importers Inc., for and in
consideration of the purchase by Nomura Holding America Inc. of the Notes issued
and to be issued by Cosmar Corporation pursuant to the Note Purchase Agreement
dated as of December 21, 1994.
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10.82 (2) Guarantee, dated December 22, 1994, by Perfumes and Cosmetics Importers, Inc.,
for and in consideration of the purchase by Nomura Holding America Inc. of the
Notes issued and to be issued by Cosmar Corporation pursuant to the Note
Purchase Agreement dated as of December 21, 1994.
10.83 (2) Guarantee, dated December 22, 1994, by Parfums Dana Export Corp., for and in
consideration of the purchase by Nomura Holding America Inc. of the Notes issued
and to be issued by Cosmar Corporation pursuant to the Note Purchase Agreement
dated as of December 21, 1994.
10.86 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and between
Cosmar Corporation, and Nomura Holding America Inc.
10.87 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and between
Renaissance Cosmetics, Inc. and Nomura Holding America Inc.
10.88 (2) Intellectual Property Security Agreement, dated December 22, 1994, by and among
Cosmar Corporation, Renaissance Cosmetics, Inc., Parfums Parquet Incorporated,
New Dana Acquisition Corp., Parfums Dana Export Corp., Perfumes and Cosmetics
Importers, Inc. Les Parfums de Dana, Inc., Dana Perfumes Corp., Roslyn Importers
Inc. and Nomura Holding America Inc.
10.89 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and between Les
Parfums de Dana, Inc., and Nomura Holding America Inc.
10.90 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and between
Dana Perfumes Corp., and Nomura Holding America Inc.
10.91 (2) Pledge and Security Agreement, dated December 22, 1994, by and between Parfums
Parquet Incorporated, and Nomura Holding America Inc.
10.92 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and between New
Dana Acquisition Corp., and Nomura Holding America Inc.
10.93 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and between
Roslyn Importers Inc., and Nomura Holding America Inc.
10.94 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and between
Parfums Dana Export Corp., and Nomura Holding America Inc.
10.95 (10) Parent Cash Equivalent Pledge Agreement, dated as of August 15, 1996, among
Nomura Holding America Inc., Renaissance Cosmetics, Inc. and The Chase Manhattan
Bank.
10.96 (5) Renaissance Cosmetics, Inc. 1994 Stock Option Plan.
10.97 (4) Aircraft lease agreement dated February 13, 1995 between the Company and General
Electric Capital Corporation.
10.98 (9) Filing dated October 11, 1995 to reflect on the public stock records of Paris,
France the purchase by the Company of the shares of RSH 149 S.A.R.L.
10.99 (8) Securities Purchase Agreement between the Company and CIBC WG Argosy Merchant
Fund 2, L.L.C. (the "Fund"), dated as of May 29, 1996. Amendment No. 1, dated as
of June 21, 1996, to Securities Purchase Agreement, dated as of May 29, 1996,
between Renaissance Cosmetics, Inc. and CIBC WG Argosy Merchant Fund 2, L.L.C.
10.100 (8) Registration Rights Agreement between the Company and the Fund, dated as of May
29, 1996.
10.101 (8) Common Stock Registration Rights Agreement between the Company and the Fund,
dated as of May 29, 1996.
10.102 (7) Securities Purchase Agreement, dated as of August 8, 1996, between the Company
and CIBC Wood Gundy Securities Corp.
10.103 (7) Registration Rights Agreement, dated as of August 15, 1996, between the Company
and CIBC Wood Gundy Securities Corp.
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10.104 (7) Common Stock Registration Rights Agreement, dated as of August 15, 1996, between
the Company and CIBC Wood Gundy Securities Corp.
10.105 (10) Subscription Agreement, dated August 15, 1996, between the Company and CIBC WG
Argosy Merchant Fund 2, L.L.C.
10.106 (10) Warrant Agreement, dated as of August 18, 1994, between Renaissance Cosmetics,
Inc. and American Bank National Association.
10.107 (7) Warrant Agreement, dated as of August 15 1996, between the Company and Firstar
Trust Company.
10.108 (1) Indenture, dated as of August 18, 1994, among the Company, as Issuer, the
guarantors identified therein (the "Guarantors"), and American Bank National
Association, as Trustee.
10.109 (3) Form of the Exchange Notes.
10.110 (3) Form of the 2002 Notes.
10.111 (2) First supplemental indenture, dated as of November 15, 1994, among the Company,
as issuer, New Dana Acquisition Corp., as guarantor, and American Bank National
Association, as Trustee.
10.112 (2) Second supplemental indenture, dated as of December 15, 1994, among the Company,
as issuer, Houbigant (1995) Limitee, as guarantor, and American Bank National
Association as trustee.
10.113 (2) Third supplemental indenture, dated as of December 23, 1994, among the Company,
as issuer, certain subsidiaries of the Company, as guarantors, and American
National Bank Association, as trustee.
10.114 (8) Fourth supplemental indenture, dated as of February 27, 1996, among the Company,
as issuer, SH 149 S.A.R.L., as guarantor, and American Bank National
Association, as trustee.
10.115 (10) Fifth supplemental indenture, dated as of August 21, 1996, among the Company, as
the issuer, GAC, as guarantor, and American Bank National Association, as
trustee.
10.115.1 Sixth Supplemental Indenture, dated as of December 4, 1996, between the Company,
Certain Guarantors and Firstar Bank of Minnesota, successor to American Bank
National Association, Trustee.
10.116 (10) Waiver, dated as of August 12, 1996.
10.117 (10) Closing Escrow Agreement, dated as of June 21, 1996, by and among Cosmar
Corporation, Larry Pallini, Vincent Carbone and the law firm of Todtman, Young,
Tunick, Nachamie, Hendler & Spizz, P.C.
10.118 (10) Pre-Closing Escrow Agreement, dated as of June 27, 1996, by and among Cosmar
Corporation, Larry Pallini, Vincent Carbone and the law firm of Todtman, Young,
Tunick, Nachamie, Hendler & Spizz, P.C.
10.119 (10) Consulting Agreement, dated August 21, 1996, by and among Hilltop Sales, Inc.,
Cosmar Corporation and Renaissance Cosmetics, Inc.
10.120 (10) Consulting Agreement, dated August 21, 1996, by and among Pageant Group, Ltd.,
Cosmar Corporation and Renaissance Cosmetics, Inc.
10.121 (6) Employment Agreement, dated August 6, 1996, by and between Gay A. Mayer and
Renaissance Cosmetics, Inc.
10.122 (6) Stockholder Agreement, dated August 7, 1996, by and among Renaissance Cosmetics,
Inc., RAI and the parties signatory thereto.
10.123 (10) Letter Agreement, dated September 6, 1996, amending the Securities Purchase
Agreement, dated as of August 8, 1996, between CIBC Wood Gundy Securities Corp.
and Renaissance Cosmetics, Inc.
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10.124 (10) First Amendment to the Warrant Agreement, dated as of September 27, 1996,
between Renaissance Cosmetics, Inc. and Firstar Trust Company as warrant agent.
10.125 (10) First Amendment to the Registration Rights Agreement, dated as of September 27,
1996, between Renaissance Cosmetics, Inc. and CIBC Wood Gundy Securities Corp.
10.126 (10) First Amendment to the Common Stock Registration Rights Agreement, dated as of
September 27, 1996, between Renaissance Cosmetics, Inc. and CIBC Wood Gundy
Securities Corp.
10.127 Securities Purchase Agreement, dated as of September 27, 1996, between
Renaissance Cosmetics, Inc. and Bastion Capital Fund, L.P.
10.128 Common Stock Registration Rights Agreement, dated as of September 27, 1996,
between Renaissance Cosmetics, Inc. and Bastion Capital Fund, L.P.
10.129 Voting Agreement, dated as of September 27, 1996, between Kidd, Kamm Equity
Partners, L.P. and Bastion Capital Fund, L.P.
10.130 Consulting Agreement, dated December 28, 1994, between Renaissance Cosmetics,
Inc. and Robert H. Schnell.
10.131 Senior Secured Credit Agreement, dated as of December 4, 1996, between the
Company, Cosmar, CIBC Wood Gundy and the Lenders named therein.
10.132 Form of Bridge Note, dated December 4, 1996.
10.133 Form of Term Note.
10.134 Form of Guarantee, dated December 4, 1996, by the Company for and in
consideration of the purchase by the Lenders of Bridge Notes issued by Cosmar
Corporation pursuant to the Senior Secured Credit Agreement, dated December 4,
1996.
10.135 Form of Guarantee, dated December 4, 1996, by Houbigant (1995) Ltd. for and in
consideration of the purchase by the Lenders of Bridge Notes issued by Cosmar
Corporation pursuant to the Senior Secured Credit Agreement, dated December 4,
1996.
10.136 Form of Guarantee, dated December 4, 1996, by Dana Perfumes Corp. for and in
consideration of the purchase by the Lenders of Bridge Notes issued by Cosmar
Corporation pursuant to the Senior Secured Credit Agreement, dated December 4,
1996.
10.137 Form of Guarantee, dated December 4, 1996, by MEM for and in consideration of
the purchase by the Lenders of Bridge Notes issued by Cosmar Corporation
pursuant to the Senior Secured Credit Agreement, dated December 4, 1996.
10.138 Form of Guarantee, dated December 4, 1996, by GAC for and in consideration of
the purchase by the Lenders of Bridge Notes issued by Cosmar Corporation
pursuant to the Senior Secured Credit Agreement, dated December 4, 1996.
10.139 Security Agreement, dated December 4, 1996, between the Company, Cosmar, Dana
Perfumes Corp., GAC, Houbigant (1995) Limited, MEM and CIBC Wood Gundy
Securities Corp. as collateral agent.
10.140 Intentionally Omitted.
10.141 License and Consultant Agreement dated January 25, 1991 between Cosmar and The
Nail Consultants, Ltd., as amended by letter agreements dated May 29, 1991 and
January 5, 1993.
10.142 License Agreement, dated October 1, 1995, between The Nail Consultants, Ltd. and
Cosmar.
10.143 Renaissance Employee Bonus Plan.
10.144 Agreement dated as of July 1, 1995 between MEM as licensor and Filo America,
Inc. as licensee for the license of the "English Leather" trademark for shaving
equipment.
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10.145 Agreement dated as of January 1, 1995 between MEM as licensor and M.Z. Berger as
licensee for the license of the "Tinkerbell" trademark for watches, clocks and
plastic jewelry.
10.146 License granted under the License Agreement dated August 1, 1978 between G.
Visconti di Modrone, S.p.A. and V.O.M. Ltd. for the use of certain trademarks by
Victor of Milano, Ltd. in connection with its sale of men's toiletries.
10.147 License Agreement dated as of April 1, 1977 between MEM as licensor and Welling
International as licensee for the license of the "English Leather" trademark for
eyeglass frames and sunglasses, as amended by letter agreement dated November 6,
1996.
10.148 Trademark Agreement dated as of July 3, 1985 between MEM as licensor and Willow
Hosiery Co., Inc. as licensee for the license of the "English Leather" trademark
for men's hosiery, as amended by letter agreements dated January 29, 1996, and
January 25, 1995.
10.149 Trademark License Agreement dated as of July 1, 1991 between English Leather,
Inc. as licensor and Bag Bazaar, Ltd. as licensee for the license of the
"English Leather" trademark for men's and women's handbags and personal (small)
leather goods, as amended by letter agreement dated May 19, 1995.
10.150 License Agreement dated as of July 14, 1987 between Coscelebra, Inc. as licensor
and MEM as licensee for the license of the "Heaven Sent" trademark for cosmetic
products.
10.151 Agreement dated as of January 1, 1981 between Helena Rubenstein, Inc. as
licensor and Alliance Trading Company Incorporated as licensee for the license
of the "Heaven Sent" trademark for cosmetic products, as amended by agreement
dated June 15, 1981.
10.152 Agreement dated as of March 12, 1982 between Alleghany Pharmacal Corporation as
licensor and MEM as licensee for the sub-license of the "Heaven Sent" trademark
for cosmetic products.
10.153 Agreement dated as of December 1, 1991 between Tom Fields, Ltd. as licensor and
Red Box Toy Factory Ltd. as licensee for the license of the "Tinkerbell"
trademark for fashion beauty kits.
10.154 (12) Form of Stay Bonus Agreement.
10.155 Collective Bargaining Agreement between Dana Perfumes Corp. and Oil, Chemical &
Atomic Workers International Union AFL-CIO and its Local Union No. 8-782.
12.1 Calculation of deficiency of earnings to combined fixed charges and preferred
dividends.
21.1 List of subsidiaries.
23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (to be included as part of
the Paul, Weiss, Rifkind, Wharton & Garrison legality opinion).
23.2 Report and consent of Deloitte & Touche, LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Windes & McClaughry.
23.5 Consent of Deutsch, Marin & Company.
24.1 (10) Power of Attorney (included on signature page).
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agency Agreement between the Exchange Agent and Renaissance
Cosmetics, Inc.
</TABLE>
- ---------------
(1) Filed with the Company's Registration Statement on Form S-4 filed with the
Securities and Exchange Commission ("SEC") on December 12, 1994, and
incorporated herein by reference thereto.
II-10
<PAGE> 170
(2) Filed with Amendment No. 1 to the Company's Registration Statement on Form
S-4 filed with the SEC on January 27, 1995, and incorporated herein by
reference thereto.
(3) Filed with Amendment No. 2 to the Company's Registration Statement on Form
S-4 filed with the SEC on February 9, 1995, and incorporated herein by
reference thereto.
(4) Filed with the Company's Quarterly Report on Form 10-Q filed with the SEC
on March 27, 1995, and incorporated herein by reference thereto.
(5) Filed with the Company's Annual Report on Form 10-K filed with the SEC on
June 29, 1995, and incorporated herein by reference thereto.
(6) Filed with the Company's Quarterly Report on Form 10-Q filed with the SEC
on August 14, 1996, and incorporated herein by reference thereto.
(7) Filed with the Company's Form 8-K filed with the SEC on August 8, 1996, and
incorporated herein by reference thereto.
(8) Filed with the Company's Annual Report on Form 10-K filed with the SEC for
the fiscal year ended March 31, 1996, and incorporated herein by reference
thereto.
(9) Filed with the Company's Quarterly Report on Form 10-Q filed with the SEC
on February 14, 1996, and incorporated herein by reference thereto.
(10) Previously filed as an exhibit to this Registration Statement.
(11) Filed with the Company's Quarterly Report on Form 10-Q filed with the SEC
on November 14, 1996, and incorporated herein by reference thereto.
(12) Filed with the Company's Form 8-K filed with the SEC on December 19, 1996
and incorporated herein by reference thereto.
(13) Filed with the Company's Form 8-K filed with the SEC on December 20, 1996
and incorporated herein by reference thereto.
(B) FINANCIAL STATEMENT SCHEDULES:
Schedule II -- Valuation and Qualifying Accounts (Renaissance Cosmetics
Inc. & Subsidiaries)
Schedule II -- Valuation and Qualifying Accounts -- (Cosmar Corporation and
Affiliates)
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-11
<PAGE> 171
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated amount offering range may be reflected
in the form of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent not more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-12
<PAGE> 172
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 31, 1997.
RENAISSANCE COSMETICS, INC.
By /s/ Thomas T. S. Kaung
------------------------------------
Name: Thomas T.S. Kaung
Title: Group Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------------- -------------------------------------- ----------------
<C> <S> <C>
/s/ Thomas V. Bonoma Chairman, Chief Executive Officer and January 31, 1997
- ---------------------------------------- President (principal executive
(Thomas V. Bonoma) officer) and Director
/s/ Thomas T.S. Kaung Group Vice President and Chief January 31, 1997
- ---------------------------------------- Financial Officer (principal financial
(Thomas T.S. Kaung) officer and principal accounting
officer)
* Director January 31, 1997
- ----------------------------------------
(Eric R. Hamburg)
Director January , 1997
- ----------------------------------------
(Kurt L. Kamm)
Director January , 1997
- ----------------------------------------
(William J. Kidd)
* Director January 31, 1997
- ----------------------------------------
(John H. Lynch)
* Director January 31, 1997
- ----------------------------------------
(E. Mark Noonan)
* Director January 31, 1997
- ----------------------------------------
(Terry M. Theodore)
* Director January 31, 1997
- ----------------------------------------
(Daniel D. Villanueva)
</TABLE>
* By /s/ Thomas T.S.
Kaung
---------------------------
(Attorney-in-fact)
II-13
<PAGE> 173
INDEX TO SCHEDULES
<TABLE>
<S> <C>
Renaissance Cosmetics Inc.:
Schedule II -- Valuation and Qualifying Accounts..................... S-1
Cosmar Corporation and Affiliate:
Schedule II -- Valuation and Qualifying Accounts..................... S-2
</TABLE>
<PAGE> 174
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
ADDITIONS
------------------------
BALANCE CHARGED CHARGED
AT TO PROFIT TO OTHER BALANCE
BEGINNING AND LOSS ACCOUNTS DEDUCTIONS AT END
OF PERIOD OR INCOME (DESCRIBE)(1) (DESCRIBE)(2) OF PERIOD
--------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1996
Accounts receivable
Allowances (A)......... $1,775,057 $21,207,837 $ -- $18,829,103 $4,153,791
=========== =========== =========== =========== ===========
Inventory reserves....... $3,449,000 $ 5,000 $ -- $1,914,000 $1,540,000
=========== =========== =========== =========== ===========
Period from April 15,
1994 (inception) to
March 31, 1995
Accounts Receivable
Allowances (A)......... $ -- $6,478,386 $ 49,086 $4,752,415 $1,775,057
=========== =========== =========== =========== ===========
Inventory reserves....... $ -- $ 23,000 $3,426,000(3) $ -- $3,449,000
=========== =========== =========== =========== ===========
</TABLE>
- ---------------
(A) Represents allowance for sales returns, doubtful accounts and discounts.
(1) Represents translation adjustments.
(2) Represents writeoffs applied against reserve balances.
(3) Represents reserves created at dates of acquisition of companies.
S-1
<PAGE> 175
COSMAR CORPORATION AND AFFILIATE (PREDECESSOR)
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD FROM JANUARY 1, 1994 TO AUGUST 17, 1994
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------------------------------------- ---------- --------- ------------- ---------- ---------
ADDITIONS
--------------------------
CHARGED CHARGED
BALANCE AT TO PROFIT TO OTHER BALANCE
BEGINNING AND LOSS ACCOUNTS DEDUCTIONS AT END
DESCRIPTION OF PERIOD OR INCOME (DESCRIBE)(1) (DESCRIBE) OF PERIOD
- -------------------------------------- ---------- --------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Accounts receivable Allowances (A).... $ 223,000 $ 672,913 $ -- $567,194 $ 328,719
======== ======== ======== ======== ========
</TABLE>
- ---------------
(A) Represents allowance for sales returns, doubtful accounts and discounts.
(1) Represents writeoffs applied against reserve balances.
S-2
<PAGE> 176
EXHIBIT INDEX
<TABLE>
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2.1 (6) Stock Purchase Agreement among Cosmar Corporation, a Delaware
corporation ("Cosmar Corporation"), Larry Pallini, Vincent Carbone
and Great American Cosmetics, Inc., a New York corporation ("GAC"),
entered into on June 27, 1996, providing for the acquisition by
Cosmar Corporation of all of the capital stock of GAC.
2.2 (6) Agreement and Plan of Merger, among Renaissance Cosmetics, Inc., a
Delaware corporation (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.
2.3 (13) Asset Sale and Purchase by and among the Procter & Gamble Company
(as Seller) and Dana Perfumes Corp. (as Buyer) and solely for
purposes of Sections 4.6, 6.6 and 6.12 hereof Renaissance Cosmetics,
Inc. and Cosmar Corporation dated as of October 25, 1996.
2.4 (13) Form of Asset Sale and Purchase Agreement among P&G foreign
affiliate sellers and Dana, dated as of October 29, 1996.
3.1 (1) Restated certificate of incorporation of the Company filed with the
Secretary of State of the State of Delaware on August 17, 1994.
3.1.2 (8) Certificate of Designation of Preferences and Rights of Senior
Exchangeable Redeemable Preferred Stock, Series A, of the Company,
filed with the Secretary of State of the State of Delaware on May
29, 1996.
3.1.3 (7) Certificate of Designation of Preferences and Rights of Senior
Redeemable Preferred Stock, Series B, of the Company, filed with the
Secretary of State of the State of Delaware on August 15, 1996.
3.1.4 Certificate of Increase of Certificate of Designation of Preferences
and Rights of Senior Redeemable Preferred Stock, Series B filed with
the Secretary of State of the State of Delaware on September 27,
1996.
3.2 (1) By-laws of the Company.
4.1 (7) Certificate of Designation of Preferences and Rights of Senior
Redeemable Preferred Stock, Series C, par value $.01 per share, of
the Company filed with the Secretary of State of the State of
Delaware on August 15, 1996.
4.2 Certificate of Increase of Certificate of Designation of Preferences
and Rights of Senior Redeemable Preferred Stock, Series C filed with
the Secretary of State of the State of Delaware on September 27,
1996.
4.3 Specimen certificate of share of Series C Preferred Stock.
5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison, regarding the
legality of the securities being registered.
10.1 Intentionally Omitted
10.2 (1) License agreement (the "Houbigant U.S. License Agreement"), dated
May 1994, between Houbigant Inc., a Delaware corporation
("Houbigant") and Parfums Parquet Incorporated (f.k.a. New Fragrance
License Corp.) ("Parfums Parquet").
</TABLE>
<PAGE> 177
<TABLE>
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<S> <C> <C>
10.3 Intentionally Omitted
10.4 (2) Amendment to the Houbigant U.S. License Agreement, dated May 12,
1994.
10.5 (2) Amendment to the Houbigant U.S. License Agreement, dated June 1,
1994.
10.6 (1) Amendment to the Houbigant U.S. License Agreement, dated June 24,
1994.
10.7 (1) Three letter agreements relating to the Houbigant U.S. License
Agreement, each dated July 1, 1994.
10.8 (1) Letter of Agreement dated July 1, 1994, between Houbigant and
Parfums Parquet relating to the Houbigant U.S. License Agreement.
10.9 (10) Right of Last Refusal Agreement dated July 1, 1994 among Houbigant,
Luigi Massironi, Michael Sherman and Parfums Parquet relating to the
Houbigant U.S. License Agreement.
10.10 (1) Guaranty, dated July 1, 1994, by Cosmar in favor of Houbigant of all
obligations of Parfums Parquet under the Houbigant U.S. License
Agreement.
10.11 (10) Security Agreement -- Trademarks, dated July 1, 1994, among
Houbigant, Parfums Parquet, Chemical Bank New Jersey N.A. and
National Westminster Bank, U.S.A.
10.12 (10) Assignment for Security, dated July 1, 1994, between Houbigant and
Parfums Parquet.
10.13 (1) Letter agreement, dated August 18, 1994, between Parfums Parquet and
Houbigant, with respect to Assumption and Assignment Agreement.
10.14 (2) Restated and Amended License Agreement (the "Harby's License
Agreement"), dated August 16, 1994, between Harby's Corporation NV
("Harby's") and Houbigant.
10.15 (1) Assumption and assignment agreement (the "Assumption and Assignment
Agreement"), dated August 18, 1994, among Houbigant, Harby's and
Parfums Parquet.
10.16 (1) Amendment, dated September 19, 1994, to the Assumption and
Assignment Agreement.
10.17 (1) Letter Agreement, dated August 18, 1994, among Harby's, Houbigant
and Parfums Parquet, regarding certain rights under the Harby's
License Agreement.
10.18 (2) License Agreement (the "Worldwide License Agreement"), dated August
10, 1994, by and between Houbigant, Houbigant GmbH and Parfums
Parquet.
10.19 (2) Amendment dated August 16, 1994 to the License Agreement dated
August 10, 1994 between Houbigant, Houbigant GmbH and Parfums
Parquet.
10.20 (2) Amendment dated September 16, 1994 to the License Agreement dated
August 10, 1994, between Houbigant, Houbigant GmbH and Parfums
Parquet Incorporated.
10.21 (10) Letter Agreement, dated February 14, 1995, relating to the License
Agreement dated August 10, 1994 between Houbigant and Parfums
Parquet.
10.22 (10) Right of Last Refusal Agreement, dated February 14, 1995, among
Houbigant, Luigi Massironi, Michael Sherman and Parfums Parquet
relating to the Worldwide License Agreement.
</TABLE>
<PAGE> 178
<TABLE>
<CAPTION>
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- ------------ -------------------------------------------------------------------- -----------
<S> <C> <C>
10.23 (10) Guaranty, dated February 28, 1995, by Cosmar in favor of Houbigant
of all obligations of Parfums Parquet under the License Agreement
dated August 10, 1994 between Houbigant, Houbigant GmbH and Parfums
Parquet.
10.24 (10) Security Agreement -- Trademarks, dated February 28, 1995, among
Houbigant, Parfums Parquet, Chemical Bank New Jersey N.A. and
National Westminster Bank, USA.
10.24.1 (10) Assignment for Security Agreement, dated February 14, 1995, between
Houbigant and Parfums Parquet.
10.25 (2) Letter Agreement dated September 21, 1994 amending the Worldwide
License Agreement, the Houbigant U.S. License Agreement and the
Harby's License Agreement by and between Parfums Parquet
Incorporated, Harby's, Houbigant, and Houbigant GmbH.
10.26 (2) Purchase Agreement dated December 12, 1994 by and among Houbigant
(1995) Limitee (formerly 3088766 Canada Limited), ACB Fragrances and
Cosmetics, Inc., ACB Mercantile, Inc., Houbigant Limitee, Augustine
Celaya, Giacomo Giuliano, and Gilles Pellerin.
10.26.1 (3) Escrow Agreement, dated December 12, 1994, between ACB Fragrances
and Cosmetics, Inc., ACB Mercantile, Inc., Houbigant Limitee,
Augustine Celaya, Giacomo Giuliano, Gilles Pellerin, Houbigant
(1995) Limited and Lavery de Billis.
10.27 (2) Employment Agreement dated December 12, 1994, between Houbigant
(1995) Limitee and Giacomo Giuliano.
10.28 (2) Employment Agreement dated December 12, 1994, between Houbigant
(1995) Limitee and Gilles Pellerin.
10.29 (2) Non-Competition Agreement dated December 12, 1994, between Houbigant
(1995) Limitee and Augustine Celaya.
10.30 (11) Amendment, Modification and Settlement Agreement, dated July 31,
1996, among Houbigant, Dana Perfumes Corp. (fka. Parfums Parquet)
("Dana") and Houbigant (1995) Limitee amending the Worldwide License
Agreement and the Houbigant U.S. License Agreement and providing for
the execution of a new license agreement for Canada.
10.31 (11) License Agreement (the "Canadian License"), dated July 31, 1996,
between Houbigant and Houbigant (1995) Limitee.
10.32 (11) Letter Agreement, dated July 1996, among Houbigant, Dana and
Houbigant (1995) Limitee, amending the provisions for royalty
payments under the Worldwide License Agreement, the Houbigant U.S.
License Agreement and the Canadian License Agreement.
10.33 (11) Amendment No. 1 to License Agreements, dated July 31, 1996, among
Houbigant, Dana and Houbigant (1995) Limitee, amending the Worldwide
License Agreement, the Houbigant U.S. License Agreement and the
Canadian License Agreement.
10.34 Amendment No. 1 to Security Agreement -- Trademarks, dated July 31,
1996, among Houbigant, Parfums Parquet, Chemical Bank New Jersey
N.A. and NatWest Bank NA.
</TABLE>
<PAGE> 179
<TABLE>
<CAPTION>
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NUMBERING
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- ------------ -------------------------------------------------------------------- -----------
<S> <C> <C>
10.35 (10) License Agreement, dated August 18, 1994, between Cosmar Corporation
and Renaissance Cosmetics, Inc.
10.36 (1) Letter agreement, dated August 18, 1994, between the Company and Dr.
Thomas V. Bonoma, granting Dr. Bonoma stock options.
10.37 (6) Employment agreement, dated August 6, 1996, between the Company and
Dr. Thomas V. Bonoma.
10.38 (1) Stockholders agreement, dated August 18, 1994, among the Company and
the stockholders listed in schedule 1 thereto.
10.40 Employee Stock Option Plans.
10.41 (10) Management Services Agreement, dated August 16, 1994, between Kidd,
Kamm & Company and Renaissance Cosmetics, Inc.
10.42 (1) Industrial Warehouse lease between Princeland Development Company
and Cosmar California, dated May 17, 1993, and an assignment of that
lease, dated August 18, 1994, by Cosmar California in favor of
Cosmar Corporation.
10.43 (1) Industrial building lease between Princeland Development Company and
Cosmar California, dated July 15, 1991, and an assignment of that
lease, dated August 18, 1994, by Cosmar California in favor of
Cosmar Corporation.
10.44 (1) Industrial building lease between Sparks Industrial Joint Venture
and Precision Molded Plastics, Inc., dated November 20, 1991, and a
consent to assignment of that lease, dated June 7, 1994, executed by
Precision Molded Plastics, Inc. and Sparks Industrial Joint Venture.
10.45 (1) Office lease between Fortune Financial and Cosmar California, dated
January 1, 1992, and a consent to assignment of that lease, dated
June 21, 1994, executed by Cosmar California and Fortune Financial.
10.46 (1) Various subleases for office space at 635 Madison Avenue, New York,
New York, between Saatchi & Saatchi Holdings (USA) as sublessor, and
Dana Perfumes Corp., as sublessee.
10.47 (8) Standard Industrial Lease (the "Lease") relating to property known
as 11700 Monarch Street, Garden Grove, California, between Bixby
Western Properties as Lessor and A.H. Robins Company, Incorporated
as Lessee (the "Lessee"), dated June 25, 1979.
10.48 (8) First Amendment to the Lease, between Trust Company of the West as
Trustee for TCW Realty Fund IV as successor Lessor (the "Lessor")
and the Lessee, dated November 10, 1989.
10.49 (8) Second Amendment to the Lease, between the Lessor and the Lessee,
dated as of January 1, 1993.
10.50 (8) Sublease of the Lessee's rights under the Lease to Cosmar
Corporation, dated as of March 1, 1996 (the "Sublease").
10.51 (8) Consent of the Lessor to the Sublease, dated as of March 1, 1996.
10.52 (10) Agreement of Lease between Groupe Gestion Luger as Lessor and
Houbigant Ltee as Lessee (the "Lessee"), relating to the immovable
property situated at 1593 to 1645 Cunard Street, City of Chomedey
(Laval), Province of Quebec, dated June 25, 1979 and assignment of
that lease, dated December 12, 1994, by the Lessee in favor of
3088766 Canada Limited.
</TABLE>
<PAGE> 180
<TABLE>
<CAPTION>
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<S> <C> <C>
10.53 Lease, between Bonanno Real Estate Group II, L.P. and Parfums
Parquet, dated February 10, 1995 relating to the property situated
at 734 Grand Avenue, in the Borough of Ridgefield, New Jersey.
10.53.1 (10) Standard Form Commercial Lease, between Sally A. Starr and Lisa A.
Brown as Trustees of Massachusetts 955 Realty trust for the Benefit
of 955 Massachusetts Avenue Associates (as lessor) and Renaissance
Cosmetics, Inc. relating to the property located in Cambridge,
Massachusetts.
10.53.2 (10) Lease Agreement Between Ghent Limited Partnership (as lessor) and
Renaissance Cosmetics, Inc. (as tenant) relating to the property
situated in Greenwich, Connecticut.
10.54 (1) Option Agreement between New Dana Acquisition Corp. and Trust
Naniases, a Liechtenstein trust, dated November 3, 1994, for the
purchase of all the issued and outstanding shares of capital stock
of Perfumes Dana do Brasil, S.A.
10.54.1(2) Management Services Agreement, dated December 22, 1994, between New
Dana Acquisition Corp. and Perfumes Dana do Brazil, S.A.
10.55 (9) Notice dated November 29, 1995 of exercise of option to purchase
Parfums Dano do Brazil, S.A.
10.56 (1) Agreement for the purchase of all the capital stock of Dana S.A.,
dated November 3, 1994, between New Dana Acquisition Corp. and
Fimasa S.A., a Panamanian corporation.
10.57 (1) Agreement for the purchase of all the capital stock of Les Parfums
de Dana, Inc., dated November 3, 1994, between New Dana Acquisition
Corp. and Fidelia S.A., a Swiss corporation.
10.58 (1) Agreement for the purchase of all of the capital stock of Marcafin
S.A. et al., dated November 3, 1994, between New Dana Acquisition
Corp. and Trust Naniases, a Liechtenstein trust.
10.59 (2) Letter agreement, dated December 21, 1994, amending the Dana
purchase agreements referred to in Exhibits 10.54 to 10.58.
10.60 (2) Tie-in letter, dated November 3, 1994, from New Dana to each of the
Dana subsidiaries.
10.62 (2) Agreement for the purchase and sale of the assets of Cosmar
Corporation and Precision Molded Plastics, Inc., dated as of May 19,
1994, by and among Cosmar California, Precision Molded Plastics,
Inc., their respective shareholders, C.P. Cosmetics, Inc. and C.P.
Holding Corp.
10.63 (1) Employment Agreement, dated as of August 18, 1994, among Renaissance
Cosmetics, Inc., Cosmar Corporation and Robert H. Schnell.
10.64 (10) Letter Agreement, dated June 1, 1995, between Renaissance Cosmetics,
Inc. and Aldran H. Lajoie.
10.65 (1) Employment Agreement, dated as of August 18, 1994, among Renaissance
Cosmetics, Inc., Cosmar Corporation and Marc Schnell.
10.66 Non-Competition Agreement, dated as of August 18, 1994, among
Renaissance Cosmetics, Inc., Cosmar Corporation and Jerry D. Kayne.
10.67 Non-Competition Agreement, dated as of August 18, 1994, among
Renaissance Cosmetics, Inc., Cosmar Corporation and Fred Kayne.
</TABLE>
<PAGE> 181
<TABLE>
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<S> <C> <C>
10.68 (2) Note Purchase Agreement ("Note Purchase Agreement") regarding
Variable Rate Senior Secured Revolving Notes Due 1996 and Variable
Rate Senior Secured Term Notes due 1996, dated as of December 21,
1994 by and among Cosmar Corporation, Renaissance Cosmetics, Inc.,
and Nomura Holding America Inc.
10.69 (5) Amendment No. 1 and Waiver to Note Purchase Agreement, dated as of
April 7, 1995, among Nomura Holding America Inc., Cosmar Corporation
and the Company.
10.70 (10) Amendment No. 2 to Note Purchase Agreement, dated as of September 8,
1995, among Nomura Holding America Inc., Cosmar Corporation and the
Company.
10.71 (10) Amendment No. 3 and Consent to Note Purchase Agreement, dated as of
January 8, 1996, among Nomura Holding America Inc., Cosmar
Corporation and the Company.
10.72 (10) Amendment No. 4 and Waiver to Note Purchase Agreement and Amendment
No. 2 to Security Documents, dated as of May 29, 1996, among Nomura
Holding America Inc., Cosmar Corporation and the Company.
10.73 (10) Amendment No. 5 to Note Purchase Agreement, dated as of June 14,
1995, among Nomura Holding America Inc., Cosmar Corporation and the
Company.
10.74 (10) Waiver to Note Purchase Agreement, dated as of August 8, 1996, among
Nomura Holding America Inc., Cosmar Corporation and the Company.
10.75 (2) Variable Rate Senior Secured Revolving Note Due 1996 to Nomura
Holding America Inc., by Cosmar Corporation.
10.76 (2) Variable Rate Senior Secured Term Notes Due 1996 to Nomura Holding
America Inc., by Cosmar Corporation.
10.77 (2) Guarantee, dated December 22, 1994, by Renaissance Cosmetics, Inc.,
for and in consideration of the purchase by Nomura Holding America
Inc. of the Notes issued and to be issued by Cosmar Corporation
pursuant to the Note Purchase Agreement dated as of December 21,
1994.
10.78 (2) Guarantee, dated December 22, 1994, by Dana Perfumes Corp., for and
in consideration of the purchase by Nomura Holding America Inc. of
the Notes issued and to be issued by Cosmar Corporation pursuant to
the Note Purchase Agreement dated as of December 21, 1994.
10.79 (2) Guarantee, dated December 22, 1994, by New Dana Acquisition Corp.,
for and in consideration of the purchase by Nomura Holding America
Inc. of the Notes issued and to be issued by Cosmar Corporation
pursuant to the Note Purchase Agreement dated as of December 21,
1994.
10.80 (2) Guarantee, dated December 22, 1994, by Les Parfums de Dana, Inc.,
for and in consideration of the purchase by Nomura Holding America
Inc. of the Notes issued and to be issued by Cosmar Corporation
pursuant to the Note Purchase Agreement dated as of December 21,
1994.
10.81 (2) Guarantee, dated December 22, 1994, by Roslyn Importers Inc., for
and in consideration of the purchase by Nomura Holding America Inc.
of the Notes issued and to be issued by Cosmar Corporation pursuant
to the Note Purchase Agreement dated as of December 21, 1994.
</TABLE>
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10.82 (2) Guarantee, dated December 22, 1994, by Perfumes and Cosmetics
Importers, Inc., for and in consideration of the purchase by Nomura
Holding America Inc. of the Notes issued and to be issued by Cosmar
Corporation pursuant to the Note Purchase Agreement dated as of
December 21, 1994.
10.83 (2) Guarantee, dated December 22, 1994, by Parfums Dana Export Corp.,
for and in consideration of the purchase by Nomura Holding America
Inc. of the Notes issued and to be issued by Cosmar Corporation
pursuant to the Note Purchase Agreement dated as of December 21,
1994.
10.86 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and
between Cosmar Corporation, and Nomura Holding America Inc.
10.87 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and
between Renaissance Cosmetics, Inc. and Nomura Holding America Inc.
10.88 (2) Intellectual Property Security Agreement, dated December 22, 1994,
by and among Cosmar Corporation, Renaissance Cosmetics, Inc.,
Parfums Parquet Incorporated, New Dana Acquisition Corp., Parfums
Dana Export Corp., Perfumes and Cosmetics Importers, Inc. Les
Parfums de Dana, Inc., Dana Perfumes Corp., Roslyn Importers Inc.
and Nomura Holding America Inc.
10.89 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and
between Les Parfums de Dana, Inc., and Nomura Holding America Inc.
10.90 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and
between Dana Perfumes Corp., and Nomura Holding America Inc.
10.91 (2) Pledge and Security Agreement, dated December 22, 1994, by and
between Parfums Parquet Incorporated, and Nomura Holding America
Inc.
10.92 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and
between New Dana Acquisition Corp., and Nomura Holding America Inc.
10.93 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and
between Roslyn Importers Inc., and Nomura Holding America Inc.
10.94 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and
between Parfums Dana Export Corp., and Nomura Holding America Inc.
10.95 (10) Parent Cash Equivalent Pledge Agreement, dated as of August 15,
1996, among Nomura Holding America Inc., Renaissance Cosmetics, Inc.
and The Chase Manhattan Bank.
10.96 (5) Renaissance Cosmetics, Inc. 1994 Stock Option Plan.
10.97 (4) Aircraft lease agreement dated February 13, 1995 between the Company
and General Electric Capital Corporation.
10.98 (9) Filing dated October 11, 1995 to reflect on the public stock records
of Paris, France the purchase by the Company of the shares of RSH
149 S.A.R.L.
10.99 (8) Securities Purchase Agreement between the Company and CIBC WG Argosy
Merchant Fund 2, L.L.C. (the "Fund"), dated as of May 29, 1996.
Amendment No. 1, dated as of June 21, 1996, to Securities Purchase
Agreement, dated as of May 29, 1996, between Renaissance Cosmetics,
Inc. and CIBC WG Argosy Merchant Fund 2, L.L.C.
10.100 (8) Registration Rights Agreement between the Company and the Fund,
dated as of May 29, 1996.
</TABLE>
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10.101 (8) Common Stock Registration Rights Agreement between the Company and
the Fund, dated as of May 29, 1996.
10.102 (7) Securities Purchase Agreement, dated as of August 8, 1996, between
the Company and CIBC Wood Gundy Securities Corp.
10.103 (7) Registration Rights Agreement, dated as of August 15, 1996, between
the Company and CIBC Wood Gundy Securities Corp.
10.104 (7) Common Stock Registration Rights Agreement, dated as of August 15,
1996, between the Company and CIBC Wood Gundy Securities Corp.
10.105 (10) Subscription Agreement, dated August 15, 1996, between the Company
and CIBC WG Argosy Merchant Fund 2, L.L.C.
10.106 (10) Warrant Agreement, dated as of August 18, 1994, between Renaissance
Cosmetics, Inc. and American Bank National Association.
10.107 (7) Warrant Agreement, dated as of August 15 1996, between the Company
and Firstar Trust Company.
10.108 (1) Indenture, dated as of August 18, 1994, among the Company, as
Issuer, the guarantors identified therein (the "Guarantors"), and
American Bank National Association, as Trustee.
10.109 (3) Form of the Exchange Notes.
10.110 (3) Form of the 2002 Notes.
10.111 (2) First supplemental indenture, dated as of November 15, 1994, among
the Company, as issuer, New Dana Acquisition Corp., as guarantor,
and American Bank National Association, as Trustee.
10.112 (2) Second supplemental indenture, dated as of December 15, 1994, among
the Company, as issuer, Houbigant (1995) Limitee, as guarantor, and
American Bank National Association as trustee.
10.113 (2) Third supplemental indenture, dated as of December 23, 1994, among
the Company, as issuer, certain subsidiaries of the Company, as
guarantors, and American National Bank Association, as trustee.
10.114 (8) Fourth supplemental indenture, dated as of February 27, 1996, among
the Company, as issuer, SH 149 S.A.R.L., as guarantor, and American
Bank National Association, as trustee.
10.115 (10) Fifth supplemental indenture, dated as of August 21, 1996, among the
Company, as the issuer, GAC, as guarantor, and American Bank
National Association, as trustee.
10.115.1 Sixth Supplemental Indenture, dated as of December 4, 1996, between
the Company, Certain Guarantors and Firstar Bank of Minnesota,
successor to American Bank National Association, Trustee.
10.116 (10) Waiver, dated as of August 12, 1996.
10.117 (10) Closing Escrow Agreement, dated as of June 21, 1996, by and among
Cosmar Corporation, Larry Pallini, Vincent Carbone and the law firm
of Todtman, Young, Tunick, Nachamie, Hendler & Spizz, P.C.
10.118 (10) Pre-Closing Escrow Agreement, dated as of June 27, 1996, by and
among Cosmar Corporation, Larry Pallini, Vincent Carbone and the law
firm of Todtman, Young, Tunick, Nachamie, Hendler & Spizz, P.C.
</TABLE>
<PAGE> 184
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10.119 (10) Consulting Agreement, dated August 21, 1996, by and among Hilltop
Sales, Inc., Cosmar Corporation and Renaissance Cosmetics, Inc.
10.120 (10) Consulting Agreement, dated August 21, 1996, by and among Pageant
Group, Ltd., Cosmar Corporation and Renaissance Cosmetics, Inc.
10.121 (6) Employment Agreement, dated August 6, 1996, by and between Gay A.
Mayer and Renaissance Cosmetics, Inc.
10.122 (6) Stockholder Agreement, dated August 7, 1996, by and among
Renaissance Cosmetics, Inc., RAI and the parties signatory thereto.
10.123 (10) Letter Agreement, dated September 6, 1996, amending the Securities
Purchase Agreement, dated as of August 8, 1996, between CIBC Wood
Gundy Securities Corp. and Renaissance Cosmetics, Inc.
10.124 (10) First Amendment to the Warrant Agreement, dated as of September 27,
1996, between Renaissance Cosmetics, Inc. and Firstar Trust Company
as warrant agent.
10.125 (10) First Amendment to the Registration Rights Agreement, dated as of
September 27, 1996, between Renaissance Cosmetics, Inc. and CIBC
Wood Gundy Securities Corp.
10.126 (10) First Amendment to the Common Stock Registration Rights Agreement,
dated as of September 27, 1996, between Renaissance Cosmetics, Inc.
and CIBC Wood Gundy Securities Corp.
10.127 Securities Purchase Agreement, dated as of September 27, 1996,
between Renaissance Cosmetics, Inc. and Bastion Capital Fund, L.P.
10.128 Common Stock Registration Rights Agreement, dated as of September
27, 1996, between Renaissance Cosmetics, Inc. and Bastion Capital
Fund, L.P.
10.129 Voting Agreement, dated as of September 27, 1996, between Kidd, Kamm
Equity Partners, L.P. and Bastion Capital Fund, L.P.
10.130 Consulting Agreement, dated December 28, 1994, between Renaissance
Cosmetics, Inc. and Robert H. Schnell.
10.131 Senior Secured Credit Agreement, dated as of December 4, 1996,
between the Company, Cosmar, CIBC/Wood Gundy and the Lenders named
therein.
10.132 Form of Bridge Note, dated December 4, 1996.
10.133 Form of Term Note.
10.134 Form of Guarantee, dated December 4, 1996, by the Company for and in
consideration of the purchase by the Lenders of Bridge Notes issued
by Cosmar Corporation pursuant to the Senior Secured Credit
Agreement, dated December 4, 1996.
10.135 Form of Guarantee, dated December 4, 1996, by Houbigant (1995) Ltd.
for and in consideration of the purchase by the Lenders of Bridge
Notes issued by Cosmar Corporation pursuant to the Senior Secured
Credit Agreement, dated December 4, 1996.
10.136 Form of Guarantee, dated December 4, 1996, by Dana Perfumes Corp.
for and in consideration of the purchase by the Lenders of Bridge
Notes issued by Cosmar Corporation pursuant to the Senior Secured
Credit Agreement, dated December 4, 1996.
</TABLE>
<PAGE> 185
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10.137 Form of Guarantee, dated December 4, 1996, by MEM for and in
consideration of the purchase by the Lenders of Bridge Notes issued
by Cosmar Corporation pursuant to the Senior Secured Credit
Agreement, dated December 4, 1996.
10.138 Form of Guarantee, dated December 4, 1996, by GAC for and in
consideration of the purchase by the Lenders of Bridge Notes issued
by Cosmar Corporation pursuant to the Senior Secured Credit
Agreement, dated December 4, 1996.
10.139 Security Agreement, dated December 4, 1996, between the Company,
Cosmar, Dana Perfumes Corp., GAC, Houbigant (1995) Limited, MEM and
CIBC Wood Gundy Securities Corp. as collateral agent.
10.140 Intentionally Omitted.
10.141 License and Consultant Agreement dated January 25, 1991 between
Cosmar and The Nail Consultants, Ltd., as amended by letter
agreements dated May 29, 1991 and January 5, 1993.
10.142 License Agreement, dated October 1, 1995, between The Nail
Consultants, Ltd. and Cosmar.
10.143 Renaissance Employee Bonus Plan.
10.144 Agreement dated as of July 1, 1995 between MEM as licensor and Filo
America, Inc. as licensee for the license of the "English Leather"
trademark for shaving equipment.
10.145 Agreement dated as of January 1, 1995 between MEM as licensor and
M.Z. Berger as licensee for the license of the "Tinkerbell"
trademark for watches, clocks and plastic jewelry.
10.146 License granted under the License Agreement dated August 1, 1978
between G. Visconti di Modrone, S.p.A. and V.O.M. Ltd. for the use
of certain trademarks by Victor of Milano, Ltd. in connection with
its sale of men's toiletries.
10.147 License Agreement dated as of April 1, 1977 between MEM as licensor
and Welling International as licensee for the license of the
"English Leather" trademark for eyeglass frames and sunglasses, as
amended by letter agreement dated November 6, 1996.
10.148 Trademark Agreement dated as of July 3, 1985 between MEM as licensor
and Willow Hosiery Co., Inc. as licensee for the license of the
"English Leather" trademark for men's hosiery, as amended by letter
agreements dated January 29, 1996, and January 25, 1993.
10.149 Trademark License Agreement dated as of July 1, 1991 between English
Leather, Inc. as licensor and Bag Bazaar, Ltd. as licensee for the
license of the "English Leather" trademark for men's and women's
handbags and personal (small) leather goods, as amended by letter
agreement dated May 19, 1995.
10.150 License Agreement dated as of July 14, 1987 between Coscelebra, Inc.
as licensor and MEM as licensee for the license of the "Heaven Sent"
trademark for cosmetic products.
</TABLE>
<PAGE> 186
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10.151 Agreement dated as of January 1, 1981 between Helena Rubenstein,
Inc. as licensor and Alliance Trading Company Incorporated as
licensee for the license of the "Heaven Sent" trademark for cosmetic
products, as amended by agreement dated June 15, 1981.
10.152 Agreement dated as of March 12, 1982 between Alleghany Pharmacal
Corporation as licensor and MEM as licensee for the sub-license of
the "Heaven Sent" trademark for cosmetic products.
10.153 Agreement dated as of December 1, 1991 between Tom Fields, Ltd. as
licensor and Red Box Toy Factory Ltd. as licensee for the license of
the "Tinkerbell" trademark for fashion beauty kits.
10.154 (12) Form of Stay Bonus Agreement.
10.155 Collective Bargaining Agreement between Dana Perfumes Corp. and Oil,
Chemical & Atomic Workers International Union AFL-CIO and its Local
Union No. 8-782.
12.1 Calculation of deficiency of earnings to combined fixed charges and
preferred dividends.
21.1 List of subsidiaries.
23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (to be included
as part of the Paul, Weiss, Rifkind, Wharton & Garrison legality
opinion).
23.2 Report and consent of Deloitte & Touche, LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Windes & McClaughry.
23.5 Consent of Deutsch, Marin & Company.
24.1 (10) Power of Attorney (included on signature page).
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Exchange Agency Agreement between the Exchange Agent and
Renaissance Cosmetics, Inc.
</TABLE>
- ---------------
(1) Filed with the Company's Registration Statement on Form S-4 filed with the
Securities and Exchange Commission ("SEC") on December 12, 1994, and
incorporated herein by reference thereto.
(2) Filed with Amendment No. 1 to the Company's Registration Statement on Form
S-4 filed with the SEC on January 27, 1995, and incorporated herein by
reference thereto.
(3) Filed with Amendment No. 2 to the Company's Registration Statement on Form
S-4 filed with the SEC on February 9, 1995, and incorporated herein by
reference thereto.
(4) Filed with the Company's Quarterly Report on Form 10-Q filed with the SEC
on March 27, 1995, and incorporated herein by reference thereto.
(5) Filed with the Company's Annual Report on Form 10-K filed with the SEC on
June 29, 1995, and incorporated herein by reference thereto.
(6) Filed with the Company's Quarterly Report on Form 10-Q filed with the SEC
on August 14, 1996, and incorporated herein by reference thereto.
(7) Filed with the Company's Form 8-K filed with the SEC on August 8, 1996, and
incorporated herein by reference thereto.
<PAGE> 187
(8) Filed with the Company's Annual Report on Form 10-K filed with the SEC for
the fiscal year ended March 31, 1996, and incorporated herein by reference
thereto.
(9) Filed with the Company's Quarterly Report on Form 10-Q filed with the SEC
on February 14, 1996, and incorporated herein by reference thereto.
(10) Previously filed as an exhibit to this Registration Statement.
(11) Filed with the Company's Quarterly Report on Form 10-Q filed with the SEC
on November 14, 1996, and incorporated herein by reference thereto.
(12) Filed with the Company's Form 8-K filed with the SEC on December 19, 1996,
and incorporated herein by reference thereto.
(13) Filed with the Company's Form 8-K filed with the SEC on December 20, 1996,
and incorporated herein by reference thereto.
<PAGE> 1
EXHIBIT 3.1.4
CERTIFICATE OF INCREASE
OF
SENIOR REDEEMABLE PREFERRED STOCK, SERIES B
OF
RENAISSANCE COSMETICS, INC.
PURSUANT TO SECTIONS 151 AND 228 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
Renaissance Cosmetics, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with the provisions of Sections 151(g) and 228 thereof,
DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by Section (3)(b)(i) of Article IV of the Certificate of Incorporation
of the Corporation, the Board of Directors of the Corporation adopted on
September 26, 1996 the following resolution increasing the number of authorized
shares of Senior Redeemable Preferred Stock, Series B, par value $.01 per share,
of the Corporation and, pursuant to Section 15 of the Certificate of
Designation, the following resolution was consented to by holders representing a
majority of the outstanding shares of Series B Preferred Stock and Series C
Preferred Stock (treated as a single series and class):
RESOLVED, that the number of shares of Senior
Redeemable Preferred Stock, Series B, par value $.01 per
shares, of the Corporation be increased from 325,000 to
350,000, and that the appropriate officers of the Corporation
be, and each of them hereby is, authorized to prepare or cause
to be prepared and to execute and to file or cause to be filed
with the Secretary of State of the State of Delaware a
Certificate of Increase increasing the number of shares
constituting Senior Redeemable Preferred Stock, Series B, par
value $.01 per share, from 325,000 to 350,000.
That pursuant to Section 228 of the General Corporation Law of
the State of Delaware, written consent has been given in accordance with such
Section 228 and written notice has been given as provided thereunder.
IN WITNESS WHEREOF, the Corporation has caused this
certificate to be duly executed this 27th day of September, 1996.
RENAISSANCE COSMETICS, INC.
By:_______________________________________
Name: Thomas T.S. Kaung
Title: Group Vice President and Chief
Financial Officer
<PAGE> 1
EXHIBIT 4.2
CERTIFICATE OF INCREASE
OF
SENIOR REDEEMABLE PREFERRED STOCK, SERIES C
OF
RENAISSANCE COSMETICS, INC.
PURSUANT TO SECTIONS 151 AND 228 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
Renaissance Cosmetics, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with the provisions of Sections 151(g) and 228 thereof,
DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by Section (3)(b)(i) of Article IV of the Certificate of Incorporation
of the Corporation, the Board of Directors of the Corporation adopted on
September 26, 1996 the following resolution increasing the number of authorized
shares of Senior Redeemable Preferred Stock, Series C, par value $.01 per share,
of the Corporation and, pursuant to Section 15 of the Certificate of
Designation, the following resolution was consented to by holders representing a
majority of the outstanding shares of Series B Preferred Stock and Series C
Preferred Stock (treated as a single series and class):
RESOLVED, that the number of shares of Senior
Redeemable Preferred Stock, Series C, par value $.01 per
shares, of the Corporation be increased from 325,000 to
350,000, and that the appropriate officers of the Corporation
be, and each of them hereby is, authorized to prepare or cause
to be prepared and to execute and to file or cause to be filed
with the Secretary of State of the State of Delaware a
Certificate of Increase increasing the number of shares
constituting Senior Redeemable Preferred Stock, Series C, par
value $.01 per share, from 325,000 to 350,000.
That pursuant to Section 228 of the General Corporation Law of
the State of Delaware, written consent has been given in accordance with such
Section 228 and written notice has been given as provided thereunder.
IN WITNESS WHEREOF, the Corporation has caused this
certificate to be duly executed this 27th day of September, 1996.
RENAISSANCE COSMETICS, INC.
By:_______________________________________
Name: Thomas T.S. Kaung
Title: Group Vice President and Chief
Financial Officer
<PAGE> 1
Exhibit 4.3
THIS SECURITY IS A GLOBAL CERTIFICATE AND IS REGISTERED IN THE NAME OF
A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS
SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON
OTHER THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE CERTIFICATE OF DESIGNATION GOVERNING THIS SECURITY, AND NO
TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY
THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY
TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE CERTIFICATE OF
DESIGNATION. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (A NEW YORK CORPORATION)
("DTC") TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OR SUCH PREFERENCES AND/OR
RIGHTS.
<PAGE> 2
-2-
CUSIP No.
NUMBER SHARES
RENAISSANCE COSMETICS, INC.
SENIOR REDEEMABLE
PREFERRED STOCK, SERIES C
par value $.01 per share
This Certifies that _________________________ is the owner of
____________________________________________ fully paid and non-assessable
shares, par value $.01 per share, of the Senior Redeemable Preferred Stock,
Series C, of the above-named Corporation, transferable on the books of the
Corporation by the holder hereof in person or by its duly authorized Attorney
upon surrender of this Certificate properly endorsed.
WITNESS the seal of the Corporation and the signature of its duly
authorized officers.
Dated:
By: ________________________________
Name:
Title:
(Seal)
By: ________________________________
Name:
Title:
<PAGE> 3
-3-
ASSIGNMENT FORM
For value received, _____________________________hereby sell, assign
and transfer unto_________________________________________________________
shares represented by the within Certificate and do hereby irrevocably
constitute and appoint_____________________________________________________
Attorney to transfer the said shares on the books of the within named
Corporation with full power of substitution in the premises.
Date:______________
______________________________
In presence of _______________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alternation or enlargement or any change whatever.
<PAGE> 1
Exhibit 5.1
January 31, 1997
Renaissance Cosmetics, Inc.
955 Massachusetts Avenue
Cambridge, MA 02139
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-4 (the
"Registration Statement") filed by Renaissance Cosmetics, Inc., a Delaware
corporation (the "Company"), with the Securities and Exchange Commission (the
"SEC") on October 1, 1996, as amended by Amendment No. 1 thereto filed with the
SEC on January 31, 1997, pursuant to the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations thereunder, we have been requested to
render our opinion as to the legality of the securities being registered
thereunder. The Registration Statement relates to shares of the Company's 14.0%
Senior Redeemable Preferred Stock, Series C, par value $.01 per share (the
"Series C Preferred Stock"). Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings ascribed thereto in the
Registration Statement.
In connection with this opinion, we have examined originals,
or copies certified or otherwise identified to our satisfaction, of (i) the
Certificate of Designation of the Series C Preferred Stock as amended to date
(the "Series C Certificate of Designation"); (ii) copies of the restated
certificate of incorporation and the by-Laws of the Company, each as amended to
date; and (iii) records of certain of the corporate proceedings of the Company
relating to, among other things, the issuance and sale of the Series C Preferred
Stock. In addition, we have examined
<PAGE> 2
Renaissance Cosmetics, Inc. 2
such other documents, records, certificates or other instruments as we
considered necessary or appropriate in order to form a basis for the opinion
hereunder expressed.
In our examination of the aforesaid documents, we have
assumed, without independent investigation, the genuineness of all signatures,
the enforceability of the documents against each party thereto other than the
Company, the authenticity of all documents submitted to us as originals, the
conformity to the original documents of all documents submitted to us as
certified, photostatic, reproduced or conformed copies of validly existing
agreements or other documents, the authenticity of all such latter documents and
the legal capacity of all individuals who have executed any of such documents.
The opinions set forth herein assume that the Company takes no corporate action
following the date hereof inconsistent with its obligations under the
Registration Rights Agreement or the Series C Certificate of Designation.
In expressing the opinion set forth herein, we have relied
upon the factual matters contained in the representations and warranties of the
Company and upon certificates of public officials and officers of the Company
and of its subsidiaries.
Based upon the foregoing, and subject to the assumptions,
exceptions and qualifications set forth herein, we are of the opinion that the
shares of Series C Preferred Stock have been duly authorized by all necessary
corporate action and, assuming the Series C Certificate of Designation has been
duly filed with the Secretary of State of the State of Delaware at or prior to
the time the Series C Preferred Stock is issued and assuming the Series C
Preferred Stock is issued and delivered in accordance with the terms of the
Series C Certificate of Designation, the Registration Rights Agreement and the
Registration Statement, the Series C Preferred Stock will be legally issued,
fully paid and non-assessable.
The foregoing opinion is limited to the federal laws of the
United States, the laws of the State of New York and the General Corporation Law
of the State of Delaware. Our opinion is rendered only with respect to the laws,
and the rules, regulations and orders thereunder, which are currently in effect.
No opinion is expressed herein with respect to the requirements of, or
compliance with, any state securities or "blue sky" laws. Please be advised that
no member of this firm is admitted to practice law in the State of Delaware.
<PAGE> 3
Renaissance Cosmetics, Inc. 3
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to us under the heading
"Legal Opinion" in the Registration Statement. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Act.
Very truly yours,
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE> 1
EXHIBIT 10.34
AMENDMENT NO. 1 SECURITY AGREEMENT - TRADEMARKS
AGREEMENT made on July __, 1996 between HOUBIGANT, INC., a Delaware
corporation, located at 1135 Pleasant View Terrace West, Ridgefield, New Jersey
07657 ("Grantor"), DANA PERFUMS COPR. (f/k/a NEW DANA ACQUISITION CORP. and
PARFUMS PARQUET, INC.) , a Delaware corporation, located at 675 Massachusetts
Avenue, Cambridge, Massachusetts 02139 ("PPI"), Houbigant (1995) Limited, a
Canadian corporation, located at 1597 Rue Cunard Laval, (Quebec) H75 2B4 Canada
("Licensee"), and THE CHASE MANHATTAN BANK, formerly known as Chemical Bank, as
successor-in-interest to Chemical Bank of New Jersey, N.A., individually and as
Collateral Agent for Itself and Fleet Bank, national association and FLEET BANK,
national association as successor-in-interest to NatWest Bank, N.A.(f/k/a
National Westminster Bank USA) (collectively, the "Banks") located at P.O. Box
1090, Two Tower Center, East Brunswick, New Jersey 08816. Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to them in the
License Agreement (as defined below).
WHEREAS, on November 18, 1993 (the "Filing Date"), Licensor,
together with certain affiliates, filed a voluntary petition for relief under
chapter 11 of Title 11, United States Code (the "Bankruptcy Code"), in the
United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court"). Grantor's chapter 11 case is being jointly administered by
the Bankruptcy Court under procedurally consolidated case no. 93 B 45767 (JLG)
(the "Bankruptcy Case"),
WHEREAS, Grantor has adopted, used and is using, and is the owner of
the entire right, title and interest in and to, certain trademarks and designs;
WHEREAS, the Canadian License (as defined below) was transferred,
sold and assigned to the Licensee by ACB Mercantile, Inc., on or about December
12, 1994;
WHEREAS, Licensee is an assignee of a license agreement dated April
1, 1993, as amended as May __, 1995 (the "Canadian License") pursuant to which
Licensee was granted certain rights to use the Trademarks for the Products in
Canada and all of its provinces and territories;
WHEREAS, Grantor and PPI have entered into a license agreement dated
May __, 1994, as modified on May 12, 1994 and as further modified on June 1,
1994 (the License Agreement"), pursuant to which Grantor has granted Licensee
certain rights to use the Trademarks for the Products in all counties,
possessions, territories and U.S. Military outlets and "PX"s located in North
America, Central America and South America (the "American Territories") as
listed on Schedule A thereto;
WHEREAS, Grantor has granted to PPI a second priority lien against
and security interest in and to the Trademarks for the Products in the American
Territory pursuant to a security agreement dated July 1, 1994 (the "Security
Agreement");
<PAGE> 2
WHEREAS, the parties thereto have agreed to amend the Security
Agreement to reflect the addition of Canada to the definition of "Territory" in
the Security Agreement.
NOW, THEREFORE, IT IS AGREED
1. The term Territory as defined in the Security Agreement is hereby
amended to include Canada.
2. The parties hereto hereby agree that if the Licensee shall cease
to be the Licensee under the Canadian License PPI shall cease to have a security
interest in the Trademarks in Canada. Upon the occurrence of such an event, PPI
shall cause to be filed all documentation necessary to terminate such security
interest to the extent that such security interest was perfected by the filing
of a financing statement or the equivalent thereto under Canadian law.
3. Governing Law. This Agreement shall be governed in all respects
by the laws of the United States and the laws of the State of New York.
4. Counterparts. This Agreement may be executed in one or more
counterparts which when taken together shall constitute one and the same
Security Agreement.
IN WITNESS WHEREOF, Grantor and Licensee have caused this Agreement
to be executed by their respective officers duly authorized as of the day and
year first above written.
HOUBIGANT INC.
By: ____________________________
Title:
DANA PARFUMS CORP.
By: ____________________________
Title:
2
<PAGE> 3
CONSENTED AND AGREED TO:
THE CHASE MANHATTAN BANK, HOUBIGANT (1995) LIMITED
formerly known as Chemical Bank,
as successor-in-interest to Chemical Bank
of New Jersey, N.A., individually and as
Collateral Agent for Itself and Fleet Bank,
national association
By: ____________________________ By:________________________
FLEET BANK, national association
as successor-in-interest to NatWest
Bank, N.A. (f/k/a NATIONAL
WESTMINISTER BANK USA)
By: ____________________________
3
<PAGE> 1
EXHIBIT 10.40
RENAISSANCE COSMETICS, INC.
--------------------------------
1994 STOCK OPTION PLAN
--------------------------------
1. Purpose. The purpose of this 1994 stock option plan (this
"Plan") of Renaissance Cosmetics, Inc., a Delaware corporation (the "Company"),
is to advance the interests of the Company by providing an additional incentive
to attract and retain qualified and competent persons who provide management or
other services or upon whose efforts and judgment the success of the Company is
largely dependent, through the encouragement of stock ownership in the Company
by such persons.
2. Definitions. As used herein, the following terms shall have
the meaning indicated:
(a) "Board" shall mean the Company's Board of
Directors.
(b) "Code" shall mean the Internal Revenue Code of
1986, as the same may be amended from time to time.
(c) "Committee" shall mean the stock option committee
appointed by the Board pursuant to section 13 hereof or, if not appointed, the
Board.
(d) "Common Stock" shall mean the Common Stock, par
value $.01 per share, of the Company.
(e) "Director" shall mean a member of the Board.
(f) "Fair Market Value" of the Common Stock on any
date of reference shall be the Closing Price on the business day immediately
preceding such date, unless the Committee in its sole discretion shall determine
otherwise. For this purpose, the Closing Price of the Common Stock on any
business day shall be (i) if the Common Stock is listed or admitted for trading
on any United States national securities exchange, or if actual transactions are
otherwise reported on a consolidated transaction reporting system, the last
reported sale price of the Common Stock on such exchange or reporting system, as
reported in any newspaper of general circulation, (ii) if clause (i) is not
applicable, if the Common Stock is quoted on the National Association of
Securities Dealers Automated Quotations System, or any similar system of
automated dissemination of quotations of securities prices in common use, the
mean between the closing high bid and low asked quotations for such day of the
Common Stock on such system, (iii) if neither of clauses (i) or (ii) is
applicable, the mean between the high bid and low asked quotations for the
Common Stock as reported by the National Quotation Bureau, Incorporated or other
comparable service if at least two securities dealers have inserted both bid and
asked quotations for the Common Stock on at least 5 of the
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<PAGE> 2
10 preceding days, or (iv) if none of clauses (i), (ii) or (iii) is applicable,
the fair value of the Common Stock as determined by the Committee.
(g) "Option Agreement" means the agreement between
the Company and the Optionee to evidence the grant of an Option in the form
attached hereto as Exhibit A, or such other form of Option as the Committee may
from time to time approve.
(h) "Option" shall mean any stock option granted
under this Plan.
(i) "Optionee" shall mean a person to whom an Option
is granted or any person who succeeds to the rights of such person under this
Plan by reason of the death of such person.
(j) "Share(s)" shall mean a share (or shares) of the
Common Stock.
3. Shares and Options. Subject to section 10, the Company may
grant to Optionees from time to time Options to purchase an aggregate of up to
111,320 Shares of Common Stock. If any Option shall terminate, expire, or be
canceled or surrendered unexercised as to any Shares, or cease for any reason to
be exercisable, new Options may thereafter be granted covering such Shares.
Options granted hereunder may be either "Incentive Stock Options" (as defined in
section 422 of the Code) or "Nonstatutory Stock Options" (i.e., an option that
is not an Incentive Stock Option), as determined by the Committee at the time of
grant and as specified in the applicable Option Agreement.
4. Dollar Limitation For Incentive Stock Options. Anything to
the contrary notwithstanding, the Committee shall not grant and no Optionee may
exercise Incentive Stock Options to the extent that the aggregate fair market
value (determined at the time the Option is granted) of the Shares with respect
to which Incentive Stock Options are exercisable for the first time by any
individual during any calendar year (under all plans of the Company and its
parent and subsidiary corporations as defined in Code section 424) exceeds
$100,000. Any option (or portion thereof) granted in excess of that amount shall
be treated as a Nonstatutory Stock Option.
5. Conditions for Grant of Options.
(a) Upon the grant of each Option, the Company and
the Optionee shall enter into an Option Agreement, which shall specify the grant
date and the exercise price and shall include or incorporate by reference the
substance of this Plan and such other provisions not inconsistent with this Plan
as the Committee may determine. Optionees shall be those persons selected by the
Committee from the class of all regular employees of the Company (including
officers) and all directors (whether or not employees); provided, however, that
no Incentive Stock Option may be granted to a director who is not also an
employee of the Company.
(b) In granting Options, the Committee shall take
into consideration the contribution the person has made to the success of the
Company and such other factors as
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<PAGE> 3
the Committee shall determine. The Committee shall also have the authority to
consult with and receive recommendations from officers and other personnel of
the Company with regard to these matters. The Committee may from time to time in
granting Options prescribe such other terms and conditions concerning such
Options as it deems appropriate, including, without limitation, (i) prescribing
the date or dates on which the Option becomes exercisable, (ii) providing that
the Option rights accrue or become exercisable in installments over a period of
years, or upon the attainment of stated goals or both, or (iii) relating an
Option to the continued employment of the Optionee for a specified period of
time.
(c) The Options granted to Optionees shall be in
addition to regular salaries, pension, life insurance or other benefits related
to their employment or other relationship with the Company. Neither this plan
nor any Option shall confer upon any person any right to employment or
continuance of employment or other relationship by the Company.
6. Exercise Price. The exercise price per Share of any Option
shall be the price determined by the Committee.
7. Exercise of Options.
(a) An Option shall be deemed exercised when (i) the
Company has received written notice of such exercise in accordance with the
terms of the Option, (ii) full payment of the aggregate exercise price of the
Shares as to which the Option is exercised has been received by the Company,
(iii) the Optionee has delivered to the Company executed copies of each
agreement (including but not limited to any stockholders agreement and any
undertaking or representation pursuant to applicable securities laws), document
or instrument required to be signed by the Optionee in connection with the
issuance of Shares pursuant to the Option, and (iv) arrangements that are
satisfactory to the Committee in its sole discretion have been made for the
Optionee's payment to the Company of the amount that is necessary for the
Company to withhold in accordance with applicable withholding requirements. To
the extent permitted by the Committee in any Option and in accordance with the
terms of the applicable Option Agreement, the exercise price of any Shares
purchased may be paid in whole or in part in cash, by certified or official bank
check or personal check, by money order, by promissory note, with Shares (valued
at their Fair Market Value on the date the Option is exercised) or by a
combination of the above. The Company in its sole discretion may, on an
individual basis or pursuant to a general program established in connection with
this plan, lend money to an Optionee, guarantee a loan to an Optionee, or
otherwise assist an Optionee to obtain the cash necessary to exercise all or a
portion of an Option granted hereunder or to pay any tax liability of the
Optionee attributable to such exercise. If the exercise price is paid in whole
or part with the Optionee's promissory note, such note shall, at the Committee's
option, (i) provide for full recourse to the maker, (ii) be collateralized by
the pledge of the Shares that the Optionee purchases upon exercise of such
Option, (iii) bear interest at the prime or equivalent rate of the Company's
principal lender or such other rate as the Committee shall determine, and (iv)
contain such other terms as the Committee in its sole discretion shall
reasonably require. No Optionee shall be deemed to be a holder of any Shares
subject to an Option unless and until a stock certificate or certificates for
such Shares are issued to such person(s) under the terms of this Plan; provided,
however, that, until such stock certificate is issued, any Optionee using
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<PAGE> 4
previously acquired Shares in payment of all or part of the exercise price of an
Option shall continue to have the rights of a stockholder with respect to such
previously acquired shares. No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as expressly provided in section 10
hereof.
(b) Each Option shall be exercisable during the
Optionee's lifetime only by the Optionee. As a condition of exercise of any
Option, the Committee may, in its sole discretion, require the Optionee to agree
to become bound by, and a party to any stockholder agreements affecting the
Common Stock, including but not limited to the stockholders agreement attached
to the Option Agreement. These agreements will restrict the Optionee's
disposition of the shares, permit the Company to repurchase the Shares upon
certain events and/or require the Optionee to sell his Shares upon certain
events. These agreements may include, without limitation, provisions (i)
restricting transfers of Shares, (ii) requiring the Optionee to sell his Shares
on the same terms and conditions as agreed to by a percentage of the Company's
stockholders and/or (iii) granting the Company an option to repurchase the
Optionee's Shares upon termination of the Optionee's employment or association
with the Company or upon an involuntary transfer of such shares pursuant to
divorce, creditors' lien, and other events.
8. Exercisability of Options.
(a) An Option becomes exercisable in such amounts, at
such intervals and upon such terms as the Committee shall provide in the Option
Agreement, except as otherwise provided in this section 8.
(b) The expiration date of an Option shall be
determined by the Committee at the time of grant and stated in the Option
Agreement, but in no event shall an Option be exercisable after the expiration
of ten years from the date of grant of the Option.
(c) The Committee may, in its sole discretion,
accelerate the date on which any Option may be exercised.
9. Termination of Option Period.
(a) The unexercised portion of any Option shall
automatically and without notice terminate and become null and void at the
earliest to occur of the following:
(i) the date on which the Optionee's
employment is voluntarily terminated without the written consent of the Company;
(ii) the date on which the Optionee's
employment is terminated for cause;
(iii) 60 days after the date of termination
of the Optionee's employment (or, in the case of a nonemployee director, the
date the Optionee ceases to be a
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<PAGE> 5
director) by reason of death, disability or retirement of the Optionee or any
reason other than as set forth in items (i) and (ii) of this section 9(a); or
(iv) upon the expiration date specified in
the Option Agreement, but in any event no later than ten years after the date of
grant of the Option.
(b) The Committee, in its sole discretion, may, by
giving the Optionee written notice (a "Cancellation Notice"), cancel, effective
upon the date of the consummation of any merger, consolidation, reorganization,
liquidation or dissolution in which the Company does not survive or sale, lease,
exchange or other disposition of all or substantially all of the property and
assets of the Company, any Option that remains unexercised on such date. Any
Cancellation Notice shall be given a reasonable period of time prior to the
proposed date of such cancellation and may be given either before or after
stockholder approval of such corporate transaction.
10. Adjustment of Shares.
(a) If at any time while this Plan is in effect or
unexercised Options are outstanding, there shall be any increase or decrease in
the number of issued and outstanding Shares through the declaration of a stock
dividend or through any recapitalization resulting in a stock split-up,
combination or exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made in
the maximum number of Shares available for grant hereunder, so that the same
percentage of the Company's issued and outstanding Shares shall continue to be
subject to being so optioned; and
(ii) appropriate adjustment shall be made in
the number of Shares and the exercise price per Share thereof then subject to
any outstanding Option, so that the same percentage of the Company's issued and
outstanding Shares shall remain subject to purchase at the same aggregate
exercise price.
(b) Subject to the specific terms of any Option, the
Committee may change the terms of outstanding Options, with respect to the
exercise price or the number of Shares subject to the Options, or both, when, in
the Committee's sole discretion, such adjustments become appropriate by reason
of a corporate transaction.
(c) The issuance by the Company of shares of its
capital stock of any class, or securities convertible into shares of capital
stock of any class, either in connection with a direct sale or upon the exercise
of rights or warrants to subscribe therefor, or upon the conversion of shares or
obligations of the Company convertible into such shares or other securities,
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number or exercise price of the Shares then subject to the outstanding
Options.
(d) Without limiting the generality of the foregoing,
the existence of outstanding Options shall not affect in any manner the right or
power of the Company to make, authorize or consummate (i) any or all
adjustments, recapitalizations, reorganizations or
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<PAGE> 6
other changes in the Company's capital structure or its business; (ii) any
merger or consolidation of the Company; (iii) any issue by the Company of debt
securities, or preferred or preference stock that would rank above or equal with
the Shares subject to outstanding Options; (iv) the dissolution or liquidation
of the Company; (v) any sale, transfer or assignment of all or any part of the
assets or business of the Company; or (vi) any other corporate act or
proceeding, whether of a similar character or otherwise.
11. Transferability of Options. No Option shall be
transferable by the Optionee otherwise than by will or the laws of descent and
distribution, nor shall any Option be pledged or in any way encumbered.
12. Issuance of Shares. As a condition of exercise of any
Option, the Committee may require such agreements or undertakings, if any, as
the Committee may deem necessary or advisable to assure compliance with any such
law or regulation including, but not limited to, the following:
(a) a representation and warranty by the Optionee to
the Company, at the time any option is exercised, that he is acquiring the
Shares to be issued to him for investment and not with a view to, or for sale in
connection with, the distribution of any such Shares; and
(b) a representation, warranty and/or agreement to be
bound by any legends that are, in the opinion of the Committee, necessary or
appropriate to comply with the provisions of any securities law deemed by the
Committee to be applicable to the issuance of the Shares and endorsed upon the
Share certificates and that any subsequent resale or distribution of the Shares
by the Optionee will be made only pursuant to a registration statement under the
Securities Act of 1933 or an exemption from the registration requirements of
that act and that in claiming the applicability of any such exemption, the
Optionee shall prior to any offer or sale of the Shares provide the Company
with a favorable written opinion of counsel, in form and substance satisfactory
to the Company, as to the applicability of the exemption.
13. Administration of the Plan.
(a) The Plan shall be administered by a Committee of
the Board, which shall consist of not less than two Directors. The Committee
shall have all of the powers of the Board with respect to this Plan. Any member
of the Committee may be removed at any time, with or without cause, by
resolution of the Board and any vacancy occurring in the membership of the
Committee may be filled by appointment by the Board. The Committee, from time to
time, may adopt rules and regulations for carrying out the purposes of this Plan
and shall have no liability of any kind for any action taken in good faith.
(b) Any and all decisions or determinations of the
Committee shall be made either (i) by a majority vote of the members of the
Committee at a meeting or (ii) without a meeting by the unanimous written
consent of the members of the Committee.
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<PAGE> 7
14. Options for 10% Stockholders. Notwithstanding any other
provisions of this plan to the contrary, no Incentive Stock Option shall be
granted hereunder to any person owning directly or indirectly at the date of
grant, stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company (or of its parent or subsidiary corporation (as
defined in Section 424 of the Code) at the date of grant) unless the exercise
price of such Option is at least 110% of the Fair Market Value of the Shares
subject to such Option on the date the Option is granted, and such Option by its
terms is not exercisable after the expiration of five years from the date such
Option is granted.
15. Interpretation. This Plan shall be administered and
interpreted so that all Options granted hereunder as Incentive Stock Options
will qualify as such under section 422 of the Code. If any provision of this
Plan should be held invalid for the granting of Incentive Stock Options or
illegal for any reason, such determination shall not affect the remaining
provisions hereof, but instead this Plan shall be construed and enforced as if
such provision had never been included herein. The determinations and the
interpretation and construction of any provision of this Plan by the Committee
shall be final and conclusive. This Plan shall be governed by the laws of the
state of Delaware. Headings contained in this Plan are for convenience only and
shall in no manner be construed as part of this Plan. Any reference to the
masculine, feminine, or neuter gender shall be a reference to such other gender
as is appropriate.
16. Term of Plan; Amendment and Termination of the Plan.
(a) This Plan shall become effective upon its
adoption by the Board, and shall continue in effect until all Options granted
hereunder have expired or been exercised, unless sooner terminated under the
provisions relating thereto. No Option shall be granted after ten years from the
effective date of this Plan.
(b) Following adoption by the Board, the Plan shall
be presented to the Company's stockholders for their approval by vote of a
majority of such stockholders present or represented at a meeting duly held
within 12 months after the date of the Board's adoption. Options may be granted
prior to stockholder approval of this Plan, but such Options shall be contingent
upon such approval being obtained and may not be exercised prior to such
approval, provided that the date of grant of any Options granted hereunder shall
be determined as if the Plan had not been subject to such approval.
(c) the Board may from time to time amend this Plan
or any Option; provided, however, that, except to the extent provided in section
10, no such amendment may (i) without approval by the Company's stockholders,
increase the number of Shares reserved for Options or change the class of
persons eligible to receive Options, or involve any other change or modification
requiring stockholder approval pursuant to Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, but only if and to the extent such section is
applicable, (ii) permit the granting of Options that expire beyond the maximum
ten-year period described in section 8(a), or (iii) extend the termination date
of this Plan as set forth in section 16(a); and, provided, further, that, except
to the extent specifically provided otherwise in
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<PAGE> 8
section 9, no amendment of this Plan or any Option issued hereunder shall
materially impair any Option previously granted to any Optionee without the
consent of such Optionee.
(d) The Board may at any time terminate or suspend
this Plan. Any such termination or suspension shall not affect Options already
granted and such Options shall remain in full force and effect as if this Plan
had not been terminated or suspended. No Option may be granted while this Plan
is suspended or after it is terminated. The rights and obligations under any
Option granted to any Optionee while this Plan is in effect shall not be altered
or impaired by the suspension or termination of this Plan without the consent of
such Optionee.
17. Reservation of Shares. The Company, during the term of
this Plan, will at all times reserve and keep available a number of Shares as
shall be sufficient to satisfy the requirements of this Plan.
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<PAGE> 9
RENAISSANCE COSMETICS, INC.
STOCK OPTION AGREEMENT
RENAISSANCE COSMETICS, INC., a Delaware corporation (the
"Company"), hereby grants to [NAME] ("Optionee"), an option to purchase a total
of 2,000 shares (the "Shares") of Common Stock, par value $.01 per share (the
"Common Stock"), of the Company, at the Exercise Price specified in section 3,
and in all respects subject to the terms, conditions, definitions and provisions
of the 1994 Stock Option Plan (the "Plan") adopted by the Company which are
incorporated herein by reference. The terms defined in the Plan shall have the
same meanings when used herein.
1. Nature of the Option. This option is an Incentive Stock
Option intended to qualify as such under section 422 of the U.S. Internal
Revenue Code. This option shall for all purposes and in all respects be subject
to the terms, conditions, definitions and provisions of the Plan as an "Option"
thereunder.
2. Exercisability of Option. Except as otherwise provided
herein, or in the Plan or the stockholder agreement annexed hereto as Exhibit A
(the "Stockholder Agreement"), this option shall be exercisable cumulatively as
to _____ Shares on _____________, 1997, ________________, 1998, _____________,
1999, respectively, and as to_____ Shares on ___________, 2000, provided that
the Optionee is an employee of the Company at such time. Each partial exercise
shall reduce the total number of Shares that may thereafter be purchased
hereunder.
3. Exercise Price. The Exercise Price shall be $______ for
each Share.
4. Termination of Option Period. The unexercised portion of
this option shall automatically and without notice terminate and become null and
void at the time set forth in the Plan.
5. Transferability of Options; Issuance of Shares; Restrictive
Legend. This option is not transferable by the Optionee otherwise than by will
or by the laws of descent and distribution and the option shall be exercisable
during the Optionee's lifetime only by the Optionee. Upon and as a condition to
exercise of this option, the Optionee shall, by execution and delivery of
appropriate signature pages, become bound by, and a party to, the Stockholder
Agreement and such further stockholder agreements or amendments and such
additional agreements as may be in effect from time to time among the Company
and its stockholders and to which the Company advises the Optionee to become a
party. These agreements will restrict the Optionee's disposition of the Shares,
permit the Company to repurchase the Shares upon certain events and/or require
the Optionee to sell his Shares upon certain events. These agreements also
include provisions (a) restricting transfers of Shares, (b) requiring the
Optionee to sell his Shares on the same terms and conditions as agreed to by a
percentage of the
<PAGE> 10
Company's stockholders and (c) granting the Company an option to repurchase the
Optionee's Shares upon termination of the Optionee's employment or association
with the Company or upon an involuntary transfer of such Shares pursuant to
divorce, creditors' lien, etc. Each and every stock certificate representing
Shares issued to the Optionee shall bear any legend required by any applicable
stockholders' agreement and the following (or similar) restrictive legend:
"The shares represented by this certificate (the "Shares")
have been acquired from the Issuer pursuant to the Renaissance
Cosmetics, Inc. 1994 Stock Option Plan (the "Plan"). The
Shares are subject to the terms, conditions and restrictions
set forth in the Plan, and may not, in whole or in part, be
sold, transferred, pledged, gifted, hypothecated or otherwise
disposed of in any manner other than in accordance with the
terms of the Plan, a copy of which is on file and available
for inspection at the principal offices of said Company
presently located at 955 Massachusetts Avenue, Cambridge,
Massachusetts 02139."
6. Optionee's Representations. In the event the Shares
purchasable pursuant to the exercise of this option have not been registered
under the Securities Act of 1933 ("Securities Act"), at the time this option is
exercised, the Optionee shall, as a condition to the exercise of all or any
portion of this option, deliver to the Company his Investor Representation
Statement substantially in the form attached hereto as Exhibit B or as otherwise
deemed necessary or appropriate by Company counsel.
7. Restrictions on Exercise. This option may not be exercised
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
8. Death of Optionee. Upon the death of Optionee this option
may be exercised by Optionee's estate or by a person who acquired the right to
exercise this option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of death and only for such period
of time as shall be permitted pursuant to the Plan, and subject to all of the
restrictions contained in this option agreement.
9. Term of Option. Notwithstanding anything to the contrary
contained herein, this option may not be exercised more than ten years from the
date of grant of this option, and may be exercised during such term only in
accordance with the terms of the Plan and this option.
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<PAGE> 11
10. Method of Payment. Payment for the Shares upon exercise of
this option shall be made in cash (whether through application of the Optionee's
share of the proceeds of a public offering or sale in which the Shares
underlying this option are sold or otherwise).
11. Exercise of Option. This option, or any portion hereof,
shall be deemed to be exercised when written notice of such exercise has been
given to the Company in accordance with the terms hereof by the person entitled
to exercise the option, the Optionee has delivered to the Company executed
copies of the Stockholders Agreement, the Investor Representation Statement
attached hereto as Exhibit B and the Non-Competition Agreement attached hereto
as Exhibit C, full payment for the Shares with respect to which the option is
exercised has been received by the Company and all other conditions to exercise
(as set forth herein or in the Plan) have been satisfied. Full payment may
consist of any form of consideration and method of payment allowable under
section 10 hereof.
12. Adjustments Upon Changes in Capitalization or Merger.
Subject to any required action by the stockholders of the Company, the number of
Shares covered by this option, and the aggregate number of Shares which have
been authorized for issuance hereunder, as well as the exercise price per share
of Common Stock, covered by this option, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split or the payment of a stock dividend with respect to
the Common Stock or other similar event. Such adjustment shall be made by the
Board, whose determination in that respect shall be final, binding and
conclusive. No issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to this option.
Unless otherwise expressly provided herein or in any
applicable stockholder agreement, in the event of the proposed dissolution or
liquidation of the Company, or in the event of a proposed sale of all or
substantially all of the assets of the Company, or a merger, consolidation,
reorganization or liquidation in which the Company does not survive, this option
will terminate immediately prior to the consummation of such proposed action,
provided, however, that, unless other arrangements are specified by the Board
pursuant to the next sentence, the Company shall give the Optionee at least 20
days written notice prior to the proposed consummation of the event advising the
Optionee of (i) any (as applicable) of the foregoing and (ii) that the Optionee
has the opportunity to exercise his option during such 20-day period and during
that 20-day period this Option shall be fully exercisable. In the alternative,
the Board may, in the exercise of its sole discretion, in such instances declare
that any option shall terminate as of a date fixed by the Board and give each
Optionee (a) the right to exercise his option, or (b) the right to otherwise
receive value, as to all or any part of the optioned securities, including
shares as to which the Option would not otherwise be exercisable.
-3-
<PAGE> 12
13. Withholding. In order to enable the Company to meet any
applicable federal, state or local withholding requirements arising as a result
of the exercise of this option, and as a condition to the exercise of this
option, the Optionee shall pay the Company cash in the amount determined by the
Company as required to be withheld.
14. Interpretation.
(a) If any provision of this agreement should be held
invalid for the granting of options or illegal for any reason, such
determination shall not affect the remaining provisions hereof, but instead this
agreement shall be construed and enforced as if such provision had never been
included in this agreement.
(b) This agreement shall be governed by the laws of
the state of Delaware applicable to agreements made and to be performed in
Delaware.
(c) Headings contained in this agreement are for
convenience only and shall in no manner be construed as part of this agreement.
(d) Any reference to the masculine, feminine, or
neuter gender shall be a reference to such other gender as is appropriate.
(e) This agreement shall not confer upon the Optionee
any right with respect to continuation of employment by, or consulting or other
relationship with, the Company, nor shall it interfere in any way with his right
to terminate his employment, consulting or other relationship at any time.
15. Acknowledgment. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Committee
upon any questions arising under the Plan or this agreement and that the
provisions of this option are subject to the terms and conditions of the Plan
and Stockholder Agreement.
16. Notices. All notices, instructions and other
communications in connection with this agreement shall be in writing and may be
given by personal delivery or mailed, certified mail, return receipt requested,
postage prepaid or by a nationally recognized overnight courier to the parties
at the address of the Company as follows, and at the address of the Stockholder
as set forth on the signature page to this agreement (or at such other address
as the Company or the Stockholder may specify in a notice to the Company):
If to the Company: Dr. Thomas V. Bonoma
President and Chief Executive Officer
Renaissance Cosmetics, Inc.
955 Massachusetts Avenue
Cambridge, Massachusetts 02139
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<PAGE> 13
and
Dr. Thomas V. Bonoma
President and Chief Executive Officer
Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, New York 10022
With a copy to: Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036-8735
Attn.: Edward R. Mandell, Esq.
Notices shall be deemed to have been given (i) when actually delivered
personally, (ii) the next business day if sent by overnight courier (with proof
of delivery) and (iii) on the fifth day after mailing by certified mail.
17. Legal Costs. In the event that it becomes necessary for
the Company to retain legal counsel to enforce the Company's rights under this
agreement, all costs, fees and expenses associated with the retention of such
counsel shall be borne by the Stockholder.
18. All Shares of Stock Subject to Stockholder Agreement. All
of the Optionee's shares of Common Stock, whether acquired pursuant to this
option or previously acquired by the Optionee in connection with the initial
financing of the Company on August 18, 1994 or otherwise, shall be subject to
the terms, covenants, conditions, restrictions and limitations contained in the
Stockholder Agreement, including but not limited to the provisions of Section 6
thereof permitting the Company to repurchase all of the Optionee's shares of
Common Stock upon the termination of the Optionee's employment with the Company
(or, in the case of a nonemployee director, upon ceasing to be a director of the
Company) for whatever reason. Upon execution of this Option Agreement, the
Optionee shall be deemed to have executed the Stockholder Agreement and all of
his Shares shall from and after the execution hereof be bound by the terms
thereof.
DATE OF GRANT:
RENAISSANCE COSMETICS, INC.
By:_________________________________
Name:
Title:
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<PAGE> 14
Agreed to this ____ day of ___________, 1996.
[NAME]
Address of Optionee for Notices:
________________________________
________________________________
________________________________
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<PAGE> 15
EXHIBIT A
(To Stock Option
Agreement)
STOCKHOLDER AGREEMENT
(attached)
<PAGE> 16
STOCKHOLDER AGREEMENT
_______________, 1996
The parties to this agreement are Renaissance Cosmetics, Inc.,
a Delaware corporation (the "Company"), and [NAME] (the "Stockholder").
The Stockholder is acquiring shares of the common stock, par
value $.01 per share (the "Common Stock"), of the Company pursuant to the
exercise of an option granted by the Company (any such shares, together with all
other shares acquired by the Stockholder in the future pursuant to an option or
options granted by the Company, the "Option Shares").
The Company and the Stockholder desire to promote their mutual
interests and the interests of the Company by imposing certain restrictions on
the transfer of the Option Shares and any other shares of any class of capital
stock of the Company, including but not limited to the Common Stock, now owned
or hereafter acquired by the Stockholder (collectively, the "Shares") and to set
forth their agreement with respect to certain other matters, all upon the terms
and conditions set forth below.
It is therefore agreed as follows:
1. Issuance of Shares. In accordance with the option agreement
between the Stockholder and the Company, simultaneously with the execution and
delivery of this agreement the Stockholder is purchasing Option Shares from the
Company and is paying to the Company the exercise price for those shares in
accordance with the terms of that option agreement.
2. Certain Rights and Restrictions of the Stockholder. For a
period of fifteen years after the date of this agreement, the Stockholder may
not sell, assign, transfer, pledge, hypothecate, mortgage, encumber, dispose of
by gift, bequest or otherwise transfer or dispose of (collectively, "Transfer")
any right, title or interest in any or all of his or her Shares, except as
follows:
(a) The Stockholder may Transfer (inter vivos or
testamentary) all or part of his or her Shares to his or her spouse, children,
parents, brothers or sisters, nieces and nephews or to a trust for the benefit
of any such persons, or to any affiliate (as defined below) of the Stockholder,
or to a corporation or limited or general partnership, the shareholders or
partners of which consist entirely of the Stockholder and/or his permitted
transferees or to a guardian for a disabled stockholder, provided that such
Shares shall remain subject to this agreement. Such shares also may be
transferred back to the transferor. As used in this agreement, an "affiliate" of
any person means any other person controlled by, controlling
<PAGE> 17
or under "common control" (as that term is defined in the Securities
Act of 1933 (the "Securities Act")) with that person.
(b) The Stockholder may sell any or all of his or her
Shares in a public offering of shares of the Company pursuant to a registration
statement under the Securities Act or in connection with a merger, consolidation
or other reclassification of the capital stock of the Company.
(c) The Stockholder may transfer his or her Shares in
accordance with sections 3, 4, 5 or 6.
3. Involuntary Transfers of Shares. In the event of any
Involuntary Transfer (as hereinafter defined) by the Stockholder of any Shares,
the following procedures shall apply:
(a) If the Stockholder is deprived or divested of
Shares by an Involuntary Transfer, he or she shall promptly give written notice
of such transfer in reasonable detail to the other stockholder[s] of the Company
who have entered into a stockholder agreement or similar instrument with the
Company for the purpose of imposing upon those stockholders share transfer
restrictions, or providing those stockholders with rights similar to those
provided herein, and each of their permitted transferees (collectively, the
"Other Stockholders" and together with the Stockholder, the "Stockholders"), and
the person or persons who take or propose to take any interest in such Shares
(the "Subject Shares") as a result of such Involuntary Transfer (the
"Transferee") shall hold such interest subject to the rights of the Other
Stockholders as set forth below.
(b) Upon receipt of the notice referred to in section
3(a) above or upon discovery of such Involuntary Transfer, the Other
Stockholders shall have the irrevocable option, exercisable by written notice
(specifying the number of Subject Shares to be purchased) to the Transferor
within 60 days following the receipt of such notice, but not the obligation, to
purchase the Subject Shares, subject to the terms set forth herein. Each Other
Stockholder may exercise the option for a number of Subject Shares that bears
the same relation to the total number of Subject Shares as (x) the number of
Shares held by that Other Stockholder bears to (y) the aggregate number of
Shares then held by all of the Other Stockholders exercising such option, or for
such other number of Subject Shares as all of the Other Stockholders exercising
such option may agree. Upon the termination of that 60-day period, the
Stockholder shall notify the Company in writing of the number of Subject Shares
that Other Stockholders have elected to purchase in accordance with this
provision; the Company shall then have an option, exercisable within 15 days
after the Stockholder gives the Company the notice referred to above, but not
the obligation, to purchase any Subject Shares the Other Stockholders have not
elected to purchase.
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<PAGE> 18
(c) The closing of any such sale of Subject Shares to
one or more Other Stockholders or, if applicable, the Company, shall be at the
offices of the Company not later than 30 days after the Stockholder provides the
Company with the written notice referred to above. The purchase price per share
of any Subject Shares purchased pursuant to this section 3 shall be the amount
that is equal to the fair market value (determined without giving effect to the
fact that the Subject Shares may represent a minority interest in the Company),
as of the Valuation Date (as defined below), of the Subject Shares as such fair
market value is determined by an independent appraiser selected by the Company
and reasonably acceptable to the Transferee, payable in immediately available
funds. The "Valuation Date" shall be the last day of the calendar quarter
immediately preceding the Involuntary Transfer.
(d) In the event that the Other Stockholders and the
Company do not purchase all of the Subject Shares involved in an Involuntary
Transfer pursuant to this section 3, the Transferee shall take and hold all
rights and interests in any Subject Shares not so purchased and shall execute a
copy of this agreement and be bound by the provisions hereof with the same
rights and obligations as the Stockholders.
(e) For purposes of this agreement, the term
"Involuntary Transfer" shall mean any involuntary transfer by or in which the
Stockholder shall be deprived or divested of any right, title or interest in or
to any Shares, including, without limitation, any levy of execution, transfer in
connection with bankruptcy, reorganization, insolvency or similar proceedings or
any Transfer to a public officer or agency pursuant to any abandoned property or
escheat law.
4. Certain Rights to Cause Sale of Company.
(a) If, at any time, the holders of a majority in
interest of the outstanding shares of Common Stock determine to sell all of
their shares of Common Stock in an arms-length transaction to any unaffiliated
third person pursuant to a bona fide written offer for all of the shares of the
Common Stock, and the Stockholder receives written notice thereof not fewer than
20 days before the proposed date of the sale, the Stockholder shall also sell,
and the Stockholder shall be entitled to sell, all of his or her Shares in the
same transaction at the closing thereof (and shall deliver certificates for all
of his or her Shares at such closing, free and clear of all claims, liens and
encumbrances), provided that the Stockholder shall receive the same
consideration per Share upon such sale as the other stockholders. It is
expressly acknowledged that the foregoing provisions are an integral part of
this agreement and in the event that the Stockholder shall fail to comply
herewith, in addition to all other rights and remedies available, the Other
Stockholders (who shall for this purpose be deemed to be intended third party
beneficiaries of this agreement) shall have the right to obtain equitable relief
to compel the Stockholder to perform his or her obligations hereunder. By
execution of this agreement, the Stockholder hereby irrevocably appoints each of
the Company's Chairman, Vice Chairman, Chief Operating Officer, President, Vice
President, Secretary and any Assistant
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<PAGE> 19
Secretary, acting singly, as his or her attorney-in-fact to execute and deliver
all documents necessary to effect the sale of his or her Shares in accordance
with the foregoing.
(b) In the event of a proposed sale of stock of the
Company as described in section 4(a), the Stockholder shall in all events be
required to deliver his or her shares of Common Stock to the buyer at the
closing of the sale regardless of whether there is any dispute between the
Company and the Stockholder. Any such dispute shall be resolved after the
closing and shall in no event delay the closing.
5. Tag-Along Rights.
(a) With respect to any proposed Transfer of Shares
other than as provided in sections 2(a), 2(b), 3, 4 and 6, for a period of
fifteen years after the date of this agreement, the Stockholder may not transfer
any Shares unless prior to such sale or disposition the Company and each Other
Stockholder shall have been given notice of the proposed transaction and each
Other Stockholder shall have been provided a firm irrevocable right, which right
shall be exercisable by written notice (which shall specify the number of shares
(up to the total number of shares held by the Other Stockholders, as applicable)
that the Stockholder desires to sell) within 60 days after giving notice to each
Other Stockholder, and which shall be acknowledged by the proposed transferee
(the "Purchaser"), to sell to the Purchaser, at the same time and upon the same
terms and conditions offered to the Stockholder by the Purchaser, the number of
shares of Common Stock that bears the same ratio to the total number of shares
of Common Stock proposed to be sold by the Stockholder to the Purchaser as the
total number of shares of Common Stock owned by the Other Stockholder bears to
the total number of outstanding shares of Common Stock, provided that in order
to be entitled to exercise its right to sell Shares to the proposed transferee
pursuant to this section 5, the Other Stockholders must agree to make
substantially the same representations, warranties, covenants and indemnities
and other similar agreements as the Stockholder agrees to make in connection
with the proposed transfer of the Shares of the Stockholder.
(b) To the extent that the Other Stockholders
exercise the foregoing option, the number of shares of Common Stock to be sold
by the Stockholder shall be reduced by the aggregate number of shares that the
Other Stockholders are entitled to include in the sale of shares of Common Stock
by the Purchaser and shares of Other Stockholders shall be substituted therefor.
(c) Any Purchaser of shares of Common Stock pursuant
to this provision shall execute a copy of this agreement and be bound by the
provisions hereof with the same rights and obligations as the Stockholder.
(d) The rights provided in this provision may be
exercised in whole or in part by the Other Stockholders.
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<PAGE> 20
6. Repurchase of Stock of the Stockholder.
(a) In the event that the employment of the
Stockholder with the Company is terminated for whatever reason, the Company
shall have the right, but not the obligation, to repurchase all of the Shares of
the Stockholder (including, but not limited to, the Option Shares) and any other
securities of the Company (as applicable) received in respect of the Shares,
which right shall be exercised by written notice to the Stockholder within 60
days of termination of employment of the Stockholder.
(b) If the employment of the Stockholder with the
Company is terminated by the Company for cause (as reasonably defined by the
Company), or if the Stockholder voluntarily terminates his employment without
the written consent of the Company, the purchase price for all of the
Stockholder's Shares and other securities (as applicable) pursuant to section
6(a) shall be the actual cost thereof to the Stockholder.
(c) If the employment of the Stockholder is
terminated for any reason other than as set forth in section 6(b), including due
to death, disability or retirement (on or after reaching the retirement age
established by Company policy) of the Stockholder, the purchase price for the
Shares and other securities (as applicable) pursuant to section 6(a) shall be
the fair market value of the Shares and other securities (as applicable) as of
the date of termination. The fair market value shall be either (x) the average
for the bid and asked prices for the 60-day period prior to the date of
termination if the Common Stock is then traded in the over-the-counter market,
(y) the price on the date of termination if the Common Stock is then traded on a
national securities exchange, or (z) if there is no public market, as fair
market value shall be determined by an independent appraiser selected by mutual
agreement of the attorneys for the Company and the Stockholder (and failing such
agreement by the American Arbitration Association in New York, New York). The
cost of such appraiser shall be borne equally by the Company and the
Stockholder.
(d) In the event the Company elects to purchase the
Shares and other securities (as applicable) of the Stockholder as provided
above, the parties shall close the sale on the 30th day (or next business day if
the 30th day is a holiday) after the date of written notice to the Stockholder
from the Company under (a) above, or after the date of determination of the
appraiser as provided in (c) above, at 10:00 a.m. at the then offices of the
Company. At the closing, the Company will deliver the purchase price of the
Shares and other securities (as applicable) in cash or, at the Company's option,
one-third in cash and two-thirds in the form of a promissory note payable over a
three-year period bearing simple annual interest at 8% and subordinated
(pursuant to subordination terms as substantially set forth in Attachment A
hereto) to all indebtedness of the Company, and the Stockholder shall deliver
the certificates for all of his Shares and other securities (as applicable),
duly endorsed with payment of all stock transfer taxes, if any, and free and
clear of any and all claims, liens or encumbrances.
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<PAGE> 21
(e) Wherever pursuant to this section 6 the Company
has the right to repurchase the Shares or other securities (as applicable) from
the Stockholder but is prevented from doing so either because (i) such purchase
would violate any law or statute or any order, writ, injunction, decree,
judgment, rule or regulation promulgated, or judgment entered, by any federal,
state, local or foreign court or governmental authority or (ii) if the Company
were to purchase the Shares or other securities of the Company (as applicable)
the Company is, or after giving effect thereto would be, in default or in
violation of the terms of, or subject to a ceiling in the availability of credit
advances under, any loan or credit agreements, indentures or promissory notes or
other similar documents, the board of directors of the Company may appoint one
or more existing stockholders of the Company as its designee(s) to purchase the
Shares or other securities (as applicable) in such order of priority and in such
amounts as the board shall determine.
7. Reclassification. In the event that any Shares should, as a
result of a stock split or stock dividend or combination of shares or any other
change or exchange for other securities by reclassification, reorganization,
redesignation, merger, consolidation, recapitalization, split-up, spinoff,
partial or complete liquidation, sale of assets, distribution to stockholders,
combination of shares or otherwise, be increased or decreased or changed into or
exchanged for a different number or kind of shares of capital stock or other
securities of the Company or of another corporation, the number of Shares held
by the Stockholder shall be appropriately and proportionately adjusted to
reflect such action and the terms and provisions of this agreement shall apply
to all of the capital stock of any class of the Company now owned or that may be
issued hereafter to the Stockholder in consequence of any event.
8. Purchase for Investment; Legend on Certificate. The
Stockholder acknowledges and agrees that all of his or her Shares purchased
pursuant hereto are being, have been and will be acquired for investment and not
with a view to the distribution thereof and that no Transfer of the Shares may
be made except in compliance with applicable federal and state securities laws.
All the stock certificates for shares of capital stock of the Company hereafter
owned by the Stockholder and subject to the terms of this agreement shall have
endorsed in writing, stamped or printed, upon the back thereof, the following
legend (or a legend of similar effect):
"THIS CERTIFICATE AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO AND
TRANSFERABLE ONLY IN ACCORDANCE WITH THE PROVISION OF A STOCKHOLDER AGREEMENT,
DATED _________________, 199_. A COPY OF THAT AGREEMENT, AS IT MAY BE AMENDED
FROM TIME TO TIME, IS MAINTAINED WITH THE CORPORATE RECORDS OF THE COMPANY AND
IS AVAILABLE FOR INSPECTION AT THE OFFICE OF THE COMPANY, 955 MASSACHUSETTS
AVENUE, CAMBRIDGE, MASSACHUSETTS 02139."
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE
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<PAGE> 22
SECURITIES OR BLUE SKY LAWS AND MAY NOT BE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT OR UNDER SUCH STATE
SECURITIES OR BLUE SKY LAWS."
9. Termination. This agreement shall automatically and without
further action terminate at such time as the Company shall close an underwritten
public offering of the Company's Shares the gross proceeds to the Company of
which are at least $10 million pursuant to a registration statement that has
been filed under the Securities Act and declared effective by the Securities and
Exchange Commission.
10. Specific Performance. Inasmuch as the Shares cannot be
readily purchased or sold in the open market and the parties hereto desire to
impose certain restrictions on transfers of Shares, irreparable damage will
result in the event that this agreement is not specifically enforced and the
parties hereto agree that any damages available at law for a breach of this
agreement would not be an adequate remedy. Therefore, the provisions hereof and
the obligations of the parties hereunder shall be enforceable in a court of
equity, or other tribunal having jurisdiction, by a decree of specific
performance, and appropriate injunctive relief may be applied for and granted in
connection therewith. Such remedies and all other remedies provided for in this
agreement shall, however, be cumulative and not exclusive and shall be in
addition to any other remedies which any party may have under this agreement or
otherwise.
11. Effectiveness of Transfers. No Shares shall be transferred
on the Company's books and records, and no Transfer of Shares shall be otherwise
effective, unless any such Transfer is made in accordance with the terms and
conditions of this agreement. In the event of any purported Transfer of any
Shares in violation of the provisions of this agreement, such purported Transfer
shall be void and of no effect, and no dividend of any kind whatsoever nor any
distribution pursuant to liquidation or otherwise shall be paid by the Company
to the purported transferee in respect of such Shares (all such dividends and
distributions being deemed waived), and the voting rights of such Shares, if
any, on any matter whatsoever shall remain vested in the transferor, and the
transferor shall not be relieved of any of its obligations hereunder as the
holder of such Shares, during the period commencing with the violation and
ending when compliance shall have occurred.
12. Additional Stockholders. Subject to the restrictions on
transfers of Shares contained herein, any person or entity required to become a
party to this agreement in connection with the acquisition of Shares from the
Stockholder or a successor thereto, shall, on or before the transfer or issuance
of it of Shares, sign the signature page hereto and shall thereby become a party
to this agreement. As a party to this agreement, each holder of Shares shall be
bound by this agreement and shall hold such Shares with all rights conferred,
and subject to all of the obligations and restrictions imposed, hereunder.
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<PAGE> 23
13. Certain Definitions.
As used in this agreement "person" shall mean any individual,
group, partnership, corporation, business trust, joint stock company, trust,
unincorporated association, joint venture or other entity of whatever nature.
14. Action Necessary to Effectuate the Agreement. The parties
hereto agree to take or cause to be taken all such corporate and other action as
may be necessary to effect the intent and purposes of this agreement.
15. Miscellaneous.
(a) Notices. All notices, instructions and other
communications in connection with this agreement shall be in writing and may be
given by personal delivery or mailed, certified mail, return receipt requested,
postage prepaid or by a nationally recognized overnight courier to the parties
at the address of the Company as follows, and at the address of the Stockholder
as set forth on the signature page to this agreement (or at such other address
as the Company or the Stockholder may specify in a notice to the Company):
If to the Company: Dr. Thomas V. Bonoma
President and Chief
Executive Officer
Renaissance Cosmetics, Inc.
955 Massachusetts Avenue
Cambridge, Massachusetts 02139
and
Dr. Thomas V. Bonoma
President and Chief Executive
Officer
Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, New York 10022
With a copy to: Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036-8735
Attn.: Edward R. Mandell, Esq.
Notices shall be deemed to have been given (i) when actually delivered
personally, (ii) the next business day if sent by overnight courier (with proof
of delivery) and (iii) on the fifth day after mailing by certified mail.
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<PAGE> 24
(b) No Waiver. No course of dealing and no delay on
the part of any party hereto in exercising any right, power or remedy conferred
by this agreement shall operate as a waiver thereof or otherwise prejudice such
party's rights, powers and remedies conferred by this agreement or shall
preclude any other or further exercise thereof or the exercise of any other
right, power and remedy.
(c) Binding Effect; Assignability. This agreement
shall be binding upon and, except as otherwise provided herein, shall inure to
the benefit of the respective parties and their permitted successors and
assigns. This agreement shall not be assignable except as otherwise provided
herein.
(d) Severability. Any provision of this agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provisions hereof prohibited or unenforceable in any respect.
(e) Modification. No term or provision of this
agreement may be amended, altered, modified, rescinded or terminated except upon
the express written consent of the party against whom the same is sought to be
enforced.
(f) Legal Fees. In the event that it becomes
necessary for the Company to retain legal counsel to enforce the Company's
rights under this agreement, all costs, fees and expenses associated with the
retention of such counsel shall be borne by the Stockholder.
(g) Law Governing. This agreement shall be construed
both as to validity and performance in accordance with, and governed by, the
laws of the state of Delaware, without giving effect to its choice of law rules.
(h) Counterparts. This agreement may be executed 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, and all signatures
need not appear on any one counterpart.
(i) Headings. All headings and captions in this
agreement are for purposes of reference only and shall not be construed to limit
or affect the substance of this agreement.
(j) Agreement Governs in Event of Conflict. In the
event the provisions of the Company's certificate of incorporation or by-laws
conflict with or are inconsistent with the provisions of this agreement, this
agreement shall govern.
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<PAGE> 25
(k) Entire Agreement. This agreement contains, and is
intended as, a complete statement of all the terms of the arrangements between
the parties with respect to the matters provided for, supersedes any previous
agreements and understandings between the parties with respect to those matters
and cannot be changed or terminated orally.
RENAISSANCE COSMETICS, INC.
By:____________________________
Name:
Title:
_______________________________________
[NAME]
Address of the Stockholder for Notices:
_______________________________
_______________________________
_______________________________
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<PAGE> 26
Attachment A
(to Stockholder
Agreement)
SUBORDINATION PROVISIONS TO BE INCLUDED
(attached)
<PAGE> 27
SUBORDINATION PROVISIONS TO BE INCLUDED
IN PROMISSORY NOTES ISSUABLE PURSUANT
TO SECTION 6(d) OF THE STOCKHOLDER AGREEMENT
1. This note is subordinate and junior in right of payment, as
provided below, to all indebtedness other than trade debt of the Company
including, but not limited to, principal, interest, fees, penalties,
indemnities, "post-petition" interest in bankruptcy (whether or not allowed by
law) of the Company, letters of credit, interest rate caps and collars and the
like, and any and all renewals, extensions, restatements or refinancings
thereof, to any lender which is a bank, insurance company, financing
institution, finance company or other institutional lender (all such lenders
together with any other holder of Superior Indebtedness (as defined below),
hereinafter called the "Lenders"), whether now existing or hereafter created,
and the direct or contingent obligations of the Company to any lender who
provides the Company with a revolving credit and/or term debt facility (all of
said indebtedness hereinafter called "Superior Indebtedness").
2. (a) The payment of all amounts (including principal,
interest, fees, penalties and indemnities) owing in respect of this note are
hereby expressly subordinated, to the extent and in the manner hereinafter set
forth, to the prior payment in full of all Superior Indebtedness. The provisions
of this section 2 shall constitute a continuing offer to all persons who, in
reliance upon such provisions, become holders of, or continue to hold, Superior
Indebtedness, and such provisions are made for the benefit of the holders of
Superior Indebtedness, and such holders are hereby made obligees hereunder the
same as if their names were written herein as such, and they and/or each of them
may proceed to enforce such provisions.
(b) Upon the maturity of any Superior Indebtedness, whether
at stated maturity, by acceleration or otherwise, all amounts owing in respect
thereof shall first be paid in full, or such payment duly provided for in cash
or in a manner satisfactory to the holder or holders of such Superior
Indebtedness, before any payment is made on account of the principal of, or
interest on, or any amount otherwise owing in respect of, this note.
(c) Upon the happening of any default or event of default
under the documents evidencing the Superior Indebtedness, unless and until such
default shall have been cured or waived in writing, no payment shall be made
with respect to this note.
(d) In the event that, notwithstanding the preceding
provisions, the Company shall make any payment on account of the principal of,
or interest on, or amounts otherwise owing in respect of, this note, at a time
when payment is not permitted by said provisions, such payment shall be held by
the Payee in trust for the benefit of, and shall be paid forthwith over and
delivered to, the holders of Superior Indebtedness or their representative or
representatives under the agreements pursuant to which the Superior Indebtedness
may have
<PAGE> 28
been issued, as their respective interests may appear, for application pro rata
to the payment of all Superior Indebtedness remaining unpaid to the extent
necessary to pay all Superior Indebtedness in full in accordance with terms of
such Superior Indebtedness, after giving effect to any concurrent payment or
distribution to or for the holders of Superior Indebtedness.
(e) Upon any distribution of assets of the Company
upon any dissolution, winding up or liquidation of the Company (whether in
bankruptcy, insolvency or receivership proceedings or upon an assignment for the
benefit of creditors or otherwise):
(i) the holders of all Superior Indebtedness
shall first be entitled to receive payment in full of all amounts due thereon in
cash before the Payee is entitled to receive any payment on account of the
principal of, or interest on, or any other amount owing in respect of, this
note;
(ii) any payment or distribution of assets
of the Company of any kind or character, whether in cash, property or
securities, to which the Payee would be entitled except for the provisions
hereof, shall be paid by the liquidating trustee or agent or other person making
such payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or other trustee or agent, directly to the holders of
Superior Indebtedness or their representative or representatives under the
agreements pursuant to which the Superior Indebtedness may have been issued, to
the extent necessary to make payment in full in cash of all Superior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Superior Indebtedness; and
(iii) in the event that, notwithstanding the
foregoing provisions, any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, shall be
received by the Payee on account of principal of, or interest on, or other
amounts due on, this note before all Superior Indebtedness is paid in cash in
full, such payment or distribution shall be received and held in trust for and
shall be paid over to the holders of the Superior Indebtedness remaining unpaid
or unprovided for or their representative or representatives under the
agreements pursuant to which the Superior Indebtedness may have been issued, for
application to the payment of such Superior Indebtedness until all such Superior
Indebtedness shall have been paid in full in cash, after giving effect to any
concurrent payment or distribution to the holders of such Superior Indebtedness.
Without in any way modifying the provisions hereof or
affecting the subordination effected hereby if such notice is not given, the
Company shall give prompt written notice to the Payee of any dissolution,
winding up, liquidation or reorganization of the Company (whether in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit of
creditors or otherwise).
(f) Subject to the prior payment in full of all Superior
Indebtedness, the Payee shall be subrogated to the rights of the holders of
Superior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Superior Indebtedness
-2-
<PAGE> 29
until all amounts owing on this note shall be paid in full, and for the purpose
of such subrogation no payments or distributions to the holders of the Superior
Indebtedness by or on behalf of the Company or by or on behalf of the Payee by
virtue of the provisions hereof which otherwise would have been made to the
Payee shall, as between the Company, its creditors other than the holders of
Superior Indebtedness, and the Payee, be deemed to be payment by the Company to
or on account of the Superior Indebtedness, it being understood that the
provisions hereof are, and are intended solely for the purpose of, defining the
relative rights of the Payee, on the one hand, and the holders of the Superior
Indebtedness, on the other hand.
(g) Nothing contained in this section 2 is intended to or
shall impair, as between the Company and the Payee, the obligation of the
Company to pay to the Payee the principal of and interest on this note as and
when the same shall become due and payable in accordance with its terms, or is
intended to or shall affect the relative rights of the Payee and creditors of
the Company other than the holders of the Superior Indebtedness, nor except as
provided herein shall anything herein prevent the Payee from exercising all
remedies otherwise permitted by applicable law, subject to the rights, if any,
under the provisions hereof of the holders of Superior Indebtedness in respect
of cash, property, or securities of the Company received upon the exercise of
any such remedy. Upon any distribution of assets of the Company referred to in
the provisions hereof, the Payee shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending or a
certificate of the liquidating trustee or agent or other person making any
distribution to the Payee, for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of the Superior Indebtedness
and other indebtedness of the Company, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to the provisions hereof.
(h) No right of any present or future holders of any Superior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act in good faith by any such holders,
or by any noncompliance by the Company with the terms and provisions of this
note, regardless of any knowledge thereof with which any such holders may have
or be otherwise charged. The holders of the Superior Indebtedness may, without
in any way affecting the obligations of the Payee with respect thereto, at any
time or from time to time in their absolute discretion, change the manner, place
or terms of payment of, change or extend the time of payment of, or renew,
replace or alter, any Superior Indebtedness, or amend, modify or supplement any
agreement or instrument governing or evidencing such Superior Indebtedness or
any other document referred to therein, or exercise or refrain from exercising
any other of their rights under the Superior Indebtedness, including, without
limitation, the waiver of default thereunder and the release of any collateral
securing such Superior Indebtedness, all without notice to or assent from the
Payee.
(i) Without in any way modifying the provisions of this
section 2 or affecting the subordination effected hereby if such notice is not
given (other than section 2
-3-
<PAGE> 30
(d)), the Company shall give the Payee prompt written notice of any maturity or
event of default of Superior Indebtedness after which such Superior Indebtedness
remains unsatisfied.
(j) In case any one or more Events of Default shall
occur and be continuing, the Payee, subject to the subordination provisions of
this note (including without limitation, sections 1 and 2), may proceed to
protect and enforce his, her or its rights by an action at law, suit in equity
or other appropriate proceeding.
(k) The holder of this note acknowledges and agrees
that the Lenders have relied upon and will continue to rely upon, and are
third-party beneficiaries of, the subordination provisions set forth herein in
purchasing the debt and other securities of the Company and in making loans and
otherwise extending credit to the Company and any subsidiary or successor
thereto.
(l) The Lenders shall not be prejudiced in their
right to enforce the subordination provisions contained herein in accordance
with the terms hereof by any act or failure to act on the part of the Company,
except as provided in section 2 (d)(ii).
(m) The subordination provisions contained herein are
for the benefit of the Lenders and may not be rescinded, canceled, amended or
modified in any way without the prior written consent thereto of such Lenders as
shall then be holding Superior Indebtedness.
(n) Notwithstanding any inconsistent term of this
note, no holder of this note shall, prior to the Maturity Date, unless the
holder hereof is entitled to accelerate the indebtedness hereunder, have any
right to institute any proceeding to enforce any indebtedness evidenced by this
note or to institute any bankruptcy, insolvency, reorganization or similar
proceeding with respect to the Company.
-4-
<PAGE> 31
EXHIBIT B
(to Stock Option
Agreement)
INVESTOR REPRESENTATION STATEMENT
(attached)
<PAGE> 32
INVESTOR REPRESENTATION STATEMENT
PURCHASER: [NAME]
SELLER: Renaissance Cosmetics, Inc.
COMPANY: Renaissance Cosmetics, Inc.
SECURITY: ______ Shares of Common Stock
DATE: _________ ___, 1996
In connection with the purchase of the above-listed Securities, I, the
Purchaser, represent to the Company, the following:
(a) I am aware of the Company's business affairs and
financial condition, and have acquired all such information about the Company as
I deem necessary and appropriate to enable me to reach an informed and
knowledgeable decision to acquire the Securities. I am purchasing these
Securities for my own account for investment and not with a view to, or for the
resale in connection with, any "distribution" thereof for purposes of the
Securities Act of 1933 ("Securities Act").
(b) I understand that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of my investment intent as expressed herein.
(c) I further understand that the Securities may not
be sold publicly and must be held indefinitely unless they are subsequently
registered under the Securities Act or unless an exemption from registration is
available. I am able, without impairing my financial condition, to hold the
Securities for an indefinite period of time and to suffer a complete loss on my
investment. I understand that the Company is under no obligation to register the
Securities. In addition, I understand that (i) any subsequent resale or
distribution of the Securities will be made only pursuant to a registration
statement under the Securities Act of 1933 or an exemption from the registration
requirements of that act and that in claiming the applicability of any such
exemption, I shall, prior to any offer or sale of the Securities, provide the
Company with a favorable written opinion of counsel, in form and substance
satisfactory to the Company, as to the applicability of the exemption and (ii)
the certificate evidencing the Securities will be imprinted with a legend
referring to such restriction on transfer.
(d) I am familiar with the provisions of Rule 144,
promulgated under the Securities Act, which, in substance, permits limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of the issuer), in a non-public
offering subject to the satisfaction of certain conditions, including, among
other things: (1) the availability of certain public information about the
Company; (2) the resale
<PAGE> 33
occurring not less than two years after the party has purchased, and made full
payment for, within the meaning of Rule 144, the securities to be sold; and, in
the case of an affiliate, or of a non-affiliate who has held the securities less
than three years, the sale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934) and the amount of
securities being sold during any three-month period not exceeding the specified
limitations stated therein, if applicable.
(e) I further understand that at the time I wish to
sell the Securities there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, I would be precluded from selling the Securities under Rule 144 even
if the two-year minimum holding period had been satisfied. I understand that the
Company is under no obligation to make Rule 144 available.
(f) I further understand that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration under the
Securities Act, or some other registration exemption, will be required; and
that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of the
Securities and Exchange Commission has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rule 144 will have a substantial burden
of proof in establishing that an exemption from registration is available for
such offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk.
(g) I further understand that in addition to the
restrictions set forth above the transfer of the Securities is restricted under
the terms of my option agreement with the Company and the terms of a stockholder
agreement I am entering into with the Company and such other agreements that I
may be required to execute pursuant to those agreements and may not be
transferred without complying with the provisions of the Company's 1994 Stock
Option Plan or such other agreements.
Signature of Purchaser: [NAME]
_________________________________
Date: ___________ ____, 1996
-2-
<PAGE> 34
EXHIBIT C
(to Stock Option
Agreement)
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
(attached)
<PAGE> 35
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
Dated __________________, 1996
The parties to this agreement are Renaissance Cosmetics, Inc.,
a Delaware corporation (the "Company"), and [NAME] (the "Optionee").
The Company is engaged in the business of manufacturing and
marketing fragrance products and artificial fingernails and related nail care
products on both a domestic and international basis (the "Business"). The
Optionee is an employee and/or a director of the Company. The Optionee and the
Company are entering into a stock option agreement, dated _______________ ____,
1996, (the "Stock Option Agreement"), pursuant to which the Optionee is being
granted an option (the "Option") to purchase shares of the Company's common
stock, par value $.01 per share.
As a condition to the grant of the Option, the Company is
requiring the Optionee to agree not to engage in certain types of activities
that the parties agree would be competitive with or harmful to the Business on
the terms set forth below.
It is therefore agreed as follows:
1. Confidentiality. The Optionee shall not at any time,
divulge to any person, firm or corporation any confidential, proprietary or
privileged information received by him during the course of his association with
the Company, whether before or after the date hereof, with regard to the
financial, business, operations, method of business, customer and supplier
information, independent contractor information, know-how, procedures or other
confidential information regarding the affairs of the Company, or any of its
officers, directors, stockholders, subsidiaries, affiliates, customers or
suppliers, and all of the foregoing shall be kept confidential and shall not be
revealed to anyone except as may be otherwise required by law.
2. Non-Solicitation. The Optionee shall not, at any time
during or within three years after the date of this agreement, solicit, employ
or otherwise interfere with the Company's relationship with any customer,
supplier or employee of the Company.
3. Non-Competition. The Optionee shall not, at any time while
he is an employee or a director with the Company and for a period of three years
thereafter, directly or indirectly (i) acquire or own in any manner, any
interest in any person, firm, corporation or other entity of any kind
(collectively a "Person") which is engaged in any facet of the Business in the
continental United States, (ii) engage, through or in connection with any
Person, in any facet of the Business or compete in any way with the Business
within the continental United States, or (iii) be employed in any capacity by,
serve as an employee, agent or officer or director of, serve as a consultant or
advisor to, or otherwise participate in the management or operation of, any
Person which (x) engages in any facet of the Business or (y) competes with the
Business in any way; except that the Optionee shall have the right to make
passive
<PAGE> 36
investments in (i) public companies, and (ii) investments not related to
the business of the Company.
4. Enforceability. The Optionee acknowledges that this
agreement is being entered into as a condition precedent to the Company's grant
of the Option and that the covenants contained in section 1, section 2 and
section 3 of this agreement are an essential part of the consideration bargained
for by the Company in connection with the Option. The Optionee acknowledges that
the Option would not be granted by the Company without the benefit of the
foregoing covenants by the Optionee. The Optionee acknowledges that he has
consulted with counsel concerning the terms of this agreement, including, but
not limited to, section 1, section 2 and section 3, and that the provisions of
this agreement are fair and reasonable and enforceable. Accordingly, the
Optionee agrees to be bound by the provisions hereof to the maximum extent
permitted by law, it being the intent and spirit of the parties that the
foregoing shall be fully enforceable. However, the parties further agree that,
if any of the provisions hereof shall for any reason be held to be excessively
broad as to duration, geographical scope, property or subject matter, it shall
be construed by limiting and reducing it so as to be enforceable to the extent
compatible with the applicable law as it shall herein pertain.
5. Amendment and Modification. This agreement may not be
amended, modified or changed except in a writing signed by the party against
whom such amendment, modification or the like is sought to be enforced.
6. 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 6.
7. Notices. All notices, instructions and other communications
in connection with this Agreement shall be in writing and may be given by
personal delivery or mailed, certified mail, return receipt requested, postage
prepaid or by a nationally recognized overnight courier to the parties at the
address of the Company as follows, and at the address
-2-
<PAGE> 37
of the Optionee as set forth on the signature page to this agreement (or at such
other address as the Company or the Optionee may specify in a notice to the
Company):
If to the Company, to: Dr. Thomas V. Bonoma
President and Chief Executive Officer
Renaissance Cosmetics, Inc.
955 Massachusetts Avenue
Cambridge, Massachusetts 02139
and
Dr. Thomas V. Bonoma
President and Chief Executive Officer
Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, New York 10022
With a copy to: Edward R. Mandell, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036-8735
Notices (i) when actually delivered personally, (ii) the next business day if
sent by overnight courier (with proof of delivery) and (iii) on the fifth day
after mailing by certified mail shall be deemed to have been given.
8. Assignment. This agreement shall be binding upon and inure
to the benefit of the Optionee and his heirs and legal representatives and the
Company and its successors and assigns. Successors of the Company shall include,
without limitation, any person acquiring, directly or indirectly, all or
substantially all of the assets of the Company, whether by merger,
consolidation, purchase, lease or otherwise, and such successor shall thereafter
be deemed "the Company" for the purposes hereof.
9. Governing Law. This agreement shall be governed by the laws
of the state of Delaware applicable to agreements made and to be performed
entirely in Delaware.
10. Entire Agreement. This agreement embodies the entire
agreement and understanding of the parties hereto with respect to the subject
hereof. There are no restrictions, promises, representations, warranties,
covenants or undertakings other than
-3-
<PAGE> 38
those expressly set forth or referred to herein. This agreement supersedes all
prior agreements and understandings between the parties with respect to such
transactions.
RENAISSANCE COSMETICS, INC.
By:____________________________________
Name:
Title:
Agreed to as of _______________, 1996
________________________________________
[NAME]
Address of Optionee for notices:
________________________________________
________________________________________
________________________________________
-4-
<PAGE> 1
EXHIBIT 10.53
LEASE
BETWEEN
BONANNO REAL ESTATE GROUP II, L.P., Landlord
- and -
PARFUMS PARQUET, INC., Tenant
Dated: February 10, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DESCRIPTION ..................................................... 1
2. TERM ............................................................ 1
3. BASIC RENT ...................................................... 1
4. USE ............................................................. 2
5. CARE AND REPAIR OF PREMISES/ENVIRONMENTAL ....................... 2
6. ALTERATIONS, ADDITIONS OR IMPROVEMENTS .......................... 4
7. ACTIVITIES INCREASING FIRE INSURANCE ............................ 5
8. ASSIGNMENT AND SUBLEASE ......................................... 5
9. COMPLIANCE WITH RULES AND REGULATIONS ........................... 5
10. WAIVERS OF SUBROGATION AND CLAIM ................................ 5
11. NO WAIVER OF COVENANTS OR CONDITIONS ............................ 6
12. DEFAULTS, REMEDIES .............................................. 6
13. LIENS ........................................................... 8
14. TENANT'S INSURANCE .............................................. 9
15. SECURITY DEPOSIT ................................................ 10
16. NOTICES ......................................................... 10
17. RIGHT TO INSPECT AND REPAIR ..................................... 11
18. CONDITIONS OF LANDLORD'S LIABILITY .............................. 11
19. RIGHT TO SHOW PREMISES .......................................... 11
20. NO OTHER REPRESENTATIONS ........................................ 11
21. QUIET ENJOYMENT ................................................. 11
22. SERVICES TO BE PROVIDED BY LANDLORD ............................. 11
23. ELECTRICITY ..................................................... 11
24. ADDITIONAL RENT ................................................. 12
(A) Operating Cost Escalation .................................. 13
(B) Fuel, Utilities and Electric Cost Escalation ............... 13
(C) Tax Escalation ............................................. 14
(D) Lease Year ................................................. 15
(E) Payment .................................................... 15
(F) Books and Records .......................................... 16
(G) Right of Review ............................................ 16
25. PARKING SPACES .................................................. 16
26. DEFINITIONS ..................................................... 17
(A) Proportionate Share ........................................ 17
(B) Common Facilities .......................................... 17
(C) Additional Rent ............................................ 17
(D) Commencement Date .......................................... 17
27. WAIVER OF TRIAL BY JURY ......................................... 17
28. LATE CHARGE ..................................................... 17
29. SECTION HEADINGS ................................................ 18
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
30. APPLICABILITY TO HEIRS AND ASSIGNS .............................. 18
31. LANDLORD'S EXCULPATION .......................................... 18
32. PERSONAL LIABILITY .............................................. 18
33. NO OPTION ....................................................... 18
34. BROKER .......................................................... 19
35. SIGNAGE ......................................................... 19
36. EARLY ENTRY ..................................................... 19
37. CASUALTY ........................................................ 19
38. CONDEMNATION .................................................... 20
</TABLE>
ii
<PAGE> 4
LEASE, made the ______ day of February 1995, between BONANNO REAL
ESTATE GROUP II, L.P., a New Jersey limited partnership, whose address is c/o
Tryon Management, 107 West Tryon Avenue, Teaneck, New Jersey 07666 (hereinafter
called "Landlord"); and PARFUMS PARQUET, INC., a Delaware corporation, with
offices at Three Pickwick Plaza, Greenwich, Connecticut 06830 (hereinafter
called "Tenant").
1. DESCRIPTION. Landlord hereby leases to Tenant and Tenant
hereby hires from Landlord the premises designated as Units C and E consisting
of approximately 15,188 gross square feet (hereinafter the "Premises" or
"Demised Premises") as described on Exhibit A which forms a portion of the
building (hereinafter "Building") containing approximately 70,875 square feet
which is situated on the parcel of land located at 734 Grand Avenue, in the
Borough of Ridgefield, State of New Jersey as more particularly described on
Exhibit B (hereinafter the "Building Area"). Tenant acknowledges and agrees
that its use of the Demised Premises is made subject to and together with a
non-exclusive easement for ingress and egress along the southerly side of the
Building for vehicular and pedestrian access to the rear of the Building as
described on Exhibit B. Tenant shall also have the exclusive right to use the
"Employee Parking and Trucking Area" described on Exhibit A. Tenant
acknowledges that it has inspected the Premises and is fully familiar with its
condition and is leasing the same in an "AS IS" condition, broom clean, except
that Landlord, at its sole cost and expense shall perform the work described on
Exhibit C (hereinafter "Landlord's Work").
2. TERM. The term of this Lease and the demise of the Premises
shall be for two (2) years beginning, subject to completion of Landlord's Work
on March 1, 1995 and ending at 11:59 p.m. on February 28, 1997 (hereinafter
called the "Term"). Notwithstanding anything contained herein to the contrary,
if Landlord, for any reason whatsoever including Landlord's negligence, cannot
deliver possession of the Demised Premises to Tenant on March 1, 1995, this
Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for
any loss or damage resulting therefrom, but in that event, the Term shall be
for the full two (2) year Term to commence from and after the date Landlord
shall have delivered possession of the Demised Premises to Tenant, and, if
requested by Landlord or Tenant, Landlord and Tenant shall, by a writing signed
by the parties, ratify and confirm said commencement and termination dates.
3. BASIC RENT. The Tenant shall pay to the Landlord during the
Term basic rent in the amount of Two Hundred Four Thousand Six Hundred and
00/100 ($204,600.00) Dollars (hereinafter referred to as "Term Basic Rent")
payable in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts.
The Term Basic Rent shall accrue at an annual rate of One Hundred Two Thousand
Three Hundred and 00/100 ($102,300.00) Dollars ("Annual Basic Rent") and shall
be payable in advance on the first day of each calendar month during the Term
in monthly installments of Eight Thousand Five Hundred Twenty-five and 00/100
($8,525.00) Dollars (hereinafter referred to as "Monthly Basic Rent") each,
except that a proportionately lesser sum may be paid for the first and last
months of the Term of this Lease if the Term commences on a date other than the
first day of the month, in accordance with the provisions of this Lease herein
set forth. Landlord acknowledges receipt from Tenant of the sum of Eight
Thousand Five Hundred Twenty-five and 00/100 ($8,525.00) Dollars by check,
subject to collection, for Monthly Basic Rent, which sum represents payment for
the month of March 1995. Tenant shall pay Basic Rent, and any Additional Rent
as hereinafter provided, to Landlord, at Landlord's above stated
1
<PAGE> 5
address, or to such other agent as Landlord may designate in writing, without
demand and without counterclaim, deduction or setoff. As used in this Lease,
Basic Rent shall mean either Term Basic Rent, Annual Basic Rent or Monthly
Basic Rent as appropriate.
4. USE. The Demised Premises may be used for warehousing,
distribution and sales of cosmetics and perfumes. Notwithstanding anything to
the contrary, the Landlord makes no representation that the Demised Premises
may be used for those purposes set forth in this Section 4. Tenant, at its
sole cost and expense, shall be responsible for obtaining any and all
certificates and/or permits sanctioning Tenant's use from any governmental
agencies having jurisdiction over the Demised Premises. The Tenant shall not
use or permit to be used the Demised Premises or any part thereof for any
purpose other than the aforementioned. In no event shall Tenant store any
products, materials, machinery, equipment or inventory or perform any
activities outside of the Building.
5. CARE AND REPAIR OF PREMISES/ENVIRONMENTAL. Tenant shall keep the
Premises in good condition and repair and shall take such action as is
necessary to keep them in good condition, repair and appearance. The Tenant
shall keep the Demised Premises and all parts thereof in a clean and sanitary
condition and free from trash, inflammable material and other objectionable
matter. Throughout the Term of this Lease, Tenant shall, at its sole cost and
expense, take good care of the Demised Premises including by way of example but
not limitation, performing all necessary repairs to the toilets, sinks,
windows, heating, ventilating and air conditioning system ("HVAC"), plumbing
system, electrical system, sprinkler system and unit heaters contained in the
Demised Premises; and will keep the same in good order and condition throughout
the term of the Lease and make all necessary repairs thereto. Tenant shall, in
the particular manner of use of the Premises, comply with all laws, orders and
regulations of the federal, state and municipal governments or any of their
departments affecting the Premises and with any and all environmental
requirements resulting from the Tenant's particular use of the Premises; this
covenant to survive the expiration or sooner termination of the Lease. If any
repairs, alterations or improvements are necessary to comply with the aforesaid
governmental rules, regulations and requirements and said alterations or
improvements are (i) not required as a result of Tenant's particular manner or
use or (ii) require structural alterations, changes, repairs or improvements,
then Landlord shall make said alteration, change, repair or improvement and the
cost thereof shall be included as an Operating Cost to the extent permitted
pursuant to Section 24(A). The term "particular manner of use" as used in this
Section 24(A). The term "particular manner of use" as used in this Section
shall mean the manner in which Tenant uses the Premises as distinguished from
the mere use by the Tenant of the Premises for general distribution, sales and
offices related thereto. All improvements made by Tenant to the Premises,
which are so attached to the Premises that they cannot be removed without
material injury to the Premises, shall become the property of Landlord upon
installation. Not later than the last day of the Term, Tenant shall, at
Tenant's expenses, remove all Tenant's personal property and those improvements
made by Tenant which have not become the property of Landlord, including trade
fixtures, equipment, cabinetwork, movable paneling, partitions and the like;
repair all injury done by or in connection with the installation or removal of
said property and improvements; and surrender the Premises in as good
condition as they were at the beginning of the Term, reasonable wear and damage
by fire, the elements, casualty, or other cause not due to the misuse or
neglect by Tenant, Tenant's agents, servants, visitors or licensees excepted.
All other property of Tenant remaining on the Premises after the last day of
the Term of this
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Lease shall be conclusively deemed abandoned and may be removed by Landlord,
and Tenant shall reimburse Landlord for the reasonable cost of such removal.
Landlord may have any such property stored at Tenant's risk and reasonable
expense. As used herein, the term "repairs" shall include all necessary
replacements and renewals.
In case the Tenant shall fair or neglect at any time to make any of the
repairs or replacements hereinabove agreed to be made by it and shall continue
such failure or neglect after thirty (30) days' notice in writing thereof from
the Landlord, unless the critical nature of the repair requires immediate
attention in which event the repair or replacement shall be made within
twenty-four (24) hours after such written notice (containing a statement
regarding such critical nature), then the Landlord or its agents, at the option
of the Landlord, may enter the Demised Premises and make such repairs or
replacements at the reasonable cost and expense of the Tenant and in case of
the Tenant's failure to pay therefor, the same cost and expense may be added to
the next installment of Monthly Basic Rent and be due and payable as such.
The Tenant shall obtain and keep in full force and effect during the
Term of this Lease, at its own cost and expense, a maintenance contract on
the HVAC.
Tenant acknowledges the existence of environmental laws, rules and
regulations, including but not limited to the provisions of ISRA, as
hereinafter defined. Tenant shall comply with any and all such laws, rules and
regulations. Tenant represents to Landlord that Tenant's Standard Industrial
Classification (SIC) Number as designated in the Standard Industrial
Classifications Manual prepared by the Office of Management and Budget in the
Executive Office of the President of the United States will not subject the
Premises to ISRA applicability. Any change by Tenant to an operation with a SIC
Number subject to ISRA shall require Landlord's written consent. Any such
proposed change shall be sent in writing to Landlord sixty (60) days prior to
the proposed change. Landlord, at its sole option, may deny consent.
Tenant hereby agrees to execute such documents as Landlord reasonably
deems necessary and to make such applications as Landlord reasonably requires to
assure compliance with ISRA. In the event that ISRA compliance becomes
necessary due to any action or inaction on the part of Landlord, including by
way or example, but not limitation, a sale of the Building, a change in
ownership, initiation of bankruptcy proceedings, or Landlord's financial
reorganization, the Landlord shall be responsible for the making of all
necessary applications and payment of all application fees related thereto. In
all other cases, prior to the expiration or sooner termination of the Lease, in
connection with closing, terminating or transferring of operations, Tenant
shall bear all costs and expenses incurred by Landlord associated with any
required ISRA compliance resulting from Tenant's use of the Demised Premises
including but not limited to state agency fees, reasonable engineering fees,
clean-up costs, filing fees and suretyship expenses. As used in this Lease,
ISRA compliance shall include applications for determinations of
nonapplicability by the appropriate governmental authority. The foregoing
undertaking shall survive the termination or sooner expiration of the Lease and
surrender of the Demised Premises and shall also survive sale, or lease or
assignment of the Demised Premises by Landlord. Tenant agrees to indemnify and
hold Landlord harmless from any violation of ISRA occasioned by Tenant's use of
the Demised Premises. The Tenant shall immediately provide the Landlord with
copies of all correspondence, reports, notices, orders, findings, declarations
and other materials pertinent to
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the Tenant's compliance and the requirements of the New Jersey Department of
Environmental Protection ("NJDEP") under ISRA as they are issued or received by
the Tenant.
Tenant agrees not to generate, store, manufacture, refine, transport,
treat, dispose of, or otherwise permit to be present on or about the Premises,
any Hazardous Substances. As used herein, Hazardous Substances shall be
defined as any "hazardous chemical," "hazardous substance" or similar term as
defined in the Comprehensive Environmental Responsibility Compensation and
Liability Act, as amended (42 U.S.C 9601, et seq.), the New Jersey
Environmental Cleanup Responsibility Act, as amended, N.J.S.A. 13:1K-6 et seq.
and/or the Industrial Site Recovery Act ("ISRA"), the New Jersey Spill
Compensation and Control Act, as amended, N.J.S.A. 58:10-23.11b, et seq., any
rules or regulations promulgated thereunder, or in any other applicable federal,
state or local law, rule or regulation dealing with environmental protection.
It is understood and agreed that the provisions contained in this Section shall
be applicable notwithstanding the fact that any substance shall not be deemed
to be a Hazardous Substance at the time of its use by the Tenant but shall
thereafter be deemed to be a Hazardous Substance. Notwithstanding anything
contained herein to the contrary, Landlord acknowledges that perfume is
classified as a Hazardous Substance. Regardless, Tenant may store perfume
products and di minimus quantities of Hazardous Substances in the Premises
provided the storage and disposal thereof is performed in the manner required
by applicable laws, rules and regulations.
Tenant agrees to indemnify and hold harmless the Landlord and each
mortgagee of the Premises from and against any and all liabilities, damages,
claims, losses, judgments, causes of action, costs and expenses (including the
reasonable fees and expenses of counsel) which may be incurred by the Landlord
or any such mortgagee or threatened against the Landlord or such mortgagee,
relating to or arising out of any breach by Tenant of the undertakings set
forth in this Section, said indemnity to survive the Lease expiration or sooner
termination.
6. ALTERATIONS, ADDITIONS OR IMPROVEMENTS. Tenant shall not,
without first obtaining the written consent of Landlord, make any alterations,
additions or improvements in, to or about the Premises. Notwithstanding the
foregoing, Tenant shall have the right, upon prior written notice to Landlord
but without having to obtain the written consent of the Landlord, to make
alterations, additions or improvements to the Premises, except where;
(a) The structure of the Building (which
shall include, but not be limited to, footings,
foundation walls, exterior bearing and non-bearing
walls, structural steel framework, floor slab,
roofing, framework consisting of barjoists, girders
and purlins, and load-bearing interior masonry
partitions) are affected;
(b) the mechanical, plumbing, sprinkler
and electrical systems are affected; or
(c) the cost of such alterations, additions,
or improvements would exceed Five Thousand and
00/100 ($5,000.00) Dollars on an annual basis in
the aggregate.
If so requested by the Landlord, the Tenant will remove all
improvements made by it under this Lease prior to the expiration of the Term
and leave the Demised Premises in such
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condition as it was at the commencement of the Term of this Lease, reasonable
wear and tear excepted. In the event the Tenant so fails to remove such
improvements, the Landlord may do so and collect from the Tenant, as Additional
Rent, its costs and expense of doing so. All erections, alterations, additions
and improvements, whether temporary or permanent in character, which may be made
upon or to the Demised Premises either by the Landlord or the Tenant, except
furniture or movable trade fixtures installed at the expense of the Tenant,
shall be the property of the Landlord and shall remain upon and be surrendered
with the Demised Premises as a part thereof at the termination of this Lease,
without compensation to the Tenant. All furniture, movable trade fixtures and
personalty of the Tenant remaining in the Demised Premises after the expiration
of the Term shall be deemed abandoned and may be removed by Landlord who may
collect from the Tenant, as Additional Rent, its costs and expenses of so
removing. Any alterations made by Tenant shall be conditioned upon Tenant, at
its sole cost and expense (i) supplying plans and specifications for the work to
Landlord including "as built" plans once completed, (ii) obtaining all necessary
governmental approvals for the performance of the work and (iii) completing the
work in a manner using materials consistent with the character and integrity of
the Building. This Section 6 to survive the expiration or sooner termination of
the Lease.
7. ACTIVITIES INCREASING FIRE INSURANCE. Tenant shall not do or
suffer anything to be done on the Premises which will increase the rate of fire
insurance on the Building. Landlord represents that Tenant's use of the Premises
as set forth in Section 4 of this Lease will not invalidate or be in conflict
with public liability, fire or other policies of insurance carried by Landlord
and will not increase the current rate for fire insurance on the Building.
8. ASSIGNMENT AND SUBLEASE. Tenant may not assign or sublease the
within Lease to any party without the prior written consent of the Landlord.
Landlord's consent shall not be required for (i) the assignment of this Lease or
the subletting of the Premises, or any part thereof, to any parent corporation
wholly-owing Tenant or any wholly-owned subsidiary of Tenant or Tenant's parent
corporation, or (ii) the assignment of this Lease to a corporation or other
entity acquiring all or substantially all of the assets of Tenant, together with
all or substantially all of the capital stock of Tenant, provided Tenant
notifies Landlord prior to such transfer and provides Landlord with such
reasonable documentation requested by Landlord to substantiate the relationship
between Tenant and such assignee.
9. COMPLIANCE WITH RULES AND REGULATIONS. Tenant shall observe and
comply with the rules and regulations as Landlord my prescribe, on written
notice to Tenant, for the safety, care and cleanliness of the Building. Such
rules and regulations shall be non-discriminatory among the tenants and
occupants of the Building and shall be uniformly enforced. Tenant shall not
place a load upon any floor of the Demised Premises exceeding the floor load per
square foot area which it was designed to carry and which is allowed by law.
10. WAIVERS OF SUBROGATION AND CLAIM. In the event of any loss or
damage to the Building, the Premises and/or any contents (herein "property
damage"), each party waives all claims against the other for any such loss or
damage and each party shall look only to any insurance which it has obtained to
protect against such loss and each party shall obtain, for each policy of such
insurance, provisions waiving any claim against the other party for loss or
damage within the scope of such insurance.
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11. NO WAIVER OF COVENANTS OR CONDITIONS. The failure of either
party to insist on strict performance of any covenant or condition hereof, or to
exercise any option herein contained, shall not be construed as a waiver of such
covenant or condition or option in any other instance. This Lease cannot be
changed or terminated orally.
12. DEFAULTS, REMEDIES. If, during the Term, any one or more of
the following acts or occurrences (any one of such occurrences or acts
continuing beyond any applicable notice, grace and/or cure period being
hereinafter called an Event of Default) shall happen and shall continue beyond
any applicable notice, grace and/or cure period:
(A) The Tenant shall default in making any payment of Term
Basic Rent or any additional rent as and when the same shall become due
and payable, and such default shall continue for a period of ten (10)
days after notice from the Landlord that such payment is due and unpaid;
or
(B) The Tenant shall default in the performance of or
compliance with any of the other covenants, agreements, terms or
conditions of this Lease to be performed by the Tenant (other than any
default curable by payment of money), and such default shall continue
for a period of twenty (20) days after written notice thereof from the
Landlord to the Tenant, or, in the case of a default which cannot with
due diligence be cured within twenty (20) days, the tenant shall fail to
proceed promptly (except for unavoidable delays) after the giving of
such notice and with all due diligence to cure such default and
thereafter to prosecute the curing hereof with all due diligence (it
being intended that as to a default not susceptible of being cured with
due diligence within twenty (20) days, the time within which such
default may be cured shall be extended for such period as may be
reasonably necessary to permit the same to be cured with all due
diligence); or
(C) The Tenant or any guarantor of this Lease shall file a
voluntary petition in bankruptcy or shall be adjudicated a bankrupt or
insolvent, or shall file any petition or answer seeking any
reorganization, composition, readjustment or similar relief under any
present or future bankruptcy or other applicable law, or shall seek or
consent to or acquiesce in the appointment of any trustee, receiver, or
liquidator of the Tenant or any guarantor of this Lease or of all or any
substantial part of its properties or of all or any part of the
Premises; or
(D) If, within sixty (60) days after the filing of an
involuntary petition in bankruptcy against the Tenant or any guarantor
of this Lease, or the commencement of any proceeding against the Tenant
or such guarantor seeking any reorganization, composition, readjustment
or similar relief under any law, such proceeding shall not have been
dismissed, or if, within sixty (60) days after the appointment, without
the consent or acquiescence of the Tenant or such guarantor, of any
trustee, receiver or liquidator of the Tenant or such guarantor, or of
all or any part of the Premises, such appointment shall not have been
vacated or stayed on appeal or otherwise, or if, within sixty (60) days
after the expiration of any such stay, such appointment shall have been
vacated, or if, within
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sixty (60) days after the taking possession, without the consent or
acquiescence of the Tenant or such guarantor, of the property of the
Tenant, or of such guarantor by any governmental office or agency
pursuant to statutory authority for the dissolution or liquidation of
the Tenant or such guarantor, such taking shall not have been vacated or
stayed on appeal or otherwise; or
(E) If the Premises shall be abandoned by the Tenant for a
period of thirty (30) consecutive days,
then, and in any such Event of Default (except for any Event of Default set
forth in Section 12(A) above), and during the continuance thereof, the Landlord
may, at its option, then or thereafter while any such Event of Default shall
continue and notwithstanding the fact that the Landlord may have any other
remedy hereunder or at law or in equity, by notice to the Tenant, designate a
date, not less than ten (10) days after the giving of such notice, on which this
Lease shall terminate; and thereupon, on such date the Term of this Lease and
the estate hereby granted shall expire and terminate upon the date specified in
such notice with the same force and effect as if the date specified in such
notice was the date hereinbefore fixed for the expiration of the Term of this
Lease, and all rights of the Tenant hereunder shall expire and terminate, but
the Tenant shall remain liable as hereinafter provided. Additionally, Tenant
agrees to pay, as additional rent, all reasonable attorney's fees and other
reasonable expenses incurred by the Landlord in enforcing any of the obligations
under this Lease, this covenant to survive the expiration or sooner termination
of this Lease.
If this Lease is terminated as provided above, or as permitted
by law, the Tenant shall peaceably quit and surrender the Premises to the
Landlord, and the Landlord may, without further notice, enter upon, re-enter,
possess and repossess the same by summary proceedings, ejectment or other legal
proceedings, and again have, repossess and enjoy the same as if this Lease had
not been made, and in any such event neither the Tenant nor any person claiming
through or under the Tenant by virtue of any law or an order of any court shall
be entitled to possession or to remain in possession of the Premises, and the
Landlord, at its option, shall forthwith, notwithstanding any other provision of
this Lease, be entitled to recover from the tenant (in lieu of all other claims
for damages on account of such termination) as and for liquidated damages an
amount equal to the excess of all Term Basic rent and additional rent reserved
hereunder for the unexpired portion of the Term of this Lease discounted at the
rate of six (6%) percent per annum to the then present worth, over the fair
rental value of the Premises at the time of termination for such unexpired
portion of the Term. Nothing herein contained shall limit or prejudice the right
of the Landlord, in any bankruptcy or reorganization or insolvency proceeding,
to prove for and obtain as liquidated damages by reason of such termination an
amount equal to the maximum allowed by any bankruptcy or reorganization or
insolvency proceeding, or to prove for and obtain as liquidated damages by
reason of such termination, an amount equal to the maximum allowed by any
statute or rule of law whether such amount shall be greater or less than the
excess referred to above.
If the Landlord re-enters and obtains possession of the
Premises, as provided in the preceding paragraph of this Lease, following an
Event of Default, the Landlord shall have the right, without notice, to repair
or alter the Premises in such manner as the Landlord may deem necessary or
advisable so as to put the Premises in good order and to make the same rentable,
and shall use commercially reasonable efforts to relet the Premises or a
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<PAGE> 11
part thereof, and the Tenant shall pay to the Landlord on demand all reasonable
expenses incurred by the Landlord in obtaining possession, and in altering,
repairing and putting the Premises in good order and condition and in reletting
the same, including reasonable fees of attorneys and architects, and all other
reasonable expenses or commissions, and the Tenant shall pay to the Landlord
upon the rent payment dates following the date of such re-entry and including
the date for the expiration of the Term of this Lease in effect immediately
prior to such re-entry, the sums of money which would have been payable by the
Tenant as Term Basic Rent and additional rent hereunder on such rent payment
dates if the Landlord had not re-entered and resumed possession of the Premises,
deducting only the net amount of Term Basic Rent, if any, which the Landlord
shall actually receive (after deducting from the gross receipts the expenses,
costs and payments of the Landlord which in accordance with the terms of this
Lease would have been borne by the Tenant)in the meantime from and by any
reletting of the Premises, and the Tenant shall remain liable for all sums
otherwise payable by the Tenant under this Lease, including but not limited to
the expense of the Landlord aforesaid, as well as for any deficiency aforesaid,
and the Landlord shall have the right form time to time to begin and maintain
successive actions or other legal proceedings against the Tenant for the
recovery of such deficiency, expenses or damages or for a sum equal to any Term
Basic Rent payment and additional rent. As an alternative remedy, the Landlord
shall be entitled to damages against the Tenant for breach of this Lease, at any
time in an amount equal to the excess, if any, of the Term Basic Rent and
additional rent which would be payable under this Lease at the date of the
expiration of the Term, less the amount of Term Basic Rent and additional rent
received by the Landlord upon any reletting, both discounted to present worth at
the rate of six (6%) percent per annum. The obligation and liability of the
Tenant to pay the Term Basic Rent and the additional rent shall survive the
commencement, prosecution and termination of any action to secure possession of
the Premises. Nothing herein contained shall be deemed to require the Landlord
to wait to begin such action or other legal proceedings until the date when this
Lease would have expired had there not been an Event of Default.
The Tenant hereby waives all right of redemption to which the
Tenant or any person under it may be entitled by any law nor or hereafter in
force. In addition, in the event of an Event of Default which results in the
Landlord recovering possession of the Premises, Landlord shall use its
reasonable efforts to mitigate Landlord's damages. The Landlord's remedies
hereunder are in addition to any remedy allowed by law.
In the event of any breach or threatened breach by Tenant of any
of the agreements, terms, covenants or conditions contained in this Lease,
Landlord shall be entitled to enjoin such breach or threatened breach and shall
have the right to invoke any right or remedy allowed at law or in equity or by
statute or otherwise as though re-entry, summary dispossess proceedings, and
other remedies were not provided for in this Lease. During the pendency of any
proceedings brought by Landlord to recover possession by reason of default,
Tenant shall continue all money payments required to be made to Landlord, and
Landlord may accept such payments for use and occupancy of the Premises. In such
event, Tenant waives its right in such proceedings to claim as a defense that
the receipt of such money payments by Landlord constitutes a waiver by Landlord
of such default.
13. LIENS. If, because of any act or omission (or alleged act or
omission) of Tenant, any Construction Lien Claim or other lien (collectively
"Lien"), charge, or order for the payment of
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money or other encumbrance shall be filed against Landlord and/or any ground or
underlying lessor and/or any portion of the Premises (whether or not such Lien,
charge, order, or encumbrance is valid or enforceable as such), Tenant shall,
at its own cost and expense, cause same to be discharged of record or bonded
within thirty (30) days after the filing thereof; and Tenant shall indemnify
and save harmless Landlord and all ground and underlying lessor(s) against and
from all costs, liabilities, suits, penalties, claims, and demands, including
reasonable counsel fees, resulting therefrom. If Tenant fails to comply with
the foregoing provisions, Landlord, after notice to the Tenant, shall have the
option of discharging or bonding any such Lien, charge, order, or encumbrance,
and Tenant agrees to reimburse Landlord for all reasonable costs, expenses and
other sums of money in connection therewith (as additional rental) with
interest at six (6%) percent per annum promptly upon demand. All materialmen,
contractors, artisans, mechanics, laborers, and any other persons now or
hereafter contracting with Tenant or any contractor or subcontractor of Tenant
for the furnishing of any labor services, materials, supplies, or equipment
with respect to any portion of the Premises, at any time from the date hereof
until the end of the Term, are hereby charged with notice that they look
exclusively to Tenant to obtain payment for same.
14. TENANT'S INSURANCE. (A) Tenant covenants to provide on
or before the Commencement Date a comprehensive policy of general liability
insurance naming Landlord as an additional named insured, insuring Tenant and
Landlord against any liability commonly insured against and occasioned by
accident resulting from any act or omission on or about the Premises and any
appurtenances thereto. Such policy is to be written by an insurance company
qualified to do business in the State of New Jersey reasonably satisfactory to
Landlord. The policy shall be with limits of not less than Three Million
and/00/100 ($3,000,000.00) Dollars in respect of any one person, in respect of
any one accident, and in respect of property damage. Said limits shall be
subject to periodic review, and Landlord reserves the right to increase said
coverage limits if, in the reasonable opinion of Landlord, said coverage
becomes inadequate and is less than that commonly maintained by tenants in
similar buildings in the area by tenants making similar uses. At least
fifteen (15) days prior to the expiration or termination date of any policy,
Tenant shall deliver a renewal or replacement policy, or a certificate of
insurance for the same, with proof of the payment of the premium therefor.
(B) Tenant covenants and represents, said representation
being specifically designed to induce Landlord to execute this Agreement, that
Tenant will insure its business against interruption and Tenant's personal
property and fixtures and any other items which Tenant may bring to the
Premises or which may be under Tenant's care, custody and control which may be
subject to any claim for damages or destruction due to Landlord's negligence
shall be fully insured by a policy of insurance covering all risks with no
deductible which policy shall specifically provide for a waiver of subrogation
for Landlord and all Building tenants without regard to whether or not same
shall cost an additional premium and notwithstanding anything to the contrary
contained in this Lease. Should Tenant fail to maintain said all risk
insurance with the required waiver of subrogation, or fail to maintain the
liability insurance, naming Landlord as an additional named insured, then
Tenant shall be in default hereunder and shall be deemed to have breached its
covenants as set forth herein. Notwithstanding anything contained herein to
the contrary, Landlord agrees that so long as permitted under applicable law and
provided Landlord will not incur any liability, Tenant may provide the
aforesaid insurance with a commercially reasonable deductible, and Tenant shall
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deemed a self-insurer with respect to the amount of the deductible; provided
said deductible would not and does not in fact impose liability on Landlord or
any other Building tenant for any reason to include their negligence. Tenant
further agrees to indemnify, defend and hold Landlord harmless with respect to
any claims against Landlord or any Building tenant which as a result of said
deductible are recovered or asserted against Landlord to the extent the same
would not have been recoverable against Landlord if the policies required by
Subsections (A) and (B) hereof were obtained without a deductible.
15. SECURITY DEPOSIT. Tenant shall deposit with Landlord the sum of
Twenty-five Thousand Five Hundred Seventy-five and 00/100 ($25,575.00) Dollars
as security for the performance of Tenant's obligations under this Lease,
including without limitation, the surrender of possession of the Premises to
Landlord as herein provided. Upon execution of this Lease Tenant shall deposit
the sum of Ten Thousand Five Hundred Seventy-five and 00/100 ($10,575.00)
Dollars representing a portion of said security. Upon the termination of the
Lease dated November 8, 1994 between Tenant and Landlord's affiliate
(hereinafter the "Existing Lease") for the premises located at 323 Bergen
Boulevard, Fairview, New Jersey and performance of all of Tenant's obligations
thereunder, the sum of Fifteen Thousand and 00/100 ($15,000.00) Dollars
currently held by Landlord's affiliate shall be transferred to Landlord so that
Landlord shall then hold the total security deposit required under this Lease.
If Landlord applies any part of said deposit to cure any default of Tenant under
this or the Existing Lease, Tenant shall on demand deposit with Landlord the
amount so applied so that Landlord shall have the full deposit on hand at all
times during the Term of this Lease. In the event of a bona fide sale, subject
to this Lease, Landlord shall transfer the security to the vendee, and thereupon
Landlord shall be considered released by Tenant from all liability for the
return of such security; and Tenant agrees to look solely to the new lessor for
the return of the said security, and it is agreed that this shall apply to every
transfer or assignment made of the security to a new lessor. The security
deposited as provided for herein shall not be mortgaged, assigned or encumbered
by Tenant without the written consent of Landlord.
In the event of the insolvency of Tenant, or in the event of the
entry of a judgment in bankruptcy in any court against Tenant which is not
discharged within sixty (60) days after entry, or in the event a petition is
filed by or against Tenant under any chapter of the bankruptcy laws of the State
of New Jersey or the United States of America, then in such event, and to the
extent ordered by the applicable bankruptcy court pursuant to the applicable
bankruptcy laws, Landlord may require the Tenant to deposit additional security
in an amount equal to twelve (12) month's Monthly Basic Rent to adequately
assure Tenant's performance of all of its obligations under this Lease including
all payments subsequent accruing. Failure of Tenant to deposit the security
required by this Section within ten (10) days after Landlord's written demand
shall constitute a material breach of this Lease by Tenant.
16. NOTICE. Any notice by either party to the other shall be in
writing and shall be deemed to have been duly given only if delivered personally
or sent by a recognized overnight courier service or sent by registered mail or
certified mail in a postpaid envelope addressed, if to Tenant, at the above
described Building; if to Landlord, at Landlord's address as set forth above;
or, to either at such other address as Tenant or Landlord, respectively, may
designate in writing. Notice shall be deemed to have been duly given upon
receipt or rejection thereof.
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17. RIGHT TO INSPECT AND REPAIR. Landlord may enter the Premises
but shall not be obligated to do so (except as required by any specific
provision of this Lease) at any reasonable time on reasonable notice to Tenant
(except that no notice need be given in case of emergency) for the purpose of
inspection or the making of such repairs, replacement or additions, in, to, on
and about the Premises or the Building, as Landlord deems necessary or
desirable. Tenant shall have no claims or cause of action against Landlord by
reason thereof. In no event shall Tenant have any claims against Landlord for
interruption to Tenant's business, however occurring.
Landlord shall, at its sole cost and expense, throughout the Term, keep
and maintain in good order, condition and repair, the exterior load-bearing
walls, foundation and structural steel framework and roof. Notwithstanding the
foregoing, in the event that such repairs are required as a result of the
negligence of Tenant, its agents, servants or employees shall perform such
repairs, the reasonable cost of which shall be payable by Tenant as additional
rent when billed.
18. CONDITIONS OF LANDLORD'S LIABILITY. Tenant shall not be
entitled to claim a constructive eviction from the Premises unless Tenant shall
have first notified Landlord in writing of the condition or conditions giving
rise thereto, and, if the complaints be justified, unless Landlord shall have
failed within a reasonable time after receipt of notice to remedy, or commence
and proceed with due diligence to remedy, such conditions or conditions.
19. RIGHT TO SHOW PREMISES. Landlord may show the Premises to
prospective purchasers and mortgagees and tenants during business hours on
reasonable notice to Tenant.
20. NO OTHER REPRESENTATIONS. No representations or promises shall
be binding on the parties hereto except those representations and promises
contained herein or in some future writing signed by the party making such
representation(s) or promise(s).
21. QUIET ENJOYMENT. Landlord covenants that if, and so long as,
there is no Event of Default continuing under this Lease, Landlord shall do
nothing to affect Tenant's right to peaceably and quietly have, hold and enjoy
the Premises for the Term herein mentioned, subject to the provisions of this
Lease and to any mortgage or deed of trust to which this Lease shall be
subordinate. Landlord represents that as of the date hereof there is no
mortgage or deed of trust secured by the Building or Real Property.
22. SERVICES TO BE PROVIDED BY LANDLORD. Subject to intervening
laws, ordinances, regulations and executive orders, Landlord agrees to furnish
the following, subject to reimbursement as provided for in Section 24:
(A) Common Facilities lighting and electric energy;
(B) Maintenance and repair of the Building exterior
and the Common Facilities;
(C) Cold and hot water for drinking and lavatory
purposes;
(D) Landscaping and snow removal.
23. ELECTRICITY. (A) Subject to intervening laws, ordinances and
executive orders, Landlord shall furnish
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Landlord's Standard Electric Service (as hereinafter defined) which Tenant shall
require in the Demised Premises on a rent inclusion basis. That is, during the
first Lease Year (as hereinafter defined) there shall be no charge to Tenant for
such Standard Electric Service by way of measuring the same on any meter or
otherwise, such Standard Electric Service being included in Landlord's services
which are covered by the Term Basic Rent reserved hereunder. Landlord shall not
be liable in any way to Tenant for any failure or defect in the supply or
character of electric energy furnished to the Demised Premises by reason of any
requirement, act or omission of the public utility serving the Building with
electricity or for any other reason not attributable to Landlord. Tenant,
however, shall furnish and install all replacement lighting tubes, lamps, bulbs
and ballasts required in the Demised Premises.
(B) Landlord's Standard Electric Service shall, unless otherwise
provided by agreement in writing between the parties, provide the electrical
current for typical warehousing and retail requirements. In no event shall
Landlord's Standard Electric Service include electrical current for any
computer room installation or for any requirements needing greater than a
15-amp line. All installations of substantial electrical fixtures, appliances
and equipment within the Demised Premises shall be subject to Landlord's prior
written approval which approval shall not be reasonably withheld or delayed.
(C) In the event that the utility company that furnishes electric
energy to Landlord, for supply to Tenant, declines to continue furnishing
electric energy to Landlord for Landlord's Standard Electric Service, Landlord
reserves the right to discontinue furnishing electric energy to Tenant at any
time, upon reasonable notice to Tenant, and from and after the effective date
of such termination, Landlord shall no longer be obligated to furnish Tenant
with electric energy, provided, however, that such termination date may be
extended for a time reasonably necessary for Tenant to make arrangement to
obtain electric service directly from the public utility company servicing the
Building. If Landlord exercises such right of termination, this Lease shall
remain unaffected thereby and shall continue in full force and effect; and
thereafter Tenant shall diligently arrange to obtain electric service directly
from the utility company servicing the Building, and may utilized the then
Premises to the extent available and safely capable of being used for such
purpose and only to the extent of Tenant's then authorized connected load.
Landlord shall not be obligated to pay any part of any cost required for
Tenants' direct electric service.
In the event that there shall be (i) an increase or decrease in
the rate schedule (including surcharges or demand adjustments), of the public
utility for the supply of Building Standard Office Electrical Service, or (ii)
the imposition of any tax with respect to such service or increase, in any such
tax following the Lease Term's commencement, Tenant shall pay as Additional
Rent, within ten (10) days after demand therefore by Landlord, an amount
reasonably determined by Landlord to equitably reflect the increase or decrease
in rate or imposition or increase in the aforesaid tax.
24. ADDITIONAL RENT. It is expressly agreed that Tenant will pay in
addition to the Term Basic Rent provided in Paragraph 3 above, an additional
rental to cover Tenant's Proportionate Share, as hereinafter defined, of the
increased cost to Landlord, for each of the categories enumerated herein, over
the "Base Period Costs" (as hereinafter defined) for each of said categories.
12
<PAGE> 16
(A) Operating Cost Escalation. If during the Lease Term the
Operating Costs (as hereinafter defined) incurred for the Building in
which the Demised Premises are located, Building Area or the
Non-Exclusive Customer Parking Area described on Exhibit A for any Lease
Year or proportionate part thereof if the Lease Term expires prior to
the expiration of a Lease Year (herein the "Comparison Period:) shall be
greater than the Base Operating costs (adjusted proportionately if the
Comparison Period is less than Lease Year), then Tenant shall pay to
Landlord, as Additional Rent, its Proportionate Share, as hereinafter
defined, of all such excess Operating Costs. Operating Costs shall
include, by way of illustration and not of limitation: personal property
taxes; labor, including all wages and salaries; social security taxes,
and other taxes which may be levied against Tenant upon such wages and
salaries; supplies; repairs and maintenance; maintenance and service
contracts; painting; tools and equipment (which are not required to be
capitalized for federal income tax purposes); premiums for fire, rent,
liability and other insurance; insurance deductibles; trash removal;
lawn care; domestic water charges; sprinkler standby charges; snow
removal; and all other items properly constituting direct operating
costs according to standard accounting practices (hereinafter
collectively referred to as the "Operating Costs"), but not including
any costs for which the Landlord is actually reimbursed by insurance or
otherwise compensated, including direct reimbursement by any tenant or
occupant of the Building; the cost of providing or performing
improvements, work or repairs to or within any portion of the Premises
of any other tenant or occupant of the Building; legal and other fees
(except to the extent all Building occupants benefit therefrom; leasing
commissions, advertising expenses and other costs incurred in connection
with the leasing of space in the Building; depreciation of Building or
equipment; interest; income or excess profits taxes; franchise taxes;
any expenditures required to be capitalized for federal income tax
purposes, unless said expenditures are for the purpose of reducing
Operating Costs within the Building or are required under any
governmental law, ordinance or regulation, in which event the costs
thereof shall be included. As used in this Subsection 24(A), the Base
Period Costs for Operating Costs, herein the Base Operating Costs, shall
be those incurred during the first twelve (12) months of Tenant's
occupancy.
(B) Fuel, Utilities and Electric Cost Escalation
(hereinafter "Utility and Energy Costs"). If during the Lease Term the
Utility and Energy Costs, including any fuel surcharges are adjustments
with respect thereto, incurred for water, sewer, gas,
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<PAGE> 17
electric, other utilities and heating ventilating and air conditioning
for the Building to include all leased and leasable areas (not
separately billed or metered with the Building) and Common Facilities
electric, lighting, water, sewer and other utilities for the Building
and Building Area, for any Comparison Period shall be greater than the
Base Utility and Energy Costs (adjusted proportionately if the
Comparison Period is less than a Lease Year), then Tenant shall pay to
Landlord as Additional Rent, its Proportionate Share, as hereinafter
defined, of all such excess Utility and Energy Costs. As used in this
Subsection 22(B), the Base Period Costs for fuel, Utilities and
Electric, herein the Base Utility and Energy Costs, shall be those costs
determined by multiplying the usage incurred to the Building and
Building area during the first lease year by the average of the rates in
effect (including surcharges and/or adjustments) during Calendar Year
1995 (herein "Base Utility Rate").
(C) TAX ESCALATION. If during the Lease Term the Real Estate
Taxes for the Building, Building Area at which the Demised Premises are
located and Non-Exclusive Customer Parking Area for any Comparison
Period shall be greater than the Base Real Estate Taxes (adjusted
proportionately if the Comparison Period is less than a Lease Year),
then Tenant shall pay to Landlord as Additional Rent, its Proportionate
Share, as hereinafter defined, or all such excess Real Estate Taxes.
As used in this Subsection 22(C), the words and terms which
follow mean and include the following:
(i) The Base Period Costs for Real Estate Taxes, herein
the "Base Real Estate Taxes," shall be those real estate taxes
assessed against the Building, Building Area and Non-Exclusive
Customer Parking Area during Calendar Year 1995.
(ii) "Real Estate Taxes" shall mean the property taxes
and assessments imposed upon the Building, Building Area and
Non-Exclusive Customer Parking Area or upon the Term Basic Rent
and Additional Rent, as such, payable to Landlord, including,
but not limited to, real estate, city, county, village, school
and transit taxes, or taxes, assessments or charges levied,
imposed, or assessed against the Building, Building Area and
Non-Exclusive Customer Parking Area by any other taxing
authority, whether general or specific, ordinary or
extraordinary, foreseen or
14
<PAGE> 18
unforeseen. If due to a future change in the method of taxation,
any franchise, income or profit tax shall be levied against
Landlord in substitution for, or in lieu of, or in addition to,
any tax which would otherwise constitute a Real Estate Tax, such
franchise, income or profit tax shall be deemed to be a Real
Estate Tax for the purposes hereof; conversely, any additional
real estate tax hereafter imposed in substitution for, or in
lieu of, any franchise, income or profit tax (which is not in
substitution for or in lieu of, or in addition to, a Real Estate
Tax as hereinbefore provided) shall not be deemed a Real Estate
Tax for the purposes hereof. Notwithstanding anything contained
herein to the contrary, Tenant shall assume and pay to Landlord
in full at the time of paying the Term Basic Rent, any excise,
sales, use, gross receipts or other taxes (other than a net
income or excess profits tax) which may be imposed on Landlord
or on account of the letting or which Landlord may be required
to pay or collect under any law now in effect or hereafter
enacted. As to each tax year falling fully or partially within
the Term, as soon as reasonably practicable after the close of
such tax year, Landlord shall upon request furnish Tenant with
copies of all applicable tax bills.
(D) LEASE YEAR. As used in this Lease, Lease Year shall mean
the twelve (12) month period commencing on the Commencement Date and
each twelve (12) month period thereafter. Once the base costs are
established, in the event any lease period is less than twelve (12)
months, then the Base Period Costs for the categories listed above shall
be adjusted to equal the proportion that said period bears to twelve
(12) months, and Tenant shall pay to Landlord as Additional Rent for
such period, an amount equal to Tenant's Proportionate Share, as
hereinafter defined, of the excess for said period over the adjusted
base with respect to each of the aforesaid categories. Notwithstanding
anything contained herein to the contrary, once the base costs are
established, Landlord reserves the right to calendarize billing and
payment in order to establish operating consistency.
(E) PAYMENT. After the establishment of the Base Period Costs
for each of the categories referred to above, Landlord shall advise
Tenant in writing of Tenant's Proportionate Share with respect to each
of the categories as estimated for the current
15
<PAGE> 19
Lease Year [and for each succeeding Lease Year or proportionate
part thereof if the last period prior to the Lease's termination
is less than twelve (12) months] as then known to Landlord, and
thereafter, Tenant shall pay as Additional Rent, its
Proportionate Share, as hereinafter defined, of the excess of
these costs over the Base Period Costs for the then current
period affected by such advice (as the same may be periodically
revised by Landlord as additional costs are incurred) at the
expiration of each Lease Year as defined in Subsection 24(D)
hereof [or proportionate part thereof, if the last period prior
to the Lease's termination is less than twelve (12) months].
In the event the last period prior to the Lease's
termination is less than twelve (12) months, the Base Period
Costs during said period shall be proportionately reduced to
correspond to the duration of said final period.
(F) Books and Records. For the protection of
Tenant, Landlord shall maintain books of account which shall be
open to Tenant and its representatives at all reasonable times
so that Tenant can determine that such Operating, Utility,
Energy and Tax Costs have, in fact, been paid or incurred. Any
disagreement with respect to any one or more of said charges if
not satisfactorily settled between Landlord and Tenant shall be
referred by either party to an independent certified public
accountant to be mutually agreed upon, and if such an accountant
cannot be agreed upon, the American Arbitration Association may
be asked by either party to select an arbitrator, whose decision
on the dispute will be final and binding upon both parties, who
shall jointly share any cost of such arbitration. Pending
resolution of said dispute, Tenant shall pay to landlord the sum
so billed by Landlord subject to its ultimate resolution as
aforesaid.
(G) Right of Review. Once Landlord shall have
finally determined said Operating, Utility and Energy or Tax
Costs at the expiration of a Lease Year, then as to the item so
established, Tenant shall only be entitled to dispute said
charge as finally established for a period of six (6) months
after such charge is finally established, and Tenant
specifically waives any right to dispute any such charge at the
expiration of said six (6) month period.
25. PARKING SPACES. Tenant's occupancy of the Demised Premises
shall include in addition to the Employee Parking and Trucking Area the
non-exclusive use of the parking spaces in the Non-Exclusive Customer Parking
Area described on Exhibit A, all of which will be unassigned. Tenant shall,
upon request, promptly furnish to Landlord the license numbers of the cars
operated by Tenant and its subtenants, licensees, invitees, concessionaires,
officers and employees. If any vehicle of
16
<PAGE> 20
Tenant, or of any subtenant, licensee, concessionaire, or of their respective
officers, agents or employees, is parked in any part of the Common Facilities
other than the employee parking area(s) designated therefor by Landlord, Tenant
shall pay to Landlord such reasonable penalty as may be fixed by Landlord from
time to time. All amounts due under the provisions of this Section shall be
deemed to be Additional Rent. Nothing contained herein shall be deemed to
impose any obligation on Landlord to police the parking areas.
26. DEFINITIONS. (A) PROPORTIONATE SHARE. Tenant's Proportionate
Share, wherever that phrase is used, shall be 21.43%, which the parties agree
reflects the sum arrived at by dividing the gross square feet of the area rented
to Tenant (including an allocable share of all Common Facilities) as set forth
in Section 1 [the numerator], by the total number of gross square feet of the
entire Building [the denominator], measured outside wall to outside wall.
(B) COMMON FACILITIES. Common Facilities shall include, by way
of example and not by way of limitation, the parking areas; fire stairs; public
hallways; public lavatories; all other general Building facilities that service
all Building tenants; janitors' closets; electrical closets; telephone closets;
machine rooms; flues; stacks; pipe shafts; and vertical ducts with their
enclosing walls. Tenant's use of those Common Facilities not open to all
tenants is subject to Landlord's consent which may be denied for any reason.
Landlord may at any time close temporarily any Common Facilities to make repairs
or changes therein or to effect construction, repairs or changes within the
Building or Building Area, or to discourage non-tenant parking or to prevent the
dedication of the same, and may do such other acts in and to the Common
Facilities as in its judgment may be desirable to improve the convenience
thereof but shall always in connection therewith endeavor to minimize any
inconvenience to Tenant.
(C) ADDITIONAL RENT. As used in this Lease, Additional Rent
shall mean all sums in addition to Term Basic Rent payable by Tenant to Landlord
pursuant to the provisions of this Lease.
(D) COMMENCEMENT DATE. The date on which Landlord completes
all of Landlord's Work and delivers possession of the Demised Premises to Tenant
but in no event earlier than March 1, 1995.
27. WAIVER OF TRIAL BY JURY. It is mutually agreed by and between
Landlord and Tenant that the respective parties hereto shall and they hereby do
waive trial by jury in any action or proceeding brought by either of the parties
hereto against the other in any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the Demised Premises, and/or any claim of injury or damage, and
any emergency statutory or any other statutory remedy. Should Landlord seek
recourse to equity to enforce any of its rights under this Lease, Tenant agrees
to waive any defense which it might otherwise have that Landlord has any
adequate remedy at law. Tenant further agrees that it shall not interpose any
counterclaim (except for compulsory counterclaims) or setoff in a summary
proceeding or in any action based, in whole or in part, on nonpayment of basic
rent or additional rent.
28. LATE CHARGE. Anything in this Lease to the contrary
notwithstanding, at Landlord's option, Tenant shall pay a "Late Charge" of seven
(7%) percent of any installment of Basic Rent or Additional Rent paid more than
five (5) days after the due date
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<PAGE> 21
thereof, to cover the extra expense involved in handling delinquent payments.
Tenant shall not be charged a Late Charge the first time Tenant is late during
each twelve (12) month period during the Term commencing on the Lease
Commencement Date until Tenant, as to such time in each twelve (12) month
period, is given five (5) days' notice and an opportunity to cure said
nonpayment within said notice period and fails to cure said nonpayment within
said time.
29. SECTION HEADINGS. The section headings in this Lease and
position of its provisions are intended for convenience only and shall not be
taken into consideration in any construction or interpretation of this Lease or
any of its provisions.
30. APPLICABILITY TO HEIRS AND ASSIGNS. The provisions of this
Lease shall apply to, bind and inure to the benefit of Landlord and Tenant,
and their respective heirs, successors, legal representatives and assigns. It
is understood that the term "Landlord" as used in this Lease means only the
owner, a mortgagee in possession or a term lessee of the Building, so that in
the event of any sale of the Building or of any lease thereof, or if a
mortgagee shall take possession of the Premises, Landlord named herein shall be
and hereby is entirely freed and relieved of all covenants and obligations of
Landlord hereunder accruing thereafter, that the purchaser, the term lessee of
the Building or the mortgagee in possession has assumed and agreed to carry out
any and all covenants and obligations of Landlord hereunder.
31. LANDLORD'S EXCULPATION. After the commencement of the Tenant's
occupancy, the Landlord shall not be responsible for the loss of, or damage to,
Tenant's property or that under its care, custody or control, or injury to
Tenant occurring in or about the Demised Premises, or for any business
interruption loss, for any reason whatsoever, to include but not be limited to:
any existing or future condition, defect, matter or thing in the Demised
Premises; the acts, omissions or negligence of other persons or tenants in and
about the Demised Premises; theft or burglary from the Demised Premises; the
negligence of Landlord, its agents, servants or invitees; and defects, errors or
omissions in the construction or design of the Demised Premises and/or the
Building including the structural and nonstructural portions thereof. Tenant
covenants and agrees to make no claim for any such loss, damage or injury at
any time.
32. PERSONAL LIABILITY. Notwithstanding anything to the contrary
provided in this Lease, it is specifically understood and agreed, such
agreement being a primary consideration for the execution of this Lease by
Landlord, that there shall be absolutely no personal liability on the part of
Landlord, its constituent members, to include but not be limited to officers,
directors, partners and trustees, their respective successors, assigns or any
mortgagee in possession (for the purposes of this Section, collectively
referred to as "Landlord"), with respect to any of the terms, covenants and
conditions of this Lease, and that Tenant shall look solely to the equity of
Landlord in the Building for the satisfaction of each and every remedy of
Tenant in the event of any breach by Landlord of any of the terms, covenants
and conditions of this Lease to be performed by Landlord, such exculpation of
liability to be absolute and without any exceptions whatsoever. A deficit
capital account of any portion in Landlord shall not be deemed an asset or
property of Landlord. The foregoing limitation of liability shall be noted in
any judgment secured against Landlord and in the judgment index.
33. NO OPTION. The submission of this Lease Agreement for
examination does not constitute a reservation of, or option for, the Premises,
and this Lease Agreement becomes effective as a
18
<PAGE> 22
Lease Agreement only upon execution and delivery thereof by Landlord and Tenant.
34. BROKER. Tenant and Landlord represent and warrant one to the
other that Chaus Realty, Inc. is the sole broker with whom either party has
negotiated in bringing about this Lease, and Tenant and Landlord agree to
indemnify and hold each other and Landlord's mortgagee(s) harmless from any and
all claims of other brokers and expenses in connection therewith arising out of
or in connection with any conduct inconsistent with the representations
tendered by one to the other herein. In no event shall Landlord's mortgagee(s)
have any obligation to any broker involved in this transaction.
35. SIGNAGE. No sign, advertisement or notice shall be affixed to
or placed upon any part of the Premises by the Tenant, except in such manner,
and of such size, design and color as shall be approved in advance in writing
by the Landlord, which approval the Landlord shall not unreasonably withhold,
provided: (i) that Tenant comply with all applicable governmental ordinances
and regulations and receives all necessary governmental approvals required for
erection and maintenance of the sign and (ii) no later than the last day of the
Term, Tenant shall, at Tenant's expense, remove the sign and repair all injury
done by or in connection with the installation or removal of the sign.
36. EARLY ENTRY. Tenant shall be permitted to enter and occupy
Unit E of the Demised Premises upon execution of this Lease by both parties,
payment by Tenant of the first month's Monthly Basic Rent as provided for in
Section 3 and issuance of a Certificate of Occupancy until February 28, 1995
without being obligated to pay Term Basic Rent as provided in Section 3.
Notwithstanding the foregoing, Tenant shall nevertheless be obligated to
fulfill all of its other obligations required by this Lease during the
aforedescribed period including by way of example but not of limitation, those
requirements described in Section 14.
37. CASUALTY. If the Demised Premises or the Building is damaged
or destroyed by fire, explosion, the elements or otherwise during the Term so
as to render the Demised Premises wholly untenantable or unfit for occupancy,
or should the Demised Premises be so badly injured that the same cannot be
repaired within 180 days from the happening of such injury, then, and in such
case, the Term hereby created shall, at the option of either the Landlord or
the Tenant, terminate upon the giving of a notice of termination. If a notice
of termination is given, the Term of this Lease shall terminate effective as of
the date of such damage or destruction, and the Tenant shall immediately
surrender the Demised Premises and all the Tenant's interest therein to the
Landlord, and pay Term Basic Rent and Additional Rent to the time of such
damage or destruction, and the Landlord may re-enter and repossess the Demised
Premises discharged from this Lease and may remove all parties therefrom.
Should the Demised Premises be rendered untenantable and unfit
for occupancy, but yet be repairable within 180 days from the happening of said
injury, the Landlord will, provided the mortgagee makes the proceeds of any
casualty insurance required to be carried pursuant to this Lease available to
the Landlord to restore and further provided that the insurance proceeds so
received are adequate to restore the Building and the Demised Premises, enter
and repair the same with reasonable speed, and the Term Basic Rent and
Additional Rent shall abate to the extent of rent insurance received by the
Landlord until the earlier of (i) such time as the Landlord makes such repairs
so as to render the demised Premises once again usable by the Tenant for the
purposes under this Lease or (ii) the cessation of Landlord's receipt of rent
insurance.
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<PAGE> 23
If the Demised Premises shall be so slightly injured as not to
be rendered untenantable and unfit for occupancy, the Landlord shall repair the
same with reasonable promptness and the Term Basic Rent and Additional Rent
accrued and accruing shall not cease or terminate. The Tenant shall immediately
notify the Landlord in case of fire or other damage to the Demised Premises.
38. CONDEMNATION. If, during the Term, (i) twenty-five (25%)
percent or more of the area of the Demised Premises shall be taken under any
power of eminent domain or condemnation or (ii) Tenant's ingress and egress to
the Demised Premises is permanently terminated then, at the option of the
Tenant, to be exercised in writing within thirty (30) days of the taking of
title thereto, this Lease shall expire within thirty (30) days of the date of
such notice and the Term Basic Rent and any Additional Rent herein reserved
shall be apportioned as of said date. However, if the Tenant does not exercise
the aforementioned option, or if the taking does not deprive the Tenant of at
least twenty-five (25%) percent of the area of the Demised Premises, or
permanently deprive Tenant of ingress and egress to the Demised Premises this
Lease shall not expire but the Term Basic Rent and Additional Rent shall be
equitably apportioned. If the Landlord and the Tenant fail to agree upon an
equitable apportionment, the Term Basic Rent and Additional Rent for the
Building, after such taking, shall be determined in accordance with the
Commercial Rules of the American Arbitration Association, and the arbitrator
shall be empowered to assess the costs and expenses of the proceedings as part
of the determination. Pending such determination the Tenant shall pay, on
account of the Term Basic Rent and Additional Rent, such proportion of the Term
Basic Rent and Additional Rent reserved in this Lease as the total area of the
Building after the taking bears to the total area of the Building before the
taking, subject to adjustment in accordance with the arbitrator's award. No
part of any award shall belong to the Tenant except that nothing contained
herein is intended to affect or limit the Tenant's claim for fixtures or other
improvements owned by Tenant provided the same does not diminish the Landlord's
award. It is expressly understood and agreed that the provisions of this
Section 38 shall not be applicable to any condemnation or taking for
governmental occupancy for a limited period of time.
39. CANCELLATION. Notwithstanding anything contained in this Lease
herein to the contrary, if Landlord shall not have delivered possession of the
Demised Premises to Tenant on or before the ninetieth (90th) day following the
date of this Lease and provided the reason therefor has not been as a result of
Tenant's acts or omissions, then, and in such event, Tenant may cancel this
Lease upon thirty (30) days' notice to Landlord, which notice may be given on
or after the sixtieth (60th) day following the date of this Lease, and unless
Landlord delivers possession of the Demised Premises within the aforesaid
thirty (30) days, this Lease shall terminate upon the expiration of said thirty
(30) day period and the parties shall be released herefrom.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals the day and year first above written.
BONANNO REAL ESTATE GROUP II, L.P.,
Landlord
BY: J. QUENTIN BONANNO, JR.
---------------------------------
J. QUENTIN BONANNO, JR.,
General Partner
PARFUMS PARQUET, INC., Tenant
BY: RONALD D. BOWEN
---------------------------------
RONALD D. BOWEN
Gap. V.P.-Manufacturing
20
<PAGE> 24
[DIAGRAM OF DEMISED PREMISES]
EXHIBIT "A"
<PAGE> 25
EXHIBIT B
COMMENCING at the corner formed by the intersection of the southerly
line of Ray Avenue and the westerly line of Grand Avenue ?? said streets are
shown upon a certain map entitled "Map of ??ersamere, in the Boroughs of
Ridgefield and Palisades Park, Bergen County, New Jersey," made by Alfred W.
Williams, C.E., Hackenseck, New Jersey 1903 and filed in the Office of the
Clerk of Bergen County, on April 21, 1903, as Map No. 835, and from said
point running
(1) south thirty degrees, six minutes west (S30 degrees 6'W) and along
said westerly line of Grand Avenue one hundred twenty one and fifty four
one-hundredths feet (121.54') to a point; thence
(2) north forty six degrees, three minutes, thirty seconds ??st
(N46 degrees 3' 33"W) six hundred eighty seven and twenty two one-hundredths
feet (687.22') to the easterly line of Railroad Avenue ?? said Railroad Avenue
is shown upon the aforesaid Map of ??rsemere; thence
(3) north twenty four degrees, fifty nine minutes, east (24 degrees
59'E) and along said easterly line of Railroad Avenue one hundred seventy-
seven and sixty four one-hundredths feet (177.64') ?? the northerly line of
lands conveyed by the Mayor and Council ?? the Borough of Ridgefield to Thomas
P. Bonanno, et al., by Deed granted December 21, 1948, recorded in the Office
of the Clerk of ??rgen County in Book 2928 of Deeds, page 459: thence
(4) south forty six degrees, three minutes, thirty seconds east
(S46 degrees 3' 30"E) and along said northerly line of property conveyed to
Thomas P. Bonanno et al., as aforesaid, five hundred six and twenty two
one-hundredths feet (506.22') to the point of intersection of said northerly
line of property so conveyed to Thomas P. Bonanno, et al., as aforesaid, with
the westerly line of ?? Avenue, as the same now exists after its vacation by
ordinance adopted by the Mayor and Council of the Borough of Ridgefield on
October 19, 1948; thence
(5) south forty three degrees, fifty six minutes, thirty seconds west
(S43 degrees 56' 30"W) and along said westerly line of Ray Avenue as it now
exists, a distance of fifty feet (50') to its intersection with the southerly
line of Ray Avenue as the same now exists after its vacation as aforesaid;
thence
(6) south forty six degrees, three minutes, thirty seconds ?? (S45
degrees 3' 30"E) and along the aforesaid southerly line of Ray ?????
?? two hundred nine and sixty four one-hundredths feet ?? to the point or place
of BEGINNING.
?? BEING shown on Tax Map of the Borough of Ridgefield as ??rly Lots 1 and 2 in
Block 72, presently Lots 1 and 2 in Block
<PAGE> 26
EXHIBIT B
---------
(Cont'd)
DESCRIPTION OF EASEMENT:
- -----------------------
TOGETHER with an easement for a right of way in, upon and over
the most southerly fifty feet (50') of the premises immediately adjoining the
above described premises on the north and hereinafter more particularly
described for the use and purpose of a roadway for ingress and egress to and
from Grand Avenue and/or Railroad Avenue to the property hereinabove described.
TO HAVE AND TO HOLD the said easement and privileges to the
party of the second part, its successors and assigns; subject, however, to the
use of the premises described in said easement by others as a roadway, and the
use, maintenance and operation of the existing railroad siding, constructed on
the property covered by this easement. It being understood and agreed, however,
that said easement shall ease and terminate when said strip of land fifty feet
(50') wide becomes a public highway by act of the party of the first part or by
act of law. Said easement being more particularly described as follows:
ALL THAT CERTAIN lot, tract or parcel of land and premises,
situate, lying and being in the Borough of Ridgefield, county of Bergen and
State of New Jersey, which is more particularly bounded and described as
follows:
COMMENCING at a point in the westerly line of Grand Avenue,
distant eight four and forty six one-hundredths feet (84.46') northerly from the
corner formed by the intersection of the said westerly line of Grand Avenue with
the northerly line of Virgil Avenue as said avenues are shown on the aforesaid
"Map of Horsemere"; and running thence (1) north forty six degrees, three
minutes, thirty seconds west (N46 degrees 03'30"W) and along the northerly
boundary line of the premises hereinabove described six hundred eighty seven and
twenty two one-hundredths feet (687,22') to the easterly line of Railroad
Avenue; thence (2) north twenty-four degrees, fifty nine minutes, east
(N24 degrees 59'E) along the easterly line of Railroad Avenue to a point therein
which is intersected by a line drawn parallel to and distant fifty feet (50')
northerly, measured at right angles, from the first course herein; thence (3)
south forty six degrees, three minutes, thirty seconds, east (S46 degrees
03'30"E) and along a line parallel with the first mentioned course and distant
fifty feet (50') northerly therefrom, measured at right angles thereto, six
hundred eighty seven and twenty one-hundredths feet (687.20'), more or less, to
the westerly side of said Grand Avenue; thence (4) south thirty degrees, six
minutes, west (S30 degrees 6'W) and along said westerly line of Grand Avenue
fifty one and fifty one-hundredths feet (51.50') to the point or place of
beginning.
<PAGE> 27
EXHIBIT C
LANDLORD'S WORK
1. Broom Clean warehouse floor.
2. Supply and install new glass and aluminum entrance on Ray Avenue elevation.
3. Create 8'x 8' framed opening between units C & E.
4. Relocate light fixtures and add additional bulbs in Unit C proposed retail
area.
5. Supply and install ventilation system consisting of exhaust fan and
motorized louver, in Unit C proposed retail area.
6. Create ramp at the new Ray Ave. entrance.
7. Install additional light fixtures in the south end of the warehouse.
8. Revamp existing ductwork for toilets in Units C & E, and Unit C corridor.
9. Cover existing louvers with sheet metal in Unit C roof monitor.
10. Supply and install two 3'0" x 7'0" Hollow metal doors between unit C
proposed retail area and warehouse.
<PAGE> 28
EXHIBIT D
[DIAGRAM]
<PAGE> 1
EXHIBIT 10.66
NON-COMPETITION AGREEMENT
NON-COMPETITION AGREEMENT (the "Agreement") made as of the 18th day of
August, 1994, among Renaissance Cosmetics, Inc., a Delaware corporation (the
"Company"), Cosmar Corporation, a Delaware corporation ("CC") and a wholly
owned subsidiary of the Company and Jerry D. Kayne (the "Selling Shareholder").
W I T N E S S E T H
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Company and CC are purchasing from Cosmar Corporation and
Precision Molded Plastics, Inc. (the "Selling Entities") the assets and
businesses of such Selling Entities for an aggregate purchase price of
$66,327,977.69 in cash and notes, plus the assumption of the Assumed
Liabilities, as defined in the Purchase Agreement (the "Acquisition").
WHEREAS, the Selling Entities are engaged in the business of
manufacturing and marketing artificial fingernails and related nail care
products on both a domestic and international basis (as the same may be
expanded as to artificial fingernails and related nail care products in
ordinary course, the "Business").
WHEREAS, the Company and/or CC have purchased from the Selling Entities
trade secrets, confidential business relationships, and other confidential and
proprietary property and information in connection with the business and
operations of the Selling Entities which are essential and integral components
of their success and profitability.
WHEREAS, prior to the Acquisition, the Selling Shareholder was a
principal shareholder of the Selling Entities and was actively involved in the
business of the Selling Entities and, as a result, possesses an intimate
knowledge of the Business.
WHEREAS, the Company and CC wish to assure themselves that the Selling
Shareholder will not engage in certain types of activities that would be
competitive with or harmful to the Business, and the Selling Shareholder has
agreed not to engage in any such activities, subject to the terms and
conditions of this Agreement.
<PAGE> 2
It is therefore agreed as follows:
1. Confidentiality. The Selling Shareholder shall not at any time,
divulge to any person, firm or corporation any confidential, proprietary or
privileged information received by him during the course of his association
with the Business or the Selling Entities, whether before or after the date
hereof, with regard to the financial, business, operations, method of business,
customer and supplier information, independent contractor information,
know-how, procedures or other confidential information regarding the affairs of
and of the Business or the Selling Entities, or any of their respective
officers, directors, stockholders, subsidiaries, affiliates, customers or
suppliers, and all of the foregoing shall be kept confidential and shall not be
revealed to anyone except as may be otherwise required by law.
2. Non-Solicitation. The Selling Shareholder shall not, at any time
during or within five years after the date of this Agreement, solicit,
interfere with or employ any customer, supplier or employee of the Business;
provided, however, that the terms of this section 2 shall not prohibit the
Selling Shareholder from employing or otherwise associating with Robert H.
Schnell, Fred Kayne, Aldran H. LaJoie or Marc Schnell.
3. Non-Competition. The Selling Shareholder shall not, for a period of
five years from the date of this Agreement, directly or indirectly (i) acquire
or own in any manner, any interest in any person, firm, corporation or other
entity of any kind (collectively a "Person") which is engaged in any facet of
the Business in the continental United States, (ii) engage, through or in
connection with any Person, in any facet of the Business or competes in any way
with the Business within the continental United States, or (iii) be employed in
any capacity by, serve as an employee, agent or officer or director of, serve
as a consultant or advisor to, or otherwise participate in the management or
operation of, any Person which (x) engages in any facet of the Business or (y)
competes with the Business in any way; except that the Selling Shareholder
shall have the right to make passive investments in (i) public companies, and
(ii) investments not related to the business of the Sellers.
4. Enforceability. The Selling Shareholder acknowledges that this
Agreement is being entered into concurrently with the closing of the
Acquisition and that the covenants contained in section 1, section 2 and
section 3 of this Agreement are an essential part of the Acquisition and the
transactions contemplated in connection therewith. The Selling Shareholder
further acknowledges that the Acquisition and the transactions contemplated
thereby were designed to effect a sale by the Selling Entities in a manner
intended to qualify the Selling Shareholder as "a shareholder of a corporation
which
-2-
<PAGE> 3
sells all or substantially all of its operating assets together with the
goodwill of the corporation" within the meaning of Section 16601 of the
Business and Professions Code of California ("Code"). The Selling Shareholder
acknowledges that he has read said Section 16601 of the Code, understand the
terms thereof and agree that the transactions contemplated by this Agreement
are within the scope and intent of Section 16601 and an exception to Section
16600 of the Code and agrees to be bound thereby. The Selling Shareholder
acknowledges that no person would invest any monies in the Company, CC or the
Business whether as a shareholder or lender without the benefit of the
foregoing covenants by the Selling Shareholder. The Selling Shareholder
acknowledges that he has consulted with counsel concerning the terms of this
Agreement, including, but not limited to, section 1, section 2 and section 3
and that the provisions of this Agreement are fair and reasonable and
enforceable, at least insofar as they apply to the Business as it exists on the
date hereof. The Selling Shareholder further acknowledges that compliance with
the provisions hereof will not create any hardship as he has independent means
and sufficient income to be fully self-supporting without competing with
the Business or otherwise violating any of the provisions hereof. Accordingly,
the Selling Shareholder agrees to be bound by the provisions hereof to the
maximum extent permitted by law, it being the intent and spirit of the parties
that the foregoing shall be fully enforceable. However, the parties further
agree that, if any of the provisions hereof shall for any reason be held to be
excessively broad as to duration, geographical scope, property or subject
matter, it shall be construed by limiting and reducing it so as to be
enforceable to the extent compatible with the applicable law as it shall herein
pertain. This covenant not to compete is designed to protect the good will
associated with the assets being acquired from the Selling Entities, and the
parties expressly agree that no part of the purchase price for said assets is
separately allocable to this covenant.
5. Amendment and Modification. This Agreement may not be amended,
modified or changed except in a writing signed by the party against whom such
amendment, modification or the like is sought to be enforced.
6. 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
-3-
<PAGE> 4
with the requirements for a waiver of compliance as set forth in this section 6.
7. Notices. All notices and other communications hereunder shall be
given by personal delivery or by registered or certified mail (return receipt
requested), postage prepaid, 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 a change of address shall be effective only upon receipt
thereof):
a. If to the Company or CC, to:
Renaissance Cosmetics, Inc.
c/o Kidd, Kamm & Company
Three Pickwick Plaza
Greenwich, Connecticut 06830
with a copy to:
Edward R. Mandell, Esq.
Parker Chapin Flattau & Klimpl
1211 Avenue of the Americas
New York, New York 10036
b. If to the Selling Shareholder, to:
Jerry D. Kayne
2182 Century Hill
Los Angeles, California 90067
with a copy to:
Jeffrey A. Weiner, Esq.
Golbert Kimball & Weiner
555 South Flower Street
Suite 2800
Los Angeles, California 90071
All such notices and other communications shall be deemed given or delivered
when received, or five days after mailing, whichever occurs first.
8. Assignment. Neither this Agreement nor any of the Selling
Shareholder's rights, powers, duties or obligations hereunder may be assigned
by the Selling Shareholder. This Agreement shall be binding upon and inure to
the benefit of the Selling Shareholder and his heirs and legal representatives
and the Company, CC and their successors and assigns. Successors of the Company
and CC shall include, without limitation, any person acquiring, directly or
indirectly, all or substantially all of the assets of the Company or CC,
whether by merger, consolidation,
-4-
<PAGE> 5
purchase, lease or otherwise, and such successor shall thereafter be deemed
"the Company" or CC, as the case may be, for the purposes hereof.
9. Governing Law. This Agreement shall be governed by the laws
of the state of California applicable to agreements made and to be performed
entirely in California and the federal or state courts at Los Angeles shall
have exclusive jurisdiction over all disputes arising hereunder and the parties
consent to personal jurisdiction thereunder.
10. Entire Agreement. This Agreement embodies the entire
agreement and understanding of the parties hereto. There are no restrictions,
promises, representations, warranties, covenants or undertakings other than
those expressly set forth or referred to herein. This Agreement supersedes
all prior agreements and understandings between the parties with respect to
such transactions.
RENAISSANCE COSMETICS, INC.
By: /s/ Terry M. Theodore
---------------------------
Name: Terry M. Theodore
Title: Vice President
COSMAR CORPORATION
By: /s/ Terry M. Theodore
-------------------------
Name: Terry M. Theodore
Title: Vice President
/s/ Jerry D. Kayne
-------------------------------
Jerry D. Kayne
-5-
<PAGE> 1
Exhibit 10.67
NON-COMPETITION AGREEMENT
NON-COMPETITION AGREEMENT (the "Agreement") made as of the 18th day
of August, 1994, among Renaissance Cosmetics, Inc., a Delaware corporation (the
"Company"), Cosmar Corporation, a Delaware corporation ("CC") and a wholly
owned subsidiary of the Company, and Fred Kayne (the "Selling Shareholder").
W I T N E S S E T H
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Company and CC are purchasing from Cosmar Corporation and
Precision Molded Plastics, Inc. (the "Selling Entities") the assets and
businesses of such Selling Entities for an aggregate purchase price of
$66,327,977.69 in cash and notes, plus the assumption of the Assumed
Liabilities, as defined in the Purchase Agreement (the "Acquisition").
WHEREAS, the Selling Entities are engaged in the business of
manufacturing and marketing artificial fingernails and related nail care
products on both a domestic and international basis (as the same may be
expanded as to artificial fingernails and related nail care products in
ordinary course, the "Business").
WHEREAS, the Company and/or CC have purchased from the Selling Entities
trade secrets, confidential business relationships, and other confidential and
proprietary property and information in connection with the business and
operations of the Selling Entities which are essential and integral components
of their success and profitability.
WHEREAS, prior to the Acquisition, the Selling Shareholder was a
principal shareholder of the Selling Entities and was actively involved in the
business of the Selling Entities and, as a result, possesses an intimate
knowledge of the Business.
WHEREAS, the Company and CC wish to assure themselves that the Selling
Shareholder will not engage in certain types of activities that would be
competitive with or harmful to the Business, and the Selling Shareholder has
agreed not to engage in any such activities, subject to the terms and
conditions of this Agreement.
<PAGE> 2
It is therefore agreed as follows:
1. Confidentiality. The Selling Shareholder shall not at any time,
divulge to any person, firm or corporation any confidential, proprietary or
privileged information received by him during the course of his association
with the Business or the Selling Entities, whether before or after the date
hereof, with regard to the financial, business, operations, method of business,
customer and supplier information, independent contractor information,
know-how, procedures or other confidential information regarding the affairs of
and of the Business or the Selling Entities, or any of their respective
officers, directors, stockholders, subsidiaries, affiliates, customers or
suppliers, and all of the foregoing shall be kept confidential and shall not be
revealed to anyone except as may be otherwise required by law.
2. Non-Solicitation. The Selling Shareholder shall not, at any
time during or within five years after the date of this Agreement, solicit,
interfere with or employ any customer, supplier or employee of the Business;
provided, however, that the terms of this section 2 shall not prohibit the
Selling Shareholder from employing or otherwise associating with Robert H.
Schnell, Jerry D. Kayne, Aldran H. LaJoie or Marc Schnell.
3. Non-Competition. The Selling Shareholder shall not, for a
period of five years from the date of this Agreement, directly or indirectly
(i) acquire or own in any manner, any interest in any person, firm,
corporation or other entity of any kind (collectively a "Person") which is
engaged in any facet of the Business in the continental United States, (ii)
engage, through or in connection with any Person, in any facet of the Business
or competes in any way with the Business within the Continental United States,
or (iii) be employed in any capacity by, serve as an employee, agent or officer
or director of, serve as a consultant or advisor to, or otherwise participate
in the management or operation of, any Person which (x) engages in any facet
of the Business or (y) competes with the Business in any way; except that the
Selling Shareholder shall have the right to make passive investments in (i)
public companies, and (ii) investments not related to the business of the
Sellers.
4. Enforceability. The Selling Shareholder acknowledges that this
Agreement is being entered into concurrently with the closing of the
Acquisition and that the convenants contained in section 1, section 2 and
section 3 of this Agreement are an essential part of the Acquisition and the
transactions contemplated in connection therewith. The Selling Shareholder
further acknowledges that the Acquisition and the transactions contemplated
thereby were designed to effect a sale by the Selling Entities in a manner
intended to qualify the Selling Shareholder as "a shareholder of a corporation
which
-2-
<PAGE> 3
sells all or substantially all of its operating assets together with the
goodwill of the corporation" within the meaning of Section 16601 of the
Business and Professions Code of California ("Code"). The Selling Shareholder
acknowledges that he has read said Section 16601 of the Code, understands the
terms thereof and agrees that the transactions contemplated by this Agreement
are within the scope and intent of Section 16601 and an exception to Section
16600 of the Code and agrees to be bound thereby. The Selling Shareholder
acknowledges that no person would invest any monies in the Company, CC or the
Business whether as a shareholder or lender without the benefit of the
foregoing covenants by the Selling Shareholder. The Selling Shareholder
acknowledges that he has consulted with counsel concerning the terms of this
Agreement, including, but not limited to, section 1, section 2 and section 3
and that the provisions of this Agreement are fair and reasonable and
enforceable, at least insofar as they apply to the Business as it exists on the
date hereof. The Selling Shareholder further acknowledges that compliance with
the provisions hereof will not create any hardship as he has independent means
and sufficient income to be fully self-supporting without competing with the
Business or otherwise violating any of the provisions hereof. Accordingly, the
Selling Shareholder agrees to be bound by the provisions hereof to the maximum
extent permitted by law, it being the intent and spirit of the parties that the
foregoing shall be fully enforceable. However, the parties further agree that,
if any of the provisions hereof shall for any reason be held to be excessively
broad as to duration, geographical scope, property or subject matter, it shall
be construed by limiting and reducing it so as to be enforceable to the extent
compatible with the applicable law as it shall herein pertain. This covenant
not to compete is designed to protect the good will associated with the assets
being acquired from the Selling Entities, and the parties expressly agree that
no part of the purchase price for said assets is separately allocable to this
covenant.
5. Amendment and Modification. This Agreement may not be amended,
modified or changed except in a writing signed by the party against whom such
amendment, modification or the like is sought to be enforced.
6. 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
-3-
<PAGE> 4
with the requirements for a waiver of compliance as set forth in this section 6.
7. NOTICES. All notices and other communications hereunder shall be
given by personal delivery or by registered or certified mail (return receipt
requested), postage prepaid, 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 a change of address shall be effective only upon receipt
thereof):
a. If to the Company or CC, to:
Renaissance Cosmetics, Inc.
c/o Kidd, Kamm & Company
Three Pickwick Plaza
Greenwich, Connecticut 06830
with a copy to:
Edward R. Mandell, Esq.
Parker Chapin Flattau & Klimpl
1211 Avenue of the Americas
New York, New York 10036
b. If to the Selling Shareholder, to:
Fred Kayne
909 North Rexford Drive
Beverly Hills, California 90210
with a copy to:
Jeffrey M. Weiner, Esq.
Golbert Kimball & Weiner
555 South Flower Street
Suite 2800
Los Angeles, California 90071
All such notices and other communications shall be deemed given or delivered
when received, or five days after mailing, whichever occurs first.
8. ASSIGNMENT. Neither this Agreement nor any of the Selling
Shareholder's rights, powers, duties or obligations hereunder may be assigned by
the Selling Shareholder. This Agreement shall be binding upon and inure to the
benefit of the Selling Shareholder and his heirs and legal representatives and
the Company, CC and their successors and assigns. Successors of the Company
and CC shall include, without limitation, any person acquiring, directly or
indirectly, all or substantially all of the assets of the Company or CC,
whether by merger, consolidation,
-4-
<PAGE> 5
purchase, lease or otherwise, and such successor shall thereafter be deemed
"the Company" or CC, as the case may be, for the purposes hereof.
9. GOVERNING LAW. This Agreement shall be governed by the laws of the
state of California applicable to agreements made and to be performed entirely
in California and the federal or state courts of Los Angeles shall have
exclusive jurisdiction over all disputes arising hereunder and the parties
consent to personal jurisdiction thereunder.
10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto. There are no restrictions, promises,
representations, warranties, covenants or undertakings other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such
transactions.
RENAISSANCE COSMETICS, INC.
By: /s/ Terry M. Theodore
-----------------------------------
Name: Terry M. Theodore
Title: Vice President
COSMAR CORPORATION
By: /s/ Terry M. Theodore
-----------------------------------
Name: Terry M. Theodore
Title: Vice President
/s/ Fred Kayne
-----------------------------------
Fred Kayne
-5-
<PAGE> 1
EXHIBIT 10.115.1
RENAISSANCE COSMETICS, INC.
Issuer,
and
CERTAIN GUARANTORS
and
FIRSTAR BANK OF MINNESOTA
as Successor to
AMERICAN BANK NATIONAL ASSOCIATION,
Trustee
----------------------
SIXTH SUPPLEMENTAL INDENTURE
Dated as of December 4, 1996
----------------------
13-3/4% Senior Notes due 2001,
Series A and Series B,
and
13-3/4% Senior Notes due 2002
<PAGE> 2
SIXTH SUPPLEMENTAL INDENTURE dated as of December 4, 1996
between Renaissance Cosmetics, Inc., a Delaware corporation (the "Company"), the
subsidiaries of the Company set forth on the signature page hereto, as
guarantors (the "Subsidiaries"), and Firstar Bank of Minnesota, as successor
trustee to American Bank National Association (the "Trustee").
The Company, Cosmar Corporation ("Cosmar"), and Parfums
Parquet Incorporated executed and delivered to the Trustee an indenture dated as
of August 18, 1994 (as amended or supplemented by a first supplemental indenture
dated November 19, 1994, a second supplemental indenture dated December 15,
1994, a third supplemental indenture dated December 23, 1994, a fourth
supplemental indenture dated February 27, 1996 and a fifth supplemental
indenture dated August 21, 1996, the "Indenture") relating to the Company's
13-3/4% Senior Notes due 2001, Series A, 13-3/4% Senior Notes due 2001, Series
B, and 13-3/4% Senior Notes due 2002. Capitalized terms used but not defined in
this Sixth Supplemental Indenture shall have the meanings given them in the
Indenture.
Section 4.22 of the Indenture requires the Company to cause
each Subsidiary of the Company created or acquired after the Closing Date to
enter into a supplemental indenture for the purpose of jointly, severally and
unconditionally guaranteeing, on a subordinated basis, the Company's obligation
to pay principal and interest on the Notes.
The Company has directly or indirectly created or acquired the
Subsidiaries and the Company and the Subsidiaries desire that each of the
Subsidiaries become a Guarantor under the Indenture, as provided below, and each
of the Subsidiaries intends to be bound as a Guarantor, and all covenants and
conditions necessary for the execution of this Sixth Supplemental Indenture have
been complied with.
Therefore, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged by the Company and the
Subsidiaries, it is therefore agreed, for the benefit of the Company, the
Subsidiaries and the Trustee, and for the ratable benefit of the holders of the
Notes issued under the Indenture, as follows:
1. Each of the Subsidiaries is hereby irrevocably and
unconditionally bound, as a Guarantor, by each and every one of the terms and
conditions of Article 10 of the Indenture, the terms of which are hereby
incorporated by reference in this Sixth Supplemental Indenture and made a part
hereof as though set forth herein in full, in the same manner and to the same
extent as if such Subsidiary were an original signatory, as a Guarantor, to the
Indenture. As contemplated in section 1.1 of the Indenture, the parties
acknowledge and agree that the definition of "Guarantor" under the Indenture
shall include each of the Subsidiaries.
<PAGE> 3
2
2. Except as expressly set forth herein, the Indenture is in
all respects ratified and confirmed and all the terms, conditions and provisions
thereof shall remain in full force and effect.
3. This Sixth Supplemental Indenture shall form a part of the
Indenture for all purposes, and every holder of Notes heretofore or hereafter
authenticated and delivered shall be bound hereby.
4. This Sixth Supplemental Indenture shall be construed,
interpreted and the rights of the parties determined in accordance with the laws
of the state of New York, as applied to contracts made and performed within the
state of New York, without regard to principles of conflicts of law (other than
section 5-1401 of the New York General Obligations Law).
RENAISSANCE COSMETICS, INC.
By:____________________________
Name:
Title:
STARRATE INVESTMENT (PTY), LTD.
By:____________________________
Name:
Title:
DANA U.K., LIMITED
By:____________________________
Name:
Title:
<PAGE> 4
3
MEM COMPANY, INC.
By:____________________________
Name:
Title:
ARISTOCRAT LEATHER PRODUCTS,
INC.
By:____________________________
Name:
Title:
ENGLISH LEATHER, INC.
By:____________________________
Name:
Title:
MARTON FRERES, INC.
By:____________________________
Name:
Title:
<PAGE> 5
4
MEM COMPANY (CANADA) LTD.
By:____________________________
Name:
Title:
TOM FIELDS (U.K.) LTD.
By:____________________________
Name:
Title:
VICTOR OF MILANO, LTD.
By:____________________________
Name:
Title:
MEM INTERNATIONAL, LTD.
By:____________________________
Name:
Title:
<PAGE> 6
5
ROSEMINT COSMETICS COMPANY,
INC.
By:____________________________
Name:
Title:
ALLIANCE TRADING
By:____________________________
Name:
Title:
ST. THOMAS LEATHERWORKS
LIMITED
By:____________________________
Name:
Title:
FIRSTAR BANK OF MINNESOTA
By:___________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.127
SECURITIES PURCHASE AGREEMENT
between
RENAISSANCE COSMETICS, INC.
and
BASTION CAPITAL FUND, L.P.
---------------------------------
Dated as of September 27, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I DEFINITIONS................................................................................... 1
Section 1.1. Definitions................................................................... 1
Section 1.2. Accounting Terms; Financial Statements........................................ 5
ARTICLE II ISSUE OF SECURITIES; PURCHASE AND SALE OF
SECURITIES; RIGHTS OF HOLDERS OF SECURITIES............................................ 5
Section 2.1. Issue of Securities........................................................... 5
Section 2.2. Purchase and Sale of Securities............................................... 6
ARTICLE III REPRESENTATIONS AND WARRANTIES.............................................................. 6
Section 3.1. Representations and Warranties of the Company................................. 6
Section 3.2. Representations and Warranties of the Purchaser............................... 14
ARTICLE IV CONDITIONS PRECEDENT TO CLOSING............................................................. 16
Section 4.1. Conditions Precedent to Obligations of the Purchaser......................... 16
Section 4.2. Conditions Precedent to Obligations of the Company........................... 18
ARTICLE V COVENANTS.................................................................................... 19
Section 5.1. Use of Proceeds.............................................................. 19
Section 5.2. Adjustments.................................................................. 19
Section 5.3. Stockholders Agreement....................................................... 20
Section 5.4. Board Representation......................................................... 20
ARTICLE VI INDEMNITY................................................................................... 21
Section 6.1. Indemnity.................................................................... 21
Section 6.2. Contribution................................................................. 23
Section 6.3. Common Stock Registration Rights Agreements.................................. 24
ARTICLE VII MISCELLANEOUS.............................................................................. 24
Section 7.1. Survival of Provisions....................................................... 24
Section 7.2. Termination.................................................................. 24
Section 7.3. No Waiver; Modifications in Writing.......................................... 25
Section 7.4. Communications............................................................... 25
Section 7.5. Taxes........................................................................ 26
Section 7.6. Determinations............................................................... 26
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 7.7. Execution in Counterparts.................................................... 26
Section 7.8. Binding Effect; Assignment................................................... 26
Section 7.9. GOVERNING LAW................................................................ 26
Section 7.10. Severability of Provisions................................................... 26
Section 7.11. Headings..................................................................... 27
Signature Page ......................................................................................... 27
</TABLE>
Exhibit 1 Form of Common Stock Registration Rights Agreement
Exhibit 2 Form of Opinion of Company Counsel
-ii-
<PAGE> 4
SECURITIES PURCHASE AGREEMENT, dated as of September __, 1996
(this "Agreement"), between Renaissance Cosmetics, Inc., a Delaware corporation
(the "Company"), and Bastion Capital Fund, L.P., a Delaware limited partnership
(the "Purchaser").
In consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. As used in this Agreement, and
unless the context requires a different meaning, the following terms have the
meanings indicated:
"Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Affiliate" of any specified Person means any other Person
which directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling", "controlled by" and "under common control with"), as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Agreement" means this Agreement, as the same may be amended,
supplemented or modified in accordance with the terms hereof and in effect.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in the City of New
York are authorized or obligated by law to close.
"Closing" has the meaning provided therefor in Section 2.2 of
this Agreement.
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"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Act.
"Common Stock" means the Common Stock of the Company, par
value $0.01 per share.
"Common Stock Registration Rights Agreement" means the Common
Stock Registration Rights Agreement substantially in the form of Exhibit 1
hereto.
"Company" has the meaning provided therefor in the
introductory paragraph of this Agreement.
"Default" means any event, act or condition which, with notice
or lapse of time or both, would constitute an Event of Default.
"ERISA" has the meaning provided therefor in Section 3.1 of
this Agreement.
"Event of Default" means any event defined as an Event of
Default in the Indenture.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"Indemnified Parties" has the meaning provided therefor in
Section 6.1(b) of this Agreement.
"Indemnifying Parties" has the meaning provided therefor in
Section 6.1(b) of this Agreement.
"Indenture" means the indenture under which the Notes were
issued.
"Lien" means, with respect to any property or assets of any
Person, any mortgage or deed of trust, pledge, hypothecation, assignment,
deposit arrangement, security interest, lien, charge, easement, encumbrance,
preference, priority or other security
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agreement or preferential arrangement of any kind or nature whatsoever on or
with respect to such property or assets (including without limitation, any
Capitalized Lease Obligation (as defined in the Indenture), conditional sales,
or other title retention agreement having substantially the same economic effect
as any of the foregoing).
"Material Adverse Effect" means, with respect to the Company
and its Subsidiaries, a material adverse effect on the business, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole; provided that, with respect to the Company and
the Material Subsidiaries, "Material Adverse Effect" shall also mean a material
adverse effect on the ability of the Company or the Material Subsidiaries to
perform their respective obligations under this Agreement and the Common Stock
Registration Rights Agreement.
"Material Subsidiaries" means Cosmar Corporation, a Delaware
corporation, and Dana Perfumes Corp., a Delaware corporation.
"Memorandum" has the meaning provided therefor in Section 2.1
of this Agreement.
"Nomura Facility" means the Note Purchase Agreement, dated as
of December 21, 1994, as amended, among the Company, Cosmar Corporation and
Nomura Holding America Inc., as purchaser, relating to the $40,000,000 variable
rate Senior Secured Revolving Notes due 1996 and the $30,000,000 variable rate
Senior Secured Term Notes due 1996, as such agreement may be amended, modified
or supplemented from time to time.
"Notes" means the 13 3/4% Senior Notes Due 2001, Series B and
the 13 3/4 Senior Notes due 2002 of the Company issued under the Indenture.
"Old Warrant Agreement" means the Warrant Agreement dated as
of August 18, 1994, between the Company and American Bank National Association,
as Warrant Agent.
"Pending Acquisitions" means the acquisition (or attempted
acquisition) by the Company, directly and indirectly, of (i) The MEM Company,
and (ii) any other business or part of a business that is in the line of
business conducted by the Company on the date hereof and any related line of
business.
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"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
other legal entity.
"Preemptive Right Opinion" shall mean a letter from Houlihan
Lokey Howard & Zukin that indicates a "Current Market Price" (as defined in the
Old Warrant Agreement) of no greater than $96.23 per share of Common Stock.
"Proceeding" has the meaning provided therefor in Section
6.1(b) of this Agreement.
"Purchaser" has the meaning provided therefor in the
introductory paragraph of this Agreement.
"Securities" has the meaning provided therefor in Section 2.1
of this Agreement.
"State" means each of the states of the United States, the
District of Columbia and the Commonwealth of Puerto Rico.
"State Commission" means any agency of any State having
jurisdiction to enforce such State's securities laws.
"Stockholders Agreement" means the Stockholders Agreement
dated August 18, 1994 between the Company and each of the individuals or
entities which are parties thereto.
"Subsidiaries" means of any specified Person, any corporation,
partnership, joint venture, association or other business entity, whether now
existing or hereafter organized or acquired, (i) in the case of a corporation,
of which more than 50% of the total voting power of the capital stock entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, officers or trustees thereof is held by such first-named Person or
any of its Subsidiaries; or (ii) in the case of a partnership, joint venture,
association or other business entity, with respect to which such first-named
Person or any of its Subsidiaries has the power to direct or cause the direction
of the management and policies of such entity by contract or otherwise or if in
accordance with generally
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accepted accounting principles such entity is consolidated with the first-named
Person for financial statement purposes.
"Taxes" has the meaning provided therefor in Section 3.1(q) of
this Agreement.
"Time of Purchase" has the meaning provided therefor in
Section 2.2 of this Agreement.
Section 1.2. Accounting Terms; Financial Statements. All
accounting terms used herein not expressly defined in this Agreement shall have
the respective meanings given to them in accordance with sound accounting
practice. The term "sound accounting practice" shall mean such accounting
practice as, in the opinion of the independent accountants regularly retained by
the Company, conforms at the time to generally accepted accounting principles in
the United States applied on a consistent basis except for changes with which
such accountants concur. All determinations to which accounting principles apply
shall be made in accordance with sound accounting practice.
ARTICLE II
ISSUE OF SECURITIES; PURCHASE AND SALE OF
SECURITIES; RIGHTS OF HOLDERS OF SECURITIES
Section 2.1. Issue of Securities. The Company has authorized
the issuance and sale to the Purchaser of 51,959 shares (the "Securities") of
Common Stock. The Securities will be offered and sold to the Purchaser without
being registered under the Act, in reliance on exemptions therefrom.
In connection with the sale of the Securities, the Company has
provided the Purchaser with an Offering Memorandum dated August 7, 1996, as
supplemented by the Supplement to Offering Memorandum dated August 13, 1996, the
Second Supplement to Offering Memorandum dated August 27, 1996, the Third
Supplement to Offering Memorandum, dated September 11, 1996, and the Fourth
Supplement to Offering Memorandum dated September 25, 1996 (such Offering
Memorandum, as so supplemented, together with any documents incorporated by
reference therein, being hereinafter referred to as the "Memorandum").
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Section 2.2. Purchase and Sale of Securities. Subject to the
terms and conditions herein set forth, the Company agrees that it will sell to
the Purchaser, and the Purchaser agrees that it will purchase from the Company,
at the Time of Purchase the Securities and the Company shall issue and deliver
or cause to be delivered to the Purchaser stock certificates representing the
Securities, and the Purchaser shall deliver by wire transfer of immediately
available funds $5,000,000 to the Company.
The purchase and sale of the Securities shall take place at a
closing (the "Closing") at the offices of Paul, Weiss, Rifkind, Wharton &
Garrison, 1285 Avenue of the Americas, New York, New York 10019, on September
27, 1996 immediately following the sale by the Company to CIBC Wood Gundy
Securities Corp. of 10,000 Units (as defined in the Memorandum) consisting of
$10,000,000 aggregate liquidation preference of 14% Senior Redeemable Preferred
Stock, Series B (the "Preferred Stock") and Warrants to purchase shares of
Common Stock (the "Unit Sale"). The time at which the Closing is concluded is
herein called the "Time of Purchase."
The Company will bear all expenses of shipping the Securities
(including, without limitation, insurance expenses) from New York City to such
other places within the United States of America or Canada as the Purchaser
shall specify. Any tax on the issuance of the Securities will be paid by the
Company at the Time of Purchase pursuant to Section 7.5.
Section 2.3. Rights of Holders of Securities. The holders of
the Securities shall have such rights with respect to the registration thereof
under the Act as are set forth in the Common Stock Registration Rights
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of the Company.
The Company represents and warrants to the Purchaser as follows:
(a) The Memorandum as supplemented and provided to the
Purchaser at the Time of Purchase will not contain any untrue statement
of a material fact or omit
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to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.
(b) The audited consolidated financial statements of the
Company and its Subsidiaries, together with related notes and schedules
thereto, included in the Memorandum fairly present in all material
respects the financial condition of the Company and its Subsidiaries as
of the dates indicated and the results of operations and cash flows for
the periods therein specified in conformity with generally accepted
accounting principles consistently applied throughout the periods
involved (except as otherwise stated therein); and any pro forma
financial statements and the related notes thereto included in the
Memorandum have been prepared using reasonable assumptions and in
accordance with the applicable requirements of the Act and include all
adjustments necessary to present fairly in all material respects the
pro forma financial information included in the Memorandum as at the
respective dates and for the respective periods indicated. Deloitte &
Touche LLP and Windes & McClaughry, which are reporting upon the
audited financial statements and schedules included in the Memorandum,
are independent public accounting firms as required by the Act and the
rules and regulations thereunder.
(c) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
Each of the Company's Subsidiaries is a corporation duly incorporated
or organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation. Each of the Company and its
Subsidiaries is duly qualified and in good standing as a foreign
corporation, and is authorized to do business, in each jurisdiction in
which the ownership or leasing of any property or the nature of its
business makes such qualification necessary and in which the failure so
to qualify would have a Material Adverse Effect.
(d) All of the issued and outstanding shares of capital stock
of the Company and its Subsidiaries are validly issued, fully paid and
nonassessable and were not issued in violation of any preemptive or
similar rights (subject to preemptive rights as described in the
Memorandum). As of the date hereof, the Company has no material
Subsidiaries other than the Material Subsidiaries and those
Subsidiaries listed on Schedule 3.1(d) hereto. All of the capital stock
of the Material Subsidiaries is owned directly or indirectly by the
Company, free and clear of any Liens other than
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Liens created under the Indenture or securing the Nomura Facility.
Except as described in the Memorandum, there are no outstanding
subscriptions, options, warrants, rights, convertible securities or
other binding agreements or commitments of any character obligating the
Company or its Subsidiaries to issue any securities. Except as
described in the Memorandum, no Person other than the Purchaser, CIBC
Wood Gundy Securities Corp. ("CIBC"), and purchasers of the Units from
CIBC and CIBC WG Argosy Fund 2 L.L.C. ("CIBC Fund"), has any rights to
the registration of capital stock or other securities of the Company,
under the Act or otherwise. Except for the Stockholders Agreement, the
Common Stock Subscription Agreement dated August 15, 1996, between the
Company and the CIBC Fund, the Company's Restated Certificate of
Incorporation or as disclosed in the Memorandum, there is no agreement,
understanding or arrangement among the Company or its Subsidiaries and
its or their respective stockholders or any other person relating to
the ownership or disposition of any capital stock in the Company or any
of its Subsidiaries, the election of directors of the Company or any of
its Subsidiaries or the governance of the Company's or any such
Subsidiary's affairs; and no such agreements, arrangements or
understandings will be breached or violated as a result of the
execution and delivery of, or the consummation of the transactions
contemplated by, this Agreement or the Common Stock Registration Rights
Agreement.
(e) The Securities have been duly and validly authorized and,
upon payment by the Purchaser in accordance with this Agreement, will
be fully paid and non-assessable and free of preemptive rights. The
Securities will not be subject to any restrictions on the transfer
thereof except for such restrictions set forth herein, in the
Stockholders Agreement and under the Act.
(f) This Agreement has been duly authorized by the Company
and, when executed and delivered by the Company (assuming the due
authorization, execution and delivery by the Purchaser), will
constitute a valid and legally binding agreement of the Company,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or similar laws now or hereafter
in effect relating to creditors' rights and remedies generally, (ii)
general equitable principles, whether asserted in an action at law or
in equity, and that such enforceability may be subject to the
discretion of the court before which any proceedings therefor may be
brought
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and (iii) rights to indemnity or contribution may be limited by federal
or state securities laws or the public policy underlying such laws.
(g) The Common Stock Registration Rights Agreement has been
duly authorized by the Company and, when executed and delivered by the
Company (assuming the due authorization, execution and delivery by the
Purchaser), will constitute a valid and legally binding agreement of
the Company, enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditors' rights
and remedies generally and (ii) general equitable principles, whether
asserted in an action at law or in equity, and that such enforceability
may be subject to the discretion of the court before which any
proceedings therefor may be brought.
(h) The Company has all requisite corporate power and
authority to (i) execute, deliver and perform its obligations under
this Agreement and the Common Stock Registration Rights Agreement, (ii)
execute, deliver and perform its obligations under all other agreements
and instruments required to be executed and delivered by the Company
pursuant to this Agreement and the Common Stock Registration Rights
Agreement and (iii) issue the Securities in the manner and for the
purpose contemplated by this Agreement. The execution and delivery by
the Company of this Agreement, the Common Stock Registration Rights
Agreement and the consummation of the transactions contemplated hereby
and thereby have been duly and validly authorized by the Company.
(i) Subsequent to the date as of which information is given in
the Memorandum and immediately prior to the Time of Purchase there has
not been (i) any event or condition that has had or that would
reasonably be expected to have a Material Adverse Effect on the Company
and its Subsidiaries, taken as a whole, (ii) any transaction entered
into by the Company or any Subsidiary, other than in the ordinary
course of business, that is material to the Company and its
Subsidiaries, taken as a whole, or (iii) any dividend or distribution
of any kind declared, paid or made by the Company on its Common Stock
that has not been approved by the Purchaser in writing.
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(j) There is no action, suit, investigation or proceeding,
governmental or otherwise, pending or, to the best knowledge of the
Company, threatened to which the Company or any of its Subsidiaries is
or would be a party or of which the properties of the Company or its
Subsidiaries are or may be subject, that (i) seeks to restrain, enjoin,
prevent the consummation of or otherwise challenge the issuance and
sale of the Securities by the Company or any of the other transactions
contemplated hereby, (ii) questions the legality or validity of any
such transactions or seeks to recover damages or obtain other relief in
connection with any such transactions or (iii) except as disclosed in
the Memorandum, could reasonably be expected to have a Material Adverse
Effect.
(k) The execution, delivery and performance by the Company of
this Agreement and the Common Stock Registration Rights Agreement, and
the issuance and sale by the Company of the Securities, and the
execution, delivery and performance by the Company of all other
agreements and instruments required to be executed and delivered by the
Company pursuant hereto or thereto and compliance by the Company with
the terms and provisions hereof and thereof, do not and will not (i)
violate any provision of any law, rule or regulation (including,
without limitation, Regulation G, T, U or X of the Board of Governors
of the Federal Reserve System), order, writ, judgment, decree,
determination or award presently in effect or in effect at the Time of
Purchase having applicability to the Company or any of its
Subsidiaries, (ii) conflict with or result in a breach of or constitute
a default under the certificate of incorporation or by-laws of the
Company or any of the Subsidiaries, or, as of the Time of Purchase any
indenture or loan or credit agreement, or any other agreement or
instrument, to which the Company or any of its Subsidiaries is a party
or by which the Company or any of the Subsidiaries or any of their
respective properties may be bound or affected, or (iii) except as
contemplated by this Agreement and the Common Stock Registration Rights
Agreement, result in, or require the creation or imposition of, any
Lien upon or with respect to any of the properties now owned or
hereafter acquired by the Company or any of the Subsidiaries, except,
in the case of (i), (ii) or (iii), where such violation, conflict,
default or creation or imposition of any Lien would not (individually
or in the aggregate) have a Material Adverse Effect.
(l) Immediately after giving effect to the consummation of the
transactions contemplated by this Agreement, neither the Company nor
any of its Subsidiaries (i)
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will be in violation of its respective certificate of incorporation
or by-laws, (ii) will be in default (nor will an event occur which
with notice or passage of time or both would constitute such a
default) under or in violation of any indenture or loan or credit
agreement or any other material agreement or instrument to which it
is a party or by which it or any of its properties may be bound or
affected, (iii) will be in violation of any order of any court,
arbitrator or governmental body or subject to or party to any order
of any court or governmental authority arising out of any action,
suit or proceeding under any statute or other law respecting
antitrust, monopoly, restraint of trade, unfair competition or
similar matters or (iv) will have violated or be in violation of any
such statute, rule or regulation of any governmental authority, which
default or violation in the case of clause (i), (ii), (iii) or (iv)
(individually or in the aggregate) could reasonably be expected to (x)
affect the legality, validity or enforceability of this Agreement or
the Common Stock Registration Rights Agreement or (y) have a Material
Adverse Effect.
(m) Assuming the accuracy of the Purchaser's representations
and warranties set forth in Section 3.2 and the due performance by the
Purchaser of the covenants and agreements set forth in Section 3.2, no
authorization, consent, approval, license, qualification or formal
exemption from, nor any filing, declaration or registration with, any
court, governmental agency or regulatory authority or any securities
exchange is required in connection with the execution, delivery or
performance by the Company or any of its Subsidiaries (to the extent
they are a party thereto) of this Agreement or the Common Stock
Registration Rights Agreement, except (i) as may be required under
state securities or "blue sky" laws or the laws of any foreign
jurisdiction in connection with the offer and sale of the Securities or
(ii) as would not (individually or in the aggregate) have a Material
Adverse Effect. All such authorizations, consents, approvals, licenses,
qualifications, exemptions, filings, declarations and registrations
which are required to have been obtained or made as of the Time of
Purchase have been obtained or made and are in full force and effect
and not the subject of any pending or, to the knowledge of the Company,
threatened attack by appeal or direct proceeding or otherwise.
(n) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and the Company will not be
immediately after
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the Time of Purchase an "investment company" within the meaning of
such Investment Company Act.
(o) The execution and delivery of this Agreement and the
Common Stock Registration Rights Agreement will not involve any
non-exempt prohibited transaction within the meaning of Section 406 of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code on the part of the Company or
any of its Subsidiaries. The preceding representation is made in
reliance upon, and subject to the continuing accuracy of, the
representation made in Section 3.2(b) as to the Purchaser. The Company
does not and, at and as of the Time of Purchase, the Company does not
reasonably expect to have any liability for any prohibited transaction
or funding deficiency or any complete or partial withdrawal liability
with respect to any pension, profit sharing or other plan which is
subject to ERISA and which is required to be funded, to which the
Company makes or ever has made a contribution and in which any employee
of the Company is or has ever been a participant. With respect to such
plans, the Company is and, at and as of the Time of Purchase, the
Company will be in compliance in all material respects with all
applicable provisions of ERISA.
(p) The Company and each of its Subsidiaries have good and
valid title to, or valid and enforceable leasehold interests in, all
properties and assets identified in the Memorandum as owned by each of
them which are material to the business of the Company and its
Subsidiaries, taken as a whole, free and clear of all Liens, except (i)
such Liens as are described in the Memorandum or (ii) Liens created in
the ordinary course of business which are Permitted Liens (as defined
in the Indenture). All of the leases material to the business of the
Company and the Subsidiaries, taken as a whole, and under which the
Company or any Subsidiary holds properties described in the Memorandum,
are valid and binding as leased by them, with such exceptions as are
not material and do not materially interfere with the use made and
proposed to be made of such properties by the Company and its
Subsidiaries.
(q) All tax returns required to be filed by the Company or any
of its Subsidiaries in any jurisdiction (including foreign
jurisdictions) have been so filed and all taxes, assessments, fees and
other charges including, without limitation, withholding taxes,
penalties, and interest ("Taxes") due or claimed to be due have been
paid, other than those Taxes being contested in good faith and those
Taxes for
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which adequate reserves or accruals have been established in
accordance with generally accepted accounting principles, except where
the failure to file such returns or to pay such Taxes is not reasonably
likely to have, singly or in the aggregate, a Material Adverse Effect.
Except as disclosed in writing to the Purchaser, the Company knows of
no actual or proposed additional tax assessments for any fiscal period
against the Company or any of its Subsidiaries that, individually or in
the aggregate, would have a Material Adverse Effect.
(r) The Company and its Subsidiaries are the owners or
licensees of all trade names, unregistered trademarks and service
marks, brand names, patents, registered and unregistered copyrights,
registered trademarks and service marks, and all applications for any
of the foregoing, and all permits, grants and licenses or other rights
with respect thereto, the absence of which would have a Material
Adverse Effect. Neither the Company nor any of its Subsidiaries has
been charged with any material infringement of any intangible property
of the character described above or been notified or advised of any
material claim of any other Person relating to any of the intangible
property which infringements or claims (individually or in the
aggregate) could reasonably be expected to have a Material Adverse
Effect.
(s) Except as set forth in the Memorandum, the Company and its
Subsidiaries comply in all material respects with all laws, rules and
regulations applicable to the Company and each such Subsidiary, and the
Company and its Subsidiaries own or possess and are operating in
compliance in all material respects with the terms, provisions,
conditions, restrictions and limitations contained in all licenses,
franchises, approvals, certificates and permits from all Federal,
state, territorial, foreign and local governmental and regulatory
authorities which are necessary to own or lease their respective
properties and assets and to the conduct of their respective businesses
(other than such laws, rules, regulations, licenses, franchises,
approvals, certificates or permits that are immaterial in scope or
application to the Company and its Subsidiaries, taken as a whole),
including, without limitation, licenses, franchises and approvals from
the United States Food and Drug Administration and the United States
Federal Trade Commission, except where the failure to comply with any
of the foregoing would not have a Material Adverse Effect. Except as
otherwise set forth in the Exchange Act Filings, there are no citations
or notices of forfeiture or other proceedings pending or, to the best
knowledge of the Company, threatened or any basis therefor, which would
lead to the
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revocation, termination, suspension or non-renewal of any such
license, franchise, approval, certificate or permit the result of
which could reasonably be expected to have a Material Adverse Effect.
Except as otherwise set forth in the Memorandum, there are
no restrictions or limitations contained in any applicable license,
franchise, approval, certificate or permit, or, to the best knowledge
of the Company, threatened or proposed in any pending or contemplated
hearing, proceeding or procedure, that could reasonably be expected to
have a Material Adverse Effect.
(t) Neither the Company nor any of its affiliates (as defined
in Rule 501(b) of Regulation D under the Act) has directly, or through
any agent, (i) sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any security (as defined in the
Act) which is or will be integrated with the sale of the Securities in
a manner that would require the registration under the Act of the
Securities or (ii) engaged in any form of general solicitation or
general advertising in connection with the offering of the Securities
(as those terms are used in Regulation D under the Act) or in any
manner involving a public offering within the meaning of Section 4(2)
of the Act.
(u) Assuming the accuracy of the Purchaser's representations
and warranties set forth in Section 3.2 hereof and the due performance
by the Purchaser of the covenants and agreements set forth in Section
3.2 hereof, the sale of the Securities to the Purchaser in the manner
contemplated by this Agreement does not require registration under the
Act.
(v) The Company and its Subsidiaries have complied with all
provisions of Florida H.B. 1771, codified as Section 517.075 of the
Florida Statutes and all regulations promulgated thereunder relating to
issuers doing business with the Government of Cuba or with any person
or any affiliate located in Cuba.
The Purchaser acknowledges that the Company is not making any
representation or warranty to the Purchaser in connection with the sale of the
Securities and the transactions contemplated hereby except as specifically set
forth in this Section 3.1.
Section 3.2. Representations and Warranties of the Purchaser.
(a) The Purchaser is acquiring the Securities for its own account and not with a
view toward the resale or distribution thereof in violation of the Act or any
other applicable law. The
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Purchaser understands that it must bear the economic risk of its investment
for an indefinite period of time because the Securities are not registered
under the Securities Act, or any applicable state securities laws, and may not
be resold unless subsequently registered under the Act and such other laws or
unless an exemption from such registration requirements is available. The
Purchaser hereby agrees that it will not pledge, transfer, convey or otherwise
dispose of any of the Securities, except in a transaction that is in
compliance with applicable securities laws. The Purchaser has had opportunities
to ask questions of, and receive answers from, officers and other
representatives of the Company with respect to the business and financial
condition of the Company, to obtain such additional information concerning the
Company as the Purchaser has deemed relevant in connection with its investment
decision and such information as the Purchaser has deemed necessary to verify
such information. The Purchaser is an "accredited investor" within the meaning
of Rule 501 of Regulation D promulgated under the Act. The Purchaser
acknowledges that each certificate representing the Securities delivered at the
Closing shall, if appropriate, bear a legend to the effect that such Securities
have not been registered under the Act or any state securities laws and may not
be transferred except in compliance with terms of the Act and such state
securities laws, or pursuant to an exemption therefrom, and all other agreements
to which such Securities are subject (including, without limitation, the
Stockholders Agreement).
(b) If the Purchaser is an insurance company it also
represents that no part of the funds to be used to purchase the Securities
constitutes or is deemed to constitute assets of an employee benefit plan (as
such term is defined below). If the Purchaser is not an insurance company it
also represents that no part of the funds to be used to purchase the Securities
constitutes assets of any employee benefit plan, except as otherwise disclosed
in writing to the Company on or prior to the date of the Closing. As used in
this Section 3.2(b), the term "employee benefit plan" shall have the meaning
assigned to such term in Section 3 of ERISA. The Purchaser shall not transfer
the Securities to any Person that does not provide to the Company prior to such
transfer a representation and warranty to the foregoing effect. The Company
shall not be required to give effect to any transfer made in violation of the
preceding sentence.
(c) The Purchaser also represents and warrants to the Company
that (i) it has received and reviewed the Memorandum; (ii) it has authorized the
purchase of the Securities; (iii) the purchase of Securities does not violate
its charter, by-laws, certificate of limited partnership, agreement of limited
partnership, other organizational documents or any law or regulation to which it
is subject and (iv) no approval or consent of, or notice to or
<PAGE> 19
-16-
filing with, any Person is necessary in connection with the execution,
delivery or performance by the Purchaser of the transactions contemplated by
this Agreement.
(d) This Agreement has been duly authorized by the Purchaser
and, when executed and delivered by the Purchaser (assuming the due
authorization, execution and delivery by the Company), will constitute a valid
and legally binding agreement of the Purchaser, enforceable against it in
accordance with its terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar laws now or hereafter in effect relating to creditors' rights and
remedies generally, (ii) general equitable principles whether asserted in an
action at law or in equity, and that such enforceability may be subject to the
discretion of the court before which any proceedings therefor may be brought and
(iii) rights to indemnity or contribution may be limited by federal or state
securities laws or the public policy underlying such laws.
ARTICLE IV
CONDITIONS PRECEDENT TO CLOSING
Section 4.1. Conditions Precedent to Obligations of the
Purchaser. The obligation of the Purchaser to purchase the Securities to be
purchased by it hereunder is subject, at the Time of Purchase, to the
satisfaction of the following conditions:
(a) The Purchaser shall have received an opinion, addressed to
it in form and substance reasonably satisfactory to the Purchaser and
dated the Time of Purchase of John R. Jackson, Esq., general counsel to
the Company, and of Paul, Weiss, Rifkind, Wharton & Garrison, special
counsel to the Company, substantially in the form of Exhibit 2 hereto.
In rendering such opinions in accordance with Section 4.1(a), each such
counsel may rely as to factual matters upon certificates or other
documents furnished by officers and directors of the Company and
representations of the Purchaser and by government officials, and upon
such other documents as such counsel deem appropriate as a basis for
their opinion. Each such counsel may specify the jurisdictions in which
it is admitted to practice and that it is not admitted to practice in
any other jurisdiction and is not an expert in the law of any other
jurisdiction.
<PAGE> 20
-17-
(b) The representations and warranties made by the Company
herein shall be true and correct in all material respects (except for
changes expressly provided for in this Agreement) on and as of the Time
of Purchase with the same effect as though such representations and
warranties had been made on and as of the Time of Purchase except for
representations and warranties expressly made as of an earlier date,
which need only be true and correct in all material respects as of
such earlier date and the Company shall have complied in all material
respects with all of its agreements as set forth in this Agreement
and in the Common Stock Registration Rights Agreement, as the case
may be, required to be performed by it at or prior to the Time of
Purchase.
(c) Subsequent to the date of the Memorandum, (i) there shall
not have been any change, or any development involving a prospective
change, which has affected or may affect materially and adversely the
businesses or properties or the financial condition or the results of
operations of the Company and the Subsidiaries, taken as a whole (it
being understood that the failure to consummate any of the Pending
Acquisitions alone shall not be deemed to constitute such a change);
and (ii) except for the Pending Acquisitions, the Company and the
Subsidiaries shall have conducted their respective businesses only in
the ordinary course.
(d) At the Time of Purchase and after giving effect to the
consummation of the transactions contemplated by this Agreement and the
Common Stock Registration Rights Agreement, there shall exist no
Default or Event of Default.
(e) As to the Purchaser, the purchase of and payment for the
Securities (i) shall not be prohibited or enjoined (temporarily or
permanently) by any applicable law or governmental regulation
(including, without limitation, Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System), (ii) shall not subject the
Purchaser to any penalty, or in its reasonable judgment, other onerous
condition under or pursuant to any applicable law or governmental
regulation (provided, however, that such regulation, law or onerous
condition was not in effect at the date of this Agreement), and (iii)
shall be permitted by the laws and regulations of the jurisdictions to
which it is subject.
(f) At the Time of Purchase, the Purchaser shall have received
a certificate dated the Time of Purchase from the Company stating that
the conditions specified in
<PAGE> 21
-18-
Sections 4.1(b), (c) and (d) have been satisfied or duly waived at
the Time of Purchase.
(g) The Common Stock Registration Rights Agreement shall be
substantially in the form attached hereto or described herein and the
Common Stock Registration Rights Agreement and the Stockholder's
Agreement shall have been executed and delivered by all the
respective parties thereto and shall be in full force and effect.
(h) The Time of Purchase shall not be later than 5:00 P.M.,
New York City time, on October 4, 1996, subject to extension if the
Purchaser agrees to extend the Time of Purchase upon request to do so
by the Company.
(i) All proceedings taken in connection with the issuance of
the Securities and the transactions contemplated by this Agreement, the
Common Stock Registration Rights Agreement and all documents and papers
relating thereto shall be reasonably satisfactory to the Purchaser. The
Purchaser shall have received copies of such papers and documents as
they may reasonably request in connection therewith, all in form and
substance reasonably satisfactory to them.
(j) The Preemptive Right Opinion shall have been received by
the Company.
(k) On or before the Time of Purchase, the Purchaser shall
have received such further documents, opinions, certificates and
schedules or other instruments relating to the business, corporate,
legal and financial affairs of the Company and its Subsidiaries as it
may reasonably request.
Section 4.2. Conditions Precedent to Obligations of the
Company. The obligations of the Company to issue and sell the Securities
pursuant to this Agreement are subject, at the Time of Purchase, to the
satisfaction of the following conditions:
(a) The representations and warranties made by the Purchaser
herein shall be true and correct in all material respects at and as of
the Time of Purchase with the same effect as though such
representations and warranties had been made on and as of the Time of
Purchase.
<PAGE> 22
-19-
(b) The issuance or sale of the Securities by the Company (i)
shall not be enjoined under the laws of any jurisdiction to which the
Company is subject (temporarily or permanently) at the Time of
Purchase, (ii) shall not subject the Company to any penalty, or in its
reasonable judgment, other onerous condition under or pursuant to any
applicable law or governmental regulation (provided, however, that
such regulation, law or onerous condition was not in effect at the date
of this Agreement), and (iii) shall be permitted by the laws and
regulations of the jurisdictions to which it is subject.
(c) The Common Stock Registration Rights Agreement shall be
satisfactory in form and substance to the Company and shall have been
executed and delivered by all respective parties thereto and shall be
in full force and effect and counsel to the Company shall have received
a copy of such document duly executed by such parties.
(d) The Preemptive Right Opinion shall have been received by
the Company in a form and substance acceptable to it.
(e) The Unit Sale shall have occurred immediately prior to the
Time of Purchase.
ARTICLE V
COVENANTS
Section 5.1. Use of Proceeds. The Company will use the
proceeds from the issuance and sale of the Securities for general corporate
purposes.
Section 5.2. Adjustments. If the Company at any time prior to
the Time of Purchase shall, by subdivision, stock dividend, stock split,
combination, reclassification or modification of terms of securities or
otherwise, change the Securities into the same or a different number of
securities of any class or classes, the Purchaser shall thereafter be entitled
to acquire such number and kind of securities as would have been issuable as the
result of such change with respect to the Securities immediately prior to such
subdivision, stock dividend, stock split, combination, reclassification or other
change. If the shares of
<PAGE> 23
-20-
Common Stock are subdivided or combined into a greater or smaller number of
shares, the number of shares issuable hereunder shall be appropriately adjusted
by the ratio which the total number of such shares to be outstanding
immediately after such event bears to the total number of such shares
outstanding immediately prior to such event. The Company hereby agrees to
provide to the Purchaser notice of any such adjustment promptly after the
occurrence thereof. No adjustment shall be made hereunder if such adjustment
would reduce the purchase price to an amount below the par value of the Common
Stock on the date of this Agreement.
Section 5.3. Stockholders Agreement. The Purchaser agrees that
(a) the Securities will be subject to the terms of the Stockholders Agreement
which, among other things, restricts the transfer of the Securities and subjects
the Securities to certain "drag- along" rights, (b) the certificates
representing the Securities will bear the legends required by the Stockholders
Agreement and (c) upon amendment to the Stockholders Agreement it will execute a
joinder agreement to the Stockholders Agreement in form and substance reasonably
satisfactory to the Company.
Section 5.4. Board Representation. The Company agrees that it
shall include one person selected by the Purchaser in its nominations for the
Company's Board of Directors, and shall use all reasonable commercial efforts to
cause the election of such person; provided that, this agreement by the Company
shall terminate and be of no force and effect if the Purchaser ceases to own
[75%] of (i) the shares of Common Stock purchased hereby and (ii) the Units
purchased by it pursuant to the Memorandum immediately prior to the Time of
Purchase. The Purchaser's right hereby to designate a person for nomination to
the Company's Board of Directors is personal to the Purchaser and
nontransferable. The Company's obligation hereby shall be deemed satisfied if
the holders of the Preferred Stock and the 14% Senior Redeemable Preferred
Stock, Series C, acting together as a single series and class, select the
Purchaser's nominee for director on the Company's Board of Directors in
accordance with Section 5 of the Certificate of Designation for such preferred
stock and the Company shall have included such nominee in its nominations and
shall have used all reasonable commercial efforts to cause the election of such
nominee.
<PAGE> 24
-21-
ARTICLE VI
INDEMNITY
Section 6.1. Indemnity.
(a) Indemnification by the Company. The Company agrees and
covenants to hold harmless and indemnify the Purchaser and each person, if any,
who controls the Purchaser within the meaning of Section 20 of the Exchange Act
from and against any losses, claims, damages, liabilities and expenses
(including expenses of investigation) to which the Purchaser or such
controlling person may become subject (i) arising out of or based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Memorandum (as updated and amended and delivered to the Purchaser) and any
amendments or supplements thereto (as updated and amended and delivered to the
Purchaser) or arising out of or based upon the omission or alleged omission to
state in the Memorandum (as updated and amended and delivered to the Purchaser)
a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) arising out of, based upon or in any
way related or attributed to claims, actions or proceedings relating to this
Agreement or the subject matter of this Agreement and resulting from any
breach of any representation, warranty, covenant or agreement of the Company
or any of the Material Subsidiaries contained in this Agreement or (iii)
arising in any manner out of or in connection with such Person being a Purchaser
of the Securities and relating to any action taken or omitted to be taken by the
Company or any of the Material Subsidiaries in violation of this Agreement;
provided, however, that the Company shall not be liable under this paragraph (a)
for any amounts paid in settlement of claims without its written consent, which
consent shall not be unreasonably withheld, or to the extent that it is finally
judicially determined that such losses, claims, damages or liabilities arose
primarily out of the gross negligence, willful misconduct or bad faith of the
Purchaser or such indemnified person. The Company further agrees to reimburse
the Purchaser for any reasonable legal and other expenses as they are incurred
by it in connection with investigating, preparing to defend or defending any
lawsuits, claims or other proceedings or investigations arising in any manner
out of or in connection with such Person being a Purchaser; provided that if the
Company reimburses the Purchaser hereunder for any expenses incurred in
connection with a lawsuit, claim or other proceeding for which indemnification
is sought, the Purchaser hereby agrees to refund such reimbursement of expenses
to the extent it is finally judicially determined that the losses, claims,
damages or liabilities arising out of or in connection with such lawsuit,
<PAGE> 25
-22-
claim or other proceedings arose primarily out of the gross negligence, willful
misconduct or bad faith of the Purchaser or such indemnified person or from a
violation by the Purchaser of legal requirements applicable to the Purchaser
solely because of its character as a particular type of regulated institution.
The Company further agrees that the indemnification, contribution and
reimbursement commitments set forth in this Article VI shall apply whether or
not the Purchaser is a formal party to any such lawsuits, claims or other
proceedings. Notwithstanding the foregoing, the Company shall not be liable to a
party seeking indemnification under the foregoing provisions of this paragraph
(a) to the extent that any such losses, claims, damages, liabilities or expenses
arise out of or are based upon an untrue statement or omission made in any of
the documents referred to in this paragraph (a) in reliance upon and in
conformity with the information relating to the party seeking indemnification
furnished in writing by such party for inclusion therein. The indemnity,
contribution and expense reimbursement obligations of the Company under this
Article VI shall be in addition to any liability the Company may otherwise have.
(b) Procedure. If any Person shall be entitled to indemnity
hereunder (the "Indemnified Parties"), such Indemnified Party shall give prompt
notice confirmed in writing to the party or parties from which such indemnity is
sought (the "Indemnifying Parties") of the commencement of any proceeding (a
"Proceeding") with respect to which such Indemnified Party seeks indemnification
or contribution pursuant hereto; provided, however, that the failure so to
notify the Indemnifying Parties shall not relieve the Indemnifying Parties from
any obligation or liability except to the extent that the Indemnifying Parties
have been prejudiced materially by such failure. The Indemnifying Parties shall
have the right, exercisable by giving written notice to an Indemnified Party
promptly after the receipt of written notice from such Indemnified Party of such
Proceeding, to assume, at the Indemnifying Parties' expense, the defense of any
such Proceeding, with counsel reasonably satisfactory to such Indemnified Party;
provided, however, that an Indemnified Party or parties (if more than one such
Indemnified Party is named in any Proceeding) shall have the right to employ
separate counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party or parties unless: (1) the Indemnifying Parties agree to
pay such fees and expenses; or (2) the Indemnifying Parties fail promptly to
assume the defense of such Proceeding or fail to employ counsel reasonably
satisfactory to such Indemnified Party or parties; or (3) the named parties to
any such Proceeding (including any impleaded parties) include both such
Indemnified Party or Parties and the Indemnifying Party or an Affiliate of the
Indemnifying Party and such Indemnified Parties, and the Indemnifying Parties
shall have
<PAGE> 26
-23-
been advised in writing by outside counsel that there may be one or
more material defenses available to such Indemnified Party or parties that are
different from or additional to those available to the Indemnifying Parties, in
which case, if such Indemnified Party or parties notifies the Indemnifying
Parties in writing that it elects to employ separate counsel at the expense of
the Indemnifying Parties, the Indemnifying Parties shall not have the right to
assume the defense thereof and such counsel shall be at the expense of the
Indemnifying Parties, it being understood, however, that, unless there exists a
conflict among Indemnified Parties, the Indemnifying Parties shall not, in
connection with any one such Proceeding or separate but substantially similar or
related Proceedings in the same jurisdiction, arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel, if any)
at any time for such Indemnified Party or parties, or for fees and expenses
that are not reasonable. No Indemnified Party or parties will settle any
Proceedings without the written consent of the Indemnifying Party or parties
(but such consent will not be unreasonably withheld).
Section 6.2. Contribution. If for any reason the
indemnification provided for in Section 6.1 of this Agreement is unavailable to
an Indemnified Party, or insufficient to hold it harmless, in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
applicable Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect not only the relative benefits received by the
Indemnifying Party on the one hand and the Indemnified Party on the other, but
also the relative fault of the Indemnifying and Indemnified Parties in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying and Indemnified Parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Indemnifying or
Indemnified Parties and each such party's relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims, damages
and liabilities referred to above shall be deemed to include any reasonable
legal or other fees or expenses incurred by such party in connection with
investigating or defending any such claim.
<PAGE> 27
-24-
The Company and the Purchaser agree that it would not be just
and equitable if contribution pursuant to the immediately preceding paragraph
were determined by any method of allocation which does not take into account the
equitable considerations referred to in such paragraph. No person guilty of
fraudulent misrepresentation shall be entitled to contribution from any Person.
Section 6.3. Common Stock Registration Rights Agreements.
Notwithstanding anything to the contrary in this Article VI, the indemnification
and contribution provisions of the Common Stock Registration Rights Agreement
shall govern any claim with respect thereto.
ARTICLE VII
MISCELLANEOUS
Section 7.1. Survival of Provisions. The representations,
warranties and covenants of the Company and the Purchaser made herein, the
indemnity and contribution agreements contained herein and each of the
provisions of Articles V, VI and VII shall remain operative and in full force
and effect regardless of (a) any investigation made by or on behalf of the
Company, the Purchaser or any Indemnified Party, (b) acceptance of any of the
Securities and payment therefor or (c) except as otherwise provided herein,
disposition of the Securities by the Purchaser whether by redemption, exchange,
sale or otherwise. The respective agreements, covenants, indemnities and other
statements set forth in Article VI and Section 7.6 shall remain in full force
and effect regardless of any termination or cancellation of this Agreement.
Section 7.2. Termination. This Agreement may be terminated (as
to the party electing to so terminate it) at any time prior to the Time of
Purchase:
(a) by the Company if any of the conditions specified in
Section 4.2 of this Agreement have not been met or waived by the
Company pursuant to the terms of this Agreement;
(b) by the Purchaser if any of the conditions specified in
Section 4.1 of this Agreement have not been met or waived pursuant to
the terms of this Agreement by October 4, 1996.
<PAGE> 28
-25-
(c) Termination of this Agreement pursuant to this Section 7.2
shall be without liability of any party to any other party except as
provided in Section 7.1 hereof.
Section 7.3. No Waiver; Modifications in Writing. No failure
or delay on the part of the Company or the Purchaser in exercising any right,
power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company or the Purchaser at law or in
equity or otherwise. No waiver of or consent to any departure by the Company
from any provision of this Agreement shall be effective unless signed in
writing by the party entitled to the benefit thereof, provided that notice of
any such waiver shall be given to each party hereto as set forth below. Except
as otherwise provided herein, no amendment, modification or termination of any
provision of this Agreement shall be effective unless signed in writing by or
on behalf of the Purchaser. Any amendment, supplement or modification of or to
any provision of this Agreement, any waiver of any provision of this Agreement,
and any consent to any departure by the Company from the terms of any
provision of this Agreement, shall be effective only in the specific instance
and for the specific purpose for which made or given. Except where notice is
specifically required by this Agreement, no notice to or demand on the Company
in any case shall entitle the Company to any other or further notice or demand
in similar or other circumstances.
Section 7.4. Communications. All notices, demands and other
communications provided for hereunder shall be in writing and, (a) if to the
Purchaser, shall be given by registered or certified mail, return receipt
requested, telex, telegram, telecopy, courier service or personal delivery,
addressed to Bastion Capital Fund, L.P., Suite 2960, 1999 Avenue of Stars, Los
Angeles, CA 90067, Attention: Guillermo Bron or to such other address as the
Purchaser may designate to the Company in writing, with a copy to Skadden, Arps,
Slate, Meagher & Flom, 300 S. Grand Avenue, Los Angeles, CA 90071, Attention:
Edward E. Gonzalez, Esq., and (b) if to the Company, shall be given by similar
means to Renaissance Cosmetics, Inc., 955 Massachusetts Avenue, Cambridge,
Massachusetts 02139, Attention: President or to such other address as the
Company may designate to the Purchaser in writing, with copies to Renaissance
Cosmetics, Inc., 635 Madison Avenue, New York, New York 10022, Attention: John
R. Jackson, Esq., General Counsel, and Paul, Weiss, Rifkind, Wharton & Garrison,
1285 Avenue of the Americas, New York, New York
<PAGE> 29
-26-
10019, Attention: Paul D. Ginsberg, Esq.. In each case notices, demands and
other communications shall be deemed given when received.
Section 7.5. Taxes. The Company shall pay any and all stamp,
transfer and other similar taxes payable or determined to be payable in
connection with the execution and delivery of this Agreement, the Common Stock
Registration Rights Agreement or the issuance of the Securities, and shall save
and hold the Purchaser harmless from and against any and all liabilities with
respect to or resulting from any delay in paying, or omission to pay, such
taxes.
Section 7.6. Determinations. All determinations to be made by
the Company or the Purchaser hereunder in its opinion or judgment or with its
approval or otherwise shall be made by it in its sole discretion (except as
expressly provided otherwise).
Section 7.7. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto on
separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Agreement.
Section 7.8. Binding Effect; Assignment. The rights and
obligations of the Purchaser under this Agreement may not be assigned to any
other Person except with the prior consent of the Company. Except as expressly
provided in this Agreement, this Agreement shall not be construed so as to
confer any right or benefit upon any Person other than the parties to this
Agreement, and their respective successors and assigns. This Agreement shall be
binding upon the Company and the Purchaser, and their successors and assigns.
SECTION 7.9. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO
BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
Section 7.10. Severability of Provisions. Any provision of
this Agreement which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
<PAGE> 30
-27-
Section 7.11. Headings. The Article and Section headings and
Table of Contents used or contained in this Agreement are for convenience of
reference only and shall not affect the construction of this Agreement.
7.12 Entire Agreement. This Agreement, together with
the exhibits hereto, and the Stockholders' Agreement and are intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein and therein. There
are no restrictions, promises, warranties or undertakings, other than those
set forth or referred to herein or therein. This Agreement, together with the
exhibits hereto, and the Stockholders Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
7.13 Expenses. Whether or not the transactions contemplated by
this Agreement are consummated, the Company and the Purchaser shall each pay its
own respective fees and expenses incurred by, or on behalf of, it, including,
without limitation, all fees and expenses of its legal counsel.
<PAGE> 31
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first written above.
RENAISSANCE COSMETICS, INC.
By:______________________________
Name:
Title:
BASTION CAPITAL FUND, L.P.
By:_______________________________
Name:
Title:
<PAGE> 32
SCHEDULE 3.1(d)
HOUBIGANT (1995) LIMITED/HOUBIGANT (1995) LIMITEE
DANA PERFUMES (CANADA) LTD.
MARCAFIN S.A.
PERFUMRES DANA DO BRAZIL, S.A.
RENAISSANCE ACQUISITION, INC.
GREAT AMERICAN COSMETICS, INC.
<PAGE> 1
EXHIBIT 10.128
COMMON STOCK REGISTRATION RIGHTS AGREEMENT
DATED AS OF SEPTEMBER 27, 1996
BETWEEN
RENAISSANCE COSMETICS, INC.
AND
BASTION CAPITAL FUND, L.P.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions.................................................................................... 1
2. Registration Rights............................................................................ 5
3. Transfers of Common Stock...................................................................... 11
4. Registration Procedures........................................................................ 11
5. Indemnification and Contribution............................................................... 14
6. Miscellaneous.................................................................................. 17
(a) No Inconsistent Agreements............................................................ 17
(b) Amendments and Waivers................................................................ 18
(c) Notices............................................................................... 18
(d) Successors and Assigns................................................................ 19
(e) Rules 144 and 144A.................................................................... 19
(f) Counterparts.......................................................................... 19
(g) Headings.............................................................................. 19
(h) GOVERNING LAW......................................................................... 19
(i) Severability.......................................................................... 20
(j) Entire Agreement...................................................................... 20
</TABLE>
-i-
<PAGE> 3
THIS COMMON STOCK REGISTRATION RIGHTS AGREEMENT (this
"Agreement") is made and entered into as of September __, 1996, between
Renaissance Cosmetics, Inc., a Delaware corporation (the "Company"), and Bastion
Capital Fund, L.P., a Delaware limited partnership (the "Purchaser").
This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of September __, 1996, between the Company and the Purchaser
(the "Purchase Agreement"), relating to the sale by the Company to the Purchaser
of 51,959 share of Common Stock, par value $0.01 per share (the "Common Stock").
In order to induce the Purchaser to enter into the Purchase Agreement, the
Company has agreed to provide to the Purchaser and its direct and indirect
transferees (the "Holders"), among other things, the registration rights for the
Common Stock set forth in this Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"Business Day" shall mean a day that is not a Legal Holiday.
"Capital Stock" shall mean, with respect to any Person, any
and all shares or other equivalents (however designated) of capital
stock, partnership interests or any other participation, right or other
interest in the nature of an equity interest in such Person or any
option, warrant or other security convertible into any of the
foregoing.
"Closing Date" shall mean the date of the Closing referred to
in the Purchase Agreement.
"Common Stock" shall have the meaning set forth in the second
paragraph of the preamble of this Agreement.
"Company" shall have the meaning set forth in the preamble and
shall also include the Company's successors.
"Demand Registration" shall have the meaning set forth in
Section 2.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
"Fair Market Value" shall mean the value of any securities as
determined (without any discount for lack of liquidity, the amount of
Common Stock proposed to be sold or the fact that the shares of Common
Stock held by any
<PAGE> 4
-2-
Holder of such security may represent a minority interest in a private
company) by CIBC Wood Gundy Securities Corp. (or any successor) or any
other nationally recognized investment banking firm selected by the
Company for the determination of such value.
"Holder" shall mean the Purchaser, for so long as the
Purchaser owns any Common Stock, and each of its successors, assigns
and direct and indirect transferees who become registered owners of
Common Stock.
"Included Shares" shall have the meaning set forth in Section
2.1(a).
"indemnified party" shall have the meaning set forth in
Section 5(c).
"indemnifying party" shall have the meaning set forth in
Section 5(c).
"Legal Holiday" shall mean a Saturday, a Sunday or a day on
which banking institutions in New York, New York are required by law,
regulation or executive order to remain closed. If a payment date is a
Legal Holiday, payment may be made on the next succeeding day that is
not a Legal Holiday.
"Old Warrant Agreement" means the Warrant Agreement dated as
of August 18, 1994, between the Company and American Bank National
Association, as Warrant Agent.
"Person" shall mean an individual, corporation, partnership,
joint venture, association, joint stock company, trust, unincorporated
organization, or other legal entity.
"Piggy-Back Registration" shall have the meaning set forth in
Section 2.2.
"Prospectus" means a prospectus which meets the requirements
of Section 10 of the Securities Act.
"Public Equity Offering" shall mean a public offering by the
Company of shares of its common stock on a registration statement filed
under the Securities Act (however designated and whether voting or
non-voting) (other than a registration statement filed on Form S-4 or
S-8 or similar form).
"Purchase Agreement" shall have the meaning set forth in the
preamble.
"Purchase Election" shall have the meaning set forth in
Section 2.1(b).
<PAGE> 5
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"Purchase Offer" shall have the meaning set forth in Section
2.1(b).
"Purchase Offer Payment Date" shall have the meaning set forth
in Section 2.1(b).
"Purchaser" shall have the meaning set forth in the preamble.
"Registrable Securities" shall mean the shares of Common Stock
acquired by the Purchaser pursuant to the Purchase Agreement. As to any
particular Registrable Securities, such securities shall cease to be
Registrable Securities when (i) a Registration Statement with respect
to such securities shall have been declared effective under the
Securities Act and such securities shall have been disposed of pursuant
to such Registration Statement, (ii) such securities have been sold to
the public pursuant to Rule 144 (or any similar provision then in
force, but not Rule 144A) under the Securities Act or, in the opinion
of counsel to the Company, such securities may be sold under Rule
144(k) under the Securities Act, (iii) such securities shall have been
otherwise transferred by such Holder and new certificates for such
securities not bearing a legend restricting further transfer shall have
been delivered by the Company or its transfer agent and subsequent
disposition of such securities shall not require registration or
qualification under the Securities Act or any similar state law then in
force or (iv) such securities shall have ceased to be outstanding.
"Registration Expenses" shall mean all expenses incident to
the Company's performance of or compliance with this Agreement,
including, without limitation, all SEC and stock exchange or National
Association of Securities Dealers, Inc. registration and filing fees
and expenses, fees and expenses of compliance with securities or blue
sky laws (including, without limitation, reasonable fees and
disbursements of counsel for the underwriters in connection with blue
sky qualifications of the Registrable Securities), rating agency fees,
printing expenses, messenger, telephone and delivery expenses, fees and
disbursements of counsel for the Company and all independent certified
public accountants (but not including any underwriting discounts or
commissions or transfer taxes, if any, attributable to the sale of
Registrable Securities by Holders of such Registrable Securities or
fees and expenses of counsel to the Selling Holders).
"Registration Statement" shall mean any registration statement
of the Company which covers any of the shares of Common Stock pursuant
to the provisions of this Agreement, including the Prospectus,
amendments and supplements to such Registration Statement, including
post-effective amendments,
<PAGE> 6
-4-
all exhibits and all material incorporated by reference or deemed to be
incorporated by reference in such Registration Statement.
"Requisite Shares" shall mean a number of Registrable
Securities equal to not less than 25% of the Registrable Securities
held in the aggregate by all Holders.
"Rule 144" shall mean Rule 144 under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other
than Rule 144A) or regulation hereafter adopted by the SEC providing
for offers and sales of securities made in compliance therewith
resulting in offers and sales by subsequent holders that are not
affiliates of an issuer of such securities being free of the
registration and prospectus delivery requirements of the Securities
Act.
"Rule 144A" shall mean Rule 144A under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other
than Rule 144) or regulation hereafter adopted by the SEC providing for
offers and sales of securities made in compliance therewith resulting
in offers and sales by subsequent holders that are not affiliates of an
issuer of such securities being free of the registration and prospectus
delivery requirements of the Securities Act.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Selling Holder" shall mean a Holder who is selling Common
Stock in accordance with the provisions of Section 2.1 or 2.2 hereof.
"Stockholders Agreement" means the Stockholders Agreement
dated August 18, 1994 between the Company and each of the individuals
or entities which are parties thereto.
"Triggering Event" shall have the meaning set forth in Section
2.1.
"Withdrawal Election" shall have the meaning set forth in
Section 2.3.
2. Registration Rights.
2.1 Demand Registration.
<PAGE> 7
-5-
(a) Request for Registration. At any time and from time to
time on or after the fifth anniversary of the Closing Date (the "Triggering
Event"), Holders owning, individually or in the aggregate, at least the
Requisite Shares may make a written request for registration under the
Securities Act of their Registrable Securities (a "Demand Registration"). Any
such request will specify the number of Registrable Securities proposed to be
sold (which shall not be less than the Requisite Shares) and will also specify
the intended method of disposition thereof. Upon a demand, the Company will
prepare, file and use its best efforts to cause to be effective within 180 days
of such demand a Registration Statement in respect of all the Registrable
Securities. The Company shall give written notice of such registration request
within 10 days after the receipt thereof to all other Holders. Within 20 days
after receipt of such notice by any Holder, such Holder may request in writing
that Registrable Securities be included in such registration and the Company
shall include in the Demand Registration the Registrable Securities of any such
Selling Holder requested to be so included (the "Included Shares"). Each such
request by such other Selling Holders shall specify the number of Included
Shares proposed to be sold and the intended method of disposition thereof.
Subject to Section 2.1(c), in no event shall the Company be required to register
Registrable Securities pursuant to this Section 2.1 more than a maximum of two
separate occasions.
(b) Repurchase Election. (i) Notwithstanding the foregoing
provisions of Section 2.1(a), the Company shall not be obligated to effect a
Demand Registration if the Company elects to make an offer to repurchase (a
"Purchase Offer") all of the Included Shares (a "Purchase Election") by mailing
notice of such Purchase Offer to all Holders of Included Shares on a date (the
"Purchase Election Date") not more than 60 days after the receipt of any request
for a Demand Registration and indicating in such Purchase Offer that the
Purchase Election will be consummated on a Business Day (the "Purchase Offer
Payment Date") not more than 60 days after the Purchase Election Date at a price
equal to the Fair Market Value of each share of Common Stock owned by the Holder
or, if later, 10 days after the determination of the Fair Market Value of the
Common Stock.
(ii) Notice of a Purchase Offer shall be mailed by the Company
(or caused to be mailed by the Company), not less than 30 days nor more than 40
days before the Purchase Offer Payment Date to each Holder of Included Shares at
its last registered address. The Purchase Offer shall remain open from the time
of mailing for at least 20 Business Days and until 5:00 p.m., New York City
time, on the Business Day next preceding the Purchase Offer Payment Date. The
notice, which shall govern the terms of the Purchase Offer, shall include such
disclosures as are required by law and shall state:
<PAGE> 8
-6-
(1) that the Purchase Offer is being made pursuant to this
Section 2.1(b) and that all Included Shares tendered for repurchase
will be accepted for payment;
(2) the purchase price per share of Common Stock calculated as
set forth above and the Purchase Offer Payment Date;
(3) that any Included Shares accepted for payment pursuant to
the Purchase Offer shall cease to be outstanding after the Purchase
Offer Payment Date unless the Company defaults in making payment
therefor of the purchase price;
(4) that Holders electing to have Included Shares purchased
pursuant to a Purchase Offer will be required to surrender such share
of Common Stock, together with a completed letter of transmittal, to
the Company (or its agent as designated by the Company in such notice)
at the address specified in the notice no later than 5:00 p.m. New York
City time on the Business Day prior to the Purchase Offer Payment Date;
(5) that Holders will be entitled to withdraw their election
if the Company (or such designated agent) receives, not later than 5:00
p.m. New York City time on the Business Day prior to the Purchase Offer
Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the number of shares of Common
Stock delivered for purchase and a statement that such Holder is
withdrawing its election to have such shares of Common Stock purchased
and promptly thereafter the Company (or such designated agent) shall
redeliver the withdrawn shares of Common Stock to the Holder;
(6) that a Holder electing not to tender such Holder's
Included Shares for purchase pursuant to such Purchase Offer by 5:00
p.m. New York City time on the Business Day prior to the Purchase Offer
Payment Date will have no continuing right to require the Company to
repurchase such Holder's Included Shares; and
(7) that Holders whose shares of Common Stock are tendered for
purchase in part only will be issued new certificates representing the
number of the unpurchased shares of Common Stock surrendered.
On the Purchase Offer Payment Date, the Company shall (i)
accept for payment Included Shares or portions thereof tendered pursuant to the
Purchase Offer,
<PAGE> 9
-7-
(ii) promptly deliver to Holders of shares of Common Stock so accepted payment
of the purchase price therefor and (iii) issue and mail or deliver to such
Holders new certificates representing a number of shares of Common Stock equal
to the unpurchased portion of the shares of Common Stock surrendered. Upon
payment for all Included Shares tendered pursuant to a Purchase Offer the
Company shall be deemed to have effected the Demand Registration (including
without limitation for purposes of the last sentence of Section 2.1(a)).
The Company shall comply, to the extent applicable, with the
requirements of Sections 13 and 14 of the Exchange Act, and any other securities
laws or regulations in connection with the repurchase of Registrable Securities
pursuant to a Purchase Offer. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of this Section
2.1(b), the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 2.1(b) by virtue thereof.
(c) Effective Registration. A registration will not be deemed
to have been effected as a Demand Registration unless it has been declared
effective by the SEC and the Company has complied in all material respects with
its obligations under this Agreement with respect thereto; provided that if,
after it has become effective, the offering of Registrable Securities pursuant
to such registration is or becomes the subject of any stop order, injunction or
other order or requirement of the SEC or any other governmental or
administrative agency, or if any court prevents or otherwise limits the sale of
Registrable Securities pursuant to the registration (for any reason other than
the act or omissions of the Selling Holders), such registration will be deemed
not to have been effected. If (i) a registration requested pursuant to this
Section 2.1 is deemed not to have been effected or (ii) the registration
requested pursuant to this Section 2.1 does not remain effective for a period of
at least 90 days beyond the effective date thereof or until the earlier
consummation of the distribution by the Selling Holders of the Included Shares,
then the Company shall continue to be obligated to effect an additional
registration pursuant to this Section 2.1. The Selling Holders of Registrable
Securities shall be permitted to withdraw all or any part of the Included Shares
from a Demand Registration at any time prior to the effective date of such
Demand Registration. If at any time a Registration Statement is filed pursuant
to a Demand Registration, and subsequently a sufficient number of Included
Shares are withdrawn from the Demand Registration so that such Registration
Statement does not cover at least 25% of the Registrable Securities held by all
Holders, the Selling Holders who have not withdrawn their Included Shares shall
have the opportunity to include an additional number of Registrable Securities
in the Demand Registration so that such Registration Statement covers at least
25% of the Registrable Securities held by all Holders. If an additional number
of Registrable Securities is not so included so that such Registration Statement
<PAGE> 10
-8-
does not cover at least 25% of the Registrable Securities held by all Holders,
the Company may withdraw the Registration Statement. In the event that a
Registration Statement has been filed and the Company withdraws the Registration
Statement solely due to the occurrence of the events specified in the prior two
sentences, such withdrawn Registration Statement will count as a Demand
Registration; otherwise such withdrawn Registration Statement will not count as
a Demand Registration and the Company shall continue to be obligated to effect a
registration pursuant to this Section 2.1.
(d) Priority in Demand Registrations Pursuant to Section 2.1.
If a Demand Registration pursuant to this Section 2.1 involves an underwritten
offering and the managing underwriter advises the Company in writing that, in
its opinion, the number of securities requested to be included in such
registration (including securities of the Company which are not Registrable
Securities) exceeds the number which can be sold in such offering, the Company
will include in such registration only the Registrable Securities requested by
the managing underwriter(s) to be included in such registration. In the event
that the number of Registrable Securities requested to be included in such
registration exceeds the number which, in the opinion of such managing
underwriter, can be sold, the number of such Registrable Securities to be
included in such registration shall be allocated pro rata among all requesting
Holders on the basis of the relative number of shares of Registrable Securities
then held by each such Holder (provided that any shares thereby allocated to any
such Holder that exceed such Holder's request shall be reallocated among the
remaining requesting Holders in like manner). In the event that the number of
Registrable Securities requested to be included in such registration is less
than the number which, in the opinion of the managing underwriter, can be sold,
the Company may include in such registration the securities the Company proposes
to sell up to the number of securities that, in the opinion of the managing
underwriter, can be sold.
(e) Selection of Underwriter. If the Selling Holders so elect,
the offering of such Registrable Securities pursuant to such Demand Registration
shall be in the form of an underwritten offering. The Company shall select one
or more nationally recognized firms of investment bankers, who shall be
reasonably acceptable to the Selling Holders, to act as the managing underwriter
or underwriters in connection with such offering and shall select any additional
investment banker(s) and manager(s) to be used in connection with the offering.
(f) Expenses. The Company will pay all Registration Expenses
in connection with the registrations requested pursuant to Section 2.1(a). Each
Holder shall pay all underwriting discounts and commissions and transfer taxes,
if any, relating to the sale or disposition of such Holder's Registrable
Securities pursuant to a registration statement requested pursuant to this
Section 2.1.
<PAGE> 11
-9-
2.2 Piggy-Back Registration. If at any time after the
Company's initial public offering of Common Stock the Company proposes to file a
Registration Statement under the Securities Act with respect to an offering by
the Company for its own account or for the account of any of its respective
securityholders of any class of its common equity securities (other than (i) a
Registration Statement on Form S-4 or S-8 (or any substitute form that may be
adopted by the SEC) or (ii) a Registration Statement filed in connection with an
offer or offering of securities solely to the Company's existing
securityholders), then the Company shall give written notice of such proposed
filing to the Holders of Registrable Securities as soon as practicable (but in
no event less than 20 Business Days before the anticipated filing date), and
such notice shall offer such Holders the opportunity to register such number of
shares of Registrable Securities as each such Holder may request (which request
shall specify the Registrable Securities intended to be disposed of by such
Selling Holder and the intended method of distribution thereof) (a "Piggy-Back
Registration"). The Company shall use its reasonable best efforts to cause the
managing underwriter or underwriters of such proposed underwritten offering to
permit the Registrable Securities requested to be included in a Piggy-Back
Registration to be included on the same terms and conditions as any similar
securities of the Company or any other securityholder included therein and to
permit the sale or other disposition of such Registrable Securities in
accordance with the intended method of distribution thereof except as otherwise
provided in Section 2.3. Any Selling Holder shall have the right to withdraw its
request for inclusion of its Registrable Securities in any Registration
Statement pursuant to this Section 2.2 by giving written notice to the Company
of its request to withdraw no later than 5 Business Days before such
Registration Statement becomes effective. The Company may withdraw a Piggy-Back
Registration at any time prior to the time it becomes effective; provided that
the Company shall give prompt notice thereof to participating Selling Holders.
The Company will pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to this Section 2.2,
and each Holder shall pay all underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Securities pursuant to a registration statement effected pursuant to
this Section 2.2.
No registration effected under this Section 2.2, and no
failure to effect a registration under this Section 2.2, shall relieve the
Company of its obligation to effect a registration upon the request of Holders
pursuant to Section 2.1, and no failure to effect a registration under this
Section 2.2 and to complete the sale of shares of Common Stock in connection
therewith shall relieve the Company of any other obligation under this
Agreement.
<PAGE> 12
-10-
2.3 Reduction of Offering.
(a) Piggy-Back Registration. (i) If the managing
underwriter(s) of any underwritten offering described in Section 2.2 have
informed, in writing, the Selling Holders of the Registrable Securities
requesting inclusion in such offering that it is their opinion that the total
number of shares which the Company, the Selling Holders and any other Persons
desiring to participate in such registration intend to include in such offering
is such as to adversely affect the success of such offering, including the price
at which such securities can be sold, then the number of shares to be offered
for the account of the Selling Holders and all such other Persons (other than
the Company) participating in such registration shall be reduced or limited pro
rata in proportion to the respective number of shares requested to be registered
to the extent necessary to reduce the total number of shares requested to be
included in such offering to the number of shares, if any, recommended by such
managing underwriters; provided, however, that if such offering is effected for
the account of any securityholder of the Company other than the Selling Holders,
pursuant to the demand registration rights of any such securityholder, then the
number of shares to be offered for the account of the Selling Holders and all
other Persons (other than the Company) participating in such registration (but
not such securityholders who have exercised their demand registration rights)
shall be reduced or limited pro rata in proportion to the respective number of
shares requested to be registered to the extent necessary to reduce the total
number of shares requested to be included in such offering to the number of
shares, if any, recommended by such managing underwriters.
(ii) If the managing underwriter or underwriters of any
underwritten offering described in Section 2.2 notify the Selling Holders
requesting inclusion of Registrable Securities in such offering, that the kind
of securities that the Selling Holders, the Company and any other Persons
desiring to participate in such registration intend to include in such offering
is such as to adversely affect the success of such offering, (x) the Registrable
Securities to be included in such offering shall be reduced as described in
clause (i) above or (y) if a reduction in the Registrable Securities pursuant to
clause (i) above would, in the judgment of the managing underwriter(s) or
underwriters, be insufficient to substantially eliminate such adverse effect
that inclusion of the Registrable Securities requested to be included would have
on such offering, such Registrable Securities will be excluded from such
offering.
(b) If, as a result of the proration provisions of this
Section 2.3, any Selling Holder shall not be entitled to include all Registrable
Securities in a Piggy-Back Registration that such Selling Holder has requested
to be included, such Selling Holder may elect to withdraw his request to include
Registrable Securities in such registration (a "Withdrawal Election"); provided,
however, that a Withdrawal Election shall be
<PAGE> 13
-11-
irrevocable and, after making a Withdrawal Election, a Selling Holder shall no
longer have any right to include Registrable Securities in the registration as
to which such Withdrawal Election was made.
3. Transfers of Common Stock.
3.1 All shares of Common Stock owned by a Holder at any time
and from time to time outstanding that are Registrable Securities shall be held
subject to the conditions and restrictions set forth in the Stockholders
Agreement as if the holder thereof were a party to the Stockholders Agreement.
4. Registration Procedures. In connection with the obligations
of the Company with respect to any Registration Statement pursuant to Sections
2.1 and 2.2 hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement on
the appropriate form under the Securities Act, which form (i) shall be
selected by the Company and (ii) shall comply as to form in all
material respects with the requirements of the applicable form and
include all financial statements required by the SEC to be filed
therewith, and the Company shall use its best efforts to cause such
Registration Statement to become effective and remain effective in
accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement effective for the
applicable period, cause each Prospectus to be supplemented by any
required prospectus supplement and, as so supplemented, to be filed
pursuant to Rule 424 under the Securities Act;
(c) furnish to each Holder of Registrable Securities and to
each underwriter of an underwritten offering of Registrable Securities,
if any, without charge, as many copies of each Prospectus, including
each preliminary Prospectus, and any amendment or supplement thereto
and such other documents as such Holder or underwriter may reasonably
request, in order to facilitate the public sale or other disposition of
the Registrable Securities;
(d) use its best efforts to register or qualify the
Registrable Securities under all applicable state securities or "blue
sky" laws of such jurisdictions as any Holder thereof covered by a
Registration Statement shall reasonably request in writing by the time
the applicable Registration Statement is declared effective by the SEC,
and do any and all other acts and things which may be reasonably
<PAGE> 14
-12-
necessary or advisable to enable such Holder to consummate the
disposition in each such jurisdiction of such Registrable Securities
owned by such Holder; provided, however, that the Company shall not be
required to (i) qualify generally to do business in any jurisdiction
where it is not then so qualified, (ii) take any action that would
subject it to general service of process in any jurisdiction in which
it is not then so subject or (iii) subject itself to taxation in excess
of a nominal dollar amount in any such jurisdiction;
(e) notify each Holder of Registrable Securities promptly and,
if requested by such Holder, confirm such advice in writing (i) when a
Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of any
request by the SEC or any state securities authority for amendments and
supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become
effective, (iii) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if, between the effective date of a Registration
Statement and the closing of any sale of Registrable Securities covered
thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true and
correct in all material respects or if the Company receives any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation
of any proceeding for such purpose and (v) of the happening of any
event during the period a Registration Statement is effective which
makes any statement made in such Registration Statement or the related
Prospectus untrue in any material respect or which requires the making
of any changes in such Registration Statement or Prospectus in order to
make the statements therein not misleading;
(f) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement at
the earliest possible moment;
(g) furnish to each Holder of Registrable Securities, without
charge, at least one conformed copy of each Registration Statement and
any post-effective amendment thereto (with documents incorporated
therein by reference or exhibits thereto);
(h) cooperate with the Selling Holders of Registrable
Securities to facilitate the timely preparation and delivery of
certificates representing
<PAGE> 15
-13-
Registrable Securities to be sold and not bearing any restrictive
legends and registered in such names as the Selling Holders may
reasonably request at least two business days prior to the closing of
any sale of Registrable Securities;
(i) upon the occurrence of any event contemplated by Section
4(e)(v) hereof, use reasonable efforts to prepare a supplement or
post-effective amendment to a Registration Statement or the related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, such Prospectus will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that the Company shall not be required to amend or supplement
a Registration Statement, any related Prospectus or any document
incorporated therein by reference in the event that, and for so long
as, an event occurs and is continuing as a result of which the
Registration Statement, any related Prospectus or any document
incorporated therein by reference as then amended or supplemented
would, in the Company's good faith judgment, contain an untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Company agrees to notify
each Holder to suspend use of the Prospectus as promptly as practicable
after the occurrence of such an event, and each Holder hereby agrees to
suspend use of the Prospectus until the Company has amended or
supplemented the Prospectus to correct such misstatement or omission.
At such time as such public disclosure is otherwise made or the Company
determines in good faith that such disclosure is not necessary, the
Company agrees promptly to notify each Holder of such determination, to
amend or supplement the Prospectus if necessary to correct any untrue
statement or omission therein and to furnish each Holder such numbers
of copies of the Prospectus as so amended or supplemented as each
Holder may reasonably request;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus
after initial filing of a Registration Statement, provide copies of
such document to the Holders and make available for discussion of such
document the representatives of the Company as shall be reasonably
requested by the Holders of Registrable Securities;
(k) obtain a CUSIP number for the Common Stock;
<PAGE> 16
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(l) (i) make reasonably available for inspection by a
representative of, and counsel for, any managing underwriter
participating in any disposition pursuant to a Registration Statement,
all relevant financial and other records, pertinent corporate documents
and properties of the Company and (ii) cause the Company's officers,
directors and employees to supply all relevant information reasonably
requested by such representative, counsel or any such managing
underwriter in connection with any such Registration Statement;
(m) take all action necessary so that the shares of Common
Stock will be listed on the principal securities exchanges and markets
within the United States of America (including the NASDAQ National
Market System), if any, on which other shares of Common Stock are then
listed; and
(n) if requested by the Holders in connection with any
Registration Statement, shall use its best efforts to cause (w) counsel
for the Company to deliver an opinion relating to the Registration
Statement and the Common Stock, in customary form, (x) its officers to
execute and deliver all customary documents and certificates requested
by a representative of the Holders or any managing underwriter, as
applicable and (y) its independent public accountants to provide a
comfort letter in customary form.
The Company may, as a condition to such Holder's participation
in any Registration Statement, require each Holder of Registrable Securities to
(i) furnish to the Company such information regarding the Holder and the
proposed distribution by such Holder of such Registrable Securities as the
Company may from time to time reasonably request in writing and (ii) agree in
writing to be bound by this Agreement.
5. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Holder and each person, if any, who controls
such Holder within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against all losses, claims, damages and
liabilities (including, without limitation, any reasonable legal fees or other
expenses actually incurred by any Holder or any such controlling or affiliated
person in connection with defending or investigating any such action or claim)
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or any amendment thereto) pursuant to
which Registrable Securities were registered under the Securities Act, or caused
by any omission or alleged omission to state therein a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or caused by any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused
<PAGE> 17
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by any omission or alleged omission to state therein a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information relating to any Holder furnished to the Company in writing by such
Holder expressly for use in any such Registration Statement or Prospectus;
provided that the foregoing indemnity with respect to any preliminary prospectus
shall not inure to the benefit of any Holder (or to the benefit of any person
controlling such Holder) from whom the person asserting any such losses, claims,
damages or liabilities purchased Registrable Securities if such untrue statement
or omission or alleged untrue statement or omission made in such preliminary
prospectus is eliminated or remedied in the related Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) and a copy of the related Prospectus (as so amended or supplemented)
shall have been furnished to such Holder at or prior to the sale of such
Registrable Securities, as the case may be, to such person; and provided,
further, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary prospectus if (i) such Holder failed to
send or deliver a copy of the Prospectus with or prior to the delivery of
written confirmation of the sale of Registrable Securities and (ii) the
Prospectus would have completely corrected such untrue statement or omission.
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers and each
person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to such Holder, but only with reference
to information relating to such Holder furnished to the Company in writing by
such Holder expressly for use in any Registration Statement (or any amendment
thereto), any Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus. The liability of any Holder under this paragraph (b)
shall in no event exceed the proceeds received by such Holder from sales of
Registrable Securities giving rise to such obligations.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either paragraph (a) or (b) above, such
person (the "indemnified party") shall promptly notify the person against which
such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate
<PAGE> 18
-16-
in such proceeding and shall pay the reasonable fees and disbursements of such
counsel relating to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed in
writing to the retention of such counsel or (ii) the indemnifying party fails
promptly to assume the defense of such proceeding or fails to employ counsel
reasonably satisfactory to such indemnified party or parties or (iii) the named
parties to any such proceeding (including any impleaded parties) include both
such indemnified party or parties and the indemnifying parties or an affiliate
of the indemnifying parties or such indemnified parties, and there may be one or
more defenses available to such indemnified party or parties that are different
from or additional to those available to the indemnifying parties, in which
case, if such indemnified party or parties notifies the indemnifying parties in
writing that it elects to employ separate counsel of its choice at the expense
of the indemnifying parties, the indemnifying parties shall not have the right
to assume the defense thereof and such counsel shall be at the expense of the
indemnifying parties, it being understood, however, that unless there exists a
conflict among indemnified parties, the indemnifying parties shall not, in
connection with any one such proceeding or separate but substantially similar or
related proceedings in the same jurisdiction, arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (together with appropriate local counsel) at any
time for such indemnified party or parties. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written consent
but, if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is a party, and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in
paragraph (a) or (b) of this Section 5 is unavailable to an indemnified party in
respect of any losses, claims, damages or liabilities, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of the Company on the
one hand and the Holders on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
Company on the one hand and
<PAGE> 19
-17-
the Holders on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Holders and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The Company and each Holder agrees that it would not be
just or equitable if contribution pursuant to this Section 5 were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in paragraph (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred (and not otherwise reimbursed) by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 5, in no event shall a
Selling Holder be required to contribute any amount in excess of the amount by
which proceeds received by such Selling Holder from sales of Registrable
Securities exceeds the amount of damages that such Selling Holder has otherwise
been required to pay by reason of such untrue or allegedly untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 5 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
6. Miscellaneous.
(a) No Inconsistent Agreements. (i) Subject to clause (ii)
below, except for the Old Warrant Agreement, the Company has not entered into
nor will the Company on or after the date of this Agreement enter into any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's other issued and outstanding securities, if any, under any such
agreements.
(ii) The rights of Holders to require the Company to effect a
Demand Registration pursuant to Section 2.1 of this Agreement shall be subject
to the prior rights and obligations of the parties in the Stockholders
Agreement, but only to the extent that such prior rights and/or obligations
actually conflict with the Demand Registration rights provided for herein and as
in effect on the date hereof.
<PAGE> 20
-18-
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate number of the outstanding Registrable
Securities affected by such amendment, modification, supplement, waiver or
consent; provided, however, a waiver or consent to departure from the provisions
hereof that relates exclusively to the rights of Holders of Registrable
Securities whose securities are being sold pursuant to a Registration Statement
and that does not directly or indirectly affect the rights of other Holders of
Registrable Securities may be given by the Holders of a majority of the
Registrable Securities proposed to be sold.
(c) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 6(c), which address initially is, with respect to the Purchaser, the
address set forth in the Purchase Agreement, with a copy to: Skadden, Arps,
Slate, Meagher & Flom, 300 S. Grand Avenue, Los Angeles, CA 90071, Attention:
Edward E. Gonzalez, Esq.; and (ii) if to the Company, initially at the Company's
address set forth in the Purchase Agreement and thereafter at such other
address, notice of which is given in accordance with the provisions of this
Section 6(c), with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison, 1285
Avenue of the Americas, New York, New York 10019, Attention: Paul D. Ginsberg,
Esq.
All such notices and communications shall be deemed to have
been duly given: (i) at the time delivered by hand, if personally delivered,
five business days after being deposited in the mail, postage prepaid, if
mailed; (ii) when answered back, if telexed; (iii) when receipt is acknowledged,
if telecopied; and (iv) on the next business day, if timely delivered to an air
courier guaranteeing overnight delivery.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided, however, that nothing herein
shall be deemed to permit any assignment, transfer or other disposition of
Registrable Securities in violation of the terms of this Agreement or the
Purchase Agreement. If any transferee of any Holder shall acquire Registrable
Securities, in any manner, whether by operation of law or otherwise, such
Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities such person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and
<PAGE> 21
-19-
provisions of this Agreement and such person shall be entitled to receive the
benefits hereof.
(e) Rules 144 and 144A. The Company covenants that it will
file the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the SEC thereunder in a
timely manner and, if at any time the Company is not required to file such
reports, it will, upon the request of any Holder of Registrable Securities, make
publicly available other information of a like nature so long as necessary to
permit sales pursuant to Rule 144 or Rule 144A under the Securities Act. The
Company further covenants that so long as any Registrable Securities remain
outstanding to make available to any Holder of Registrable Securities in
connection with any sale thereof, the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Registrable
Securities pursuant to (a) such Rule 144A, or (b) any similar rule or regulation
hereafter adopted by the SEC.
(f) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
<PAGE> 22
-20-
(i) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement, together with the
Purchase Agreement, is intended by the parties as a final expression of their
agreement, and is intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
RENAISSANCE COSMETICS, INC.
By: ____________________________
Name:
Title:
BASTION CAPITAL FUND, L.P.
By: _____________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.129
VOTING AGREEMENT
between
KIDD KAMM EQUITY PARTNERS, L.P.
and
BASTION CAPITAL FUND, L.P.
--------------------------------------------------------------
Dated September 27, 1996
--------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions..................................................................................... 1
2. Voting Agreement................................................................................ 2
2.1 General.............................................................................. 2
2.2 Election of Directors................................................................ 2
2.3 Termination of Agreement. .......................................................... 2
3. Miscellaneous................................................................................... 3
3.1 Notices.............................................................................. 3
3.2 Amendment and Waiver. .............................................................. 3
3.3 Headings............................................................................. 4
3.4 Severability......................................................................... 4
3.5 Entire Agreement..................................................................... 4
3.6 Term of Agreement.................................................................... 4
3.7 GOVERNING LAW........................................................................ 4
3.8 Successors and Assigns............................................................... 4
3.9 Further Assurances................................................................... 4
3.10 Counterparts......................................................................... 5
</TABLE>
<PAGE> 3
VOTING AGREEMENT
VOTING AGREEMENT, dated as of September 27, 1996 (this
"AGREEMENT"), between Kidd Kamm Equity Partners, L.P., a Delaware limited
partnership ("KIDD KAMM"), and Bastion Capital Fund, L.P., a Delaware limited
partnership ("BASTION").
WHEREAS, on the date hereof, Renaissance Cosmetics, Inc., a
Delaware corporation (the "COMPANY"), (a) desires to sell through CIBC Wood
Gundy Securities Corp. (the "INITIAL PURCHASER"), and Bastion desires to
purchase from the Company through the Initial Purchaser, approximately 15,000
units consisting of approximately 15,000 shares of 14% Senior Redeemable
Preferred Stock, Series B, par value $.01 per share, of the Company, and
Warrants to purchase shares of Common Stock (as defined herein), of the Company,
and (b) desires to sell, and Bastion desires to purchase, 51,959 shares of
Common Stock, of the Company (collectively, the "SECURITIES");
WHEREAS, it is a condition precedent to Bastion's obligation
to purchase the Securities that Kidd Kamm shall have entered into this
Agreement; and
WHEREAS, Kidd Kamm owns approximately 78% of the outstanding
Common Stock of the Company as of the date hereof and deems it in the best
interests of Kidd Kamm and the Company to enter into this Agreement in order to
induce Bastion to purchase the Securities.
NOW, THEREFORE, in consideration of the mutual promises and
agreements set forth herein, the adequacy of which are hereby acknowledged, and
intending to be legally bound, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such Person
(with the understanding that such term, by definition, shall include the direct
and indirect general partners of a Person that is a partnership). For the
purposes of this definition, "control," when used with respect to any Person,
means the power to direct or cause the direction of the management or policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Board of Directors" means the Board of Directors of the
Company.
<PAGE> 4
2
"Common Stock" means Common Stock, par value $.01 per share,
of the Company or any other capital stock of the Company into which such stock
is reclassified or reconstituted.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, governmental body or other entity of any
kind.
"Shares" means, with respect to Kidd Kamm, all shares, whether
now owned or hereafter acquired, of Common Stock owned by it.
2. Voting Agreement.
2.1 General. From and after the execution of this
Agreement, Kidd Kamm shall vote its Shares at any regular or special meeting of
Stockholders of the Company (a "STOCKHOLDERS MEETING") or in any written consent
executed and in lieu of such a meeting of Stockholders (a "WRITTEN CONSENT"),
and shall take all other actions necessary, to give effect to the provisions of
this Agreement (including, without limitation, Section 2.2 hereof).
2.2 Election of Directors. (a) Kidd Kamm agrees that
if (i) the holders of the Company's 14% Senior Redeemable Preferred Stock,
Series B and the 14% Senior Redeemable Preferred Stock, Series C, acting
together as a single series and class, do not select a nominee designated by
Bastion for director on the Company's Board of Directors in accordance with
Section 5 of the Certificates of Designation for such preferred stock and (ii)
such nominee shall not have been elected as a director on the Company's Board of
Directors, Kidd Kamm shall vote the Shares owned by it in favor of electing as a
director on the Company's Board of Directors one person selected by Bastion (the
"BASTION NOMINEE"). Kidd Kamm's agreement to vote in favor of the Bastion
Nominee for director to the Company's Board of Directors is personal to Bastion
and nontransferable.
(b) If during the Term of this Agreement,
Kidd Kamm shall cease to own a majority of the outstanding shares of Common
Stock, Kidd Kamm shall promptly thereafter use commercially reasonable efforts
(not to include the expenditure of money other than incidental expenses), to
obtain the vote in favor of the Bastion Nominee of holders of Common Stock that
are officers of the Company. Notwithstanding the foregoing, Bastion acknowledges
and agrees that Kidd Kamm does not have the power or ability, by contract or
otherwise, to cause any stockholders of the Company, including officers of the
Company, to vote their shares of Common Stock in any particular manner including
without limitation, in favor of the Bastion Nominee.
2.3 Termination of Agreement. Notwithstanding
anything herein to the contrary, unless earlier terminated under Section 3.6
hereof, from and
<PAGE> 5
3
after the date that Bastion and its Affiliates own in the aggregate Securities
representing less than 75% of the value of the Securities acquired by them from
the Company and from the Initial Purchaser on the date hereof, Kidd Kamm's
obligations under this Agreement shall terminate and be of no further force and
effect; provided, however, that the number of Securities owned by Bastion on the
date hereof for purposes of this Section 2.3 shall be adjusted for any dividend,
subdivision, combination or reclassification of the Securities or any merger or
consolidation of the Company with or into any other Person and Bastion shall be
deemed to own on the date hereof that number of Securities or other Securities
which it was entitled to receive as a result of such dividend, subdivision,
combination, reclassification, merger or consolidation.
3. Miscellaneous.
3.1 Notices. All notices or other communications
required or permitted hereunder shall be in writing and shall be delivered
personally, telecopied or sent by certified, registered or express mail, postage
prepaid. Any such notice shall be deemed given when so delivered personally,
telecopied or sent by certified, registered or express mail or, if mailed, five
days after the date of deposit in the United States mail, as follows (a) if to
Kidd Kamm to Kidd Kamm & Company, Three Pickwick Plaza, Greenwich, CT 06830,
Attention: William J. Kidd, with a copy to Paul, Weiss, Rifkind, Wharton &
Garrison, 1285 Avenue of the Americas, New York, New York, 10019, Attention:
Paul D. Ginsberg, Esq. and (b) if to Bastion, to Bastion Capital Fund, L.P.,
Suite 2960, 1999 Avenue of Stars, Los Angeles, CA 90067, Attention: Guillermo
Bron, with a copy to Skadden, Arps, Slate, Meagher & Flom, 300 S. Grand Avenue,
Los Angeles, CA 90071, Attention: Edward E. Gonzalez, Esq.
Any party may, by notice given in accordance with this Section 3.1, designate
another address or person for receipt of notices hereunder.
3.2 Amendment and Waiver.
(a) No failure or delay on the part of any
party hereto in exercising any right, power or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
parties hereto at law, in equity or otherwise.
(b) Any amendment, supplement or
modification of or to any provision of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure by any party from
the terms of any provision of this Agreement, shall be effective only if it is
made or given in writing
<PAGE> 6
4
and signed by each of the parties hereto, or in the case of waivers or consents
by the party waiving the provision or consenting to the departure, and only in
the specific instance and for the specific purpose for which it is made or
given.
3.3 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
3.4 Severability. If any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.
3.5 Entire Agreement. This Agreement is intended by
the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
3.6 Term of Agreement. This Agreement shall become
effective upon the closing of the sale of the Securities by the Company and the
Initial Purchaser to Bastion and shall terminate ten years from the date hereof.
3.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
3.8 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
permitted successors and assigns (but shall not bind any transferee of the
Shares from Kidd Kamm). This Agreement is not assignable without the consent of
all of the parties hereto.
3.9 Further Assurances. Each party shall execute such
documents, instruments and certificates, and take such further actions, as may
be reasonably required to carry out the intent of this Agreement.
<PAGE> 7
5
3.10 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, and all of
which taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed, or have
caused to be executed, this Agreement on the date first written above.
KIDD KAMM EQUITY PARTNERS, L.P.
By:_____________________________
Name:
Title:
BASTION CAPITAL FUND, L.P.
By:_____________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.130
[RENAISSANCE COSMETICS, INC. LETTERHEAD]
Thomas V. Bonoma
Chairman
December 28, 1994
PERSONAL & CONFIDENTIAL
- -----------------------
Mr. Robert H. Schnell
3319 Clerendon Road
Beverly Hills, CA 90210
Dear Bob:
This will confirm our discussions of Wednesday morning, December 21,
1994 regarding your resignation as an officer and employee of Renaissance
Cosmetics, Inc. (the "Company") and Cosmar Corporation ("CC"). We have agreed
that I will recommend to the Boards of the Company and CC that your resignation
be accepted, your employment be ended, and your Employment Agreement be changed
to reflect your new status as a consultant and independent contractor, as
modified in accordance with this letter:
1. Beginning January 1, 1995 you will have no further duties,
responsibilities, title or status as an officer or employee of the Company or
CC, and, in particular, the provisions of paragraphs 1, 2, 4, 5, 6 and 7 of
your Employment Agreement dated August 18, 1994 (the "Agreement") shall be of
no further force or effect.
2. (a) From January 1, 1995 to August 18, 1997 you will be paid a
consulting fee in the amount of $5,769.23 per week. This obligation will be
divided between the Company and CC as they shall determine. At your request, we
will negotiate in good faith with you to provide for the payment after June 30,
1995, of all such unpaid consulting fees in a lump sum to be agreed upon, if
that is your preference. In the event of your death prior to August 18, 1997
(if no lump sum payment has been
<PAGE> 2
agreed upon), the consulting fee will continue as if you had not died but will
be paid to the appropriate legal representative of your estate.
(b) You shall be responsible for any and all taxes due on the
consulting fees paid to you, and you agree to indemnify and hold the Company
and/or CC harmless for any tax liability incurred which relates to the
consulting fees paid to you, including penalties, costs, and attorneys' fees.
3. Except for the payment of consulting fees and your rights under
Paragraphs 5, 6 and 7 of this letter you will not hereafter be entitled to any
other compensation, benefits, expenses or other rights provided for in the
Agreement, or to retain or exercise other rights of any nature whatsoever,
which you might otherwise have or have had against the Company or CC as an
employee or otherwise. As provided in the Agreement, since you will no longer
be an employee, among the rights which you are specifically giving up are the
possibility of bonuses, stock options and other possible benefits, noted in
Paragraphs 4, 5, 6 and 7 of the Agreement, all of which Paragraphs are of no
further force or effect. To facilitate your transition from your status as an
employee of the Company and CC, payments on your health, medical, insurance and
fringe benefits will be continued until January 31, 1995. That date will be
treated as your last date of employment for purposes of exercising your right
under COBRA, but for all other purposes your status as an employee is
terminated January 1, 1995.
4. (a) From January 1, 1995 through and including June 30, 1995 you
will assist the Company and CC, without additional remuneration beyond what is
provided for in this letter, in the launch of our PRO 10 nail lacquer products.
You agree to help us deal with key accounts and to carry out other related
tasks consistent with serving as a consultant. You will give the Company and CC
the benefit of your expertise in related businesses and your familiarity with
the marketing of such products as well as your good relationships with
potential customers for those products. You will render those services when
reasonably requested by the Company, on reasonable schedules. You will be based
at the office previously maintained by CC in Los Angeles. Where necessary, you
will travel within the United States on behalf of the Company and CC. It is
contemplated that you will not be obligated to provide services for more than
an average of one (1) total working day per week for the period ending June 30,
1995.
(b) Effective January 1, 1995 you specifically acknowledge and agree
that you: (i) are, at all times and for all purposes, an independent
contractor, and not an employee, of
-2-
<PAGE> 3
the Company or CC; and (ii) will neither have nor claim to have, any authority
to bind the Company or CC unless specifically authorized in writing by an
authorized official of the Company or CC; and (iii) will not assert in any
proceeding or in any manner whatsoever that you are an employee of the Company
or CC.
5. The Company and CC will maintain, at their cost, for the period
through June 30, 1995 the rent and utilities (i.e., telephone and parking) for
the office facility heretofore operated in Los Angeles. You may employ, at your
sole expense, such secretarial or other assistance as you desire provided that
in no event shall such persons be employees of the Company or CC.
6. To the extent you incur any out-of-pocket expenses in connection
with your performance of any activities that the Company or CC request that you
undertake, you will be reimbursed for your reasonable expenses which are
approved in advance.
7. The Company will arrange for you to sell the securities in
Renaissance Cosmetics, Inc., which you purchased for a total amount of
approximately $250,000, in or about August of 1994. You hereby (a) confirm that
you have not transferred or granted any interest in those securities and will
not do so unless and until the Company and CC have advised you that no
purchaser is available, and (b) agree that you will (i) deliver the stock
certificates relating to these securities together with such stock powers and
other instrument of transfer as the purchaser may reasonably request and (ii)
transfer good title to all of those securities, free and clear of any lien,
security, interest, pledge, claim, equitable interest or other encumbrance of
any nature whatsoever upon payment of your original cost price of approximately
$250,000 to any purchaser presented by the Company or CC, who is ready, willing
and able to effectuate such a transaction.
8. You specifically acknowledge that notwithstanding any other
provisions of this letter, except as specifically herein set forth, your
obligations and the limitations on you set forth in the Agreement, including
without limitation paragraph 3, remain in full force and effect, and will
remain in full force and effect for the periods set forth in the Agreement, as
if this letter had not been executed. You re-affirm your obligations therein
set forth, as well as your commitment to avoid any acts or statements intended
or likely to harm the Company or CC.
9. On or about January 1, 1995, you, the Company and CC will issue a
joint press release, which will announce that you have decided to resign as an
officer and employee of the Company; that you will continue to make your
experience, expertise
-3-
<PAGE> 4
and relationships available to the Company and CC; the Company and CC will have
your full support, particularly in the launch of the PRO 10 nail lacquer line
of products. Your past contributions to the Company and the industry will be
properly acknowledged. In addition, we will jointly communicate your decision
to the employees of the Company and CC and work together to manage your
transition and the transition in management. All of the parties to this letter
agree that they will not make any other or further statements which are
inconsistent with those provided for herein.
10. (a) This Agreement will be effective upon your timely (i) execution
and (ii) non-revocation of the Agreement and General Release attached hereto.
(b) You hereby release and discharge the Company, CC and all of
their respective parents, subsidiaries, officers, directors, employees, agents
and attorneys from any and all claims, causes of action or rights against them
which you may have had at any time or now have, whether known or unknown,
provided, however, that this shall not constitute a release of (i) any of the
obligations set out in this letter or (ii) the obligations set out in the
subordinated promissory note to you dated August 18, 1994 in the principal
amount of $1,360,075.47 originally payable to Cosmar Corporation, a California
corporation, and assigned to you by assignment dated August 19, 1994.
(c) The Company and CC hereby release and discharge you from any and
all claims, causes of action against you they may have had at any time or now
have, whether known or unknown, provided, however, that this shall not
constitute a release of (i) your continuing obligations under the Agreement,
(ii) your obligations under this letter; (iii) your obligations under the
Agreement and General Release; (iv) the obligations imposed upon you by law
applicable to a former officer and employee of a company who is privy to its
plans and trade secrets; and (v) any other obligations imposed by law.
11. To the extent that the releases, covenants and agreements contained
in this Agreement or the attached, may be deemed inconsistent with Section 1542
of the Civil Code of the State of California, and you having been fully
advised, and with your full understanding, of the consequences of waiving of
any and all rights under Section 1542 of the Civil Code of the State of
California, the parties expressly waive any and all rights under this Section,
which provides as follows:
"Section 1542. A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
-4-
<PAGE> 5
time of executing the release, which if known by him must have
materially affected his settlement with the debtor."
12. You confirm that you have had, and have taken, the opportunity to
review this letter with counsel of your own choosing before signing the letter.
13. We confirm to each other that this letter was not induced by any
promises or statements other than those set forth in this letter, and that this
constitutes our entire agreement which cannot be changed orally.
If the foregoing accurately reflects your understanding, please execute
the enclosed copy of this letter and return it to me and I will submit the
letter to the Board of Directors for its approval.
Very truly yours,
RENAISSANCE COSMETICS, INC.
COSMAR CORPORATION
By: /s/ Thomas V. Sonoma
----------------------------------
Thomas V. Sonoma
AGREED TO:
/s/ Robert H. Schnell
- --------------------------------
Robert H. Schnell
-5-
<PAGE> 1
Exhibit 10.131
SENIOR SECURED CREDIT AGREEMENT
dated as of
December 4, 1996
among
COSMAR CORPORATION
as Borrower,
THE GUARANTORS named herein
and
THE LENDERS named herein
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Heading Page
<S> <C>
RECITALS................................................................................................ 1
SECTION 1 DEFINITIONS....................................................................... 1
1.1 Certain Defined Terms............................................................. 1
1.2 Accounting Terms ................................................................. 27
1.3 Other Definitional Provisions; Anniversaries...................................... 27
SECTION 2 AMOUNT AND TERMS OF LOAN COMMITMENT
AND LOANS; NOTES.................................................................. 28
2.1 Bridge Loan and Bridge Note....................................................... 28
A. Bridge Loan Commitment........................................................ 28
B. Notice of Borrowing........................................................... 28
C. Disbursement of Funds......................................................... 28
D. Bridge Notes.................................................................. 28
E. Scheduled Payment of Bridge Loan.............................................. 29
F. Termination of Bridge Loan Commitments........................................ 29
G. Pro Rata Borrowings........................................................... 29
2.2 Term Loan and Term Note .......................................................... 29
A. Term Loan Commitment.......................................................... 29
B. Notice of Conversion.......................................................... 29
C. Making of Term Loan........................................................... 29
D. Maturity of Term Loan......................................................... 30
E. Term Notes.................................................................... 30
2.3 Interest on the Loans............................................................. 30
A. Rate of Interest.............................................................. 30
B. Interest Payments............................................................. 30
C. Post-Maturity Interest........................................................ 30
D. Computation of Interest....................................................... 31
2.4 Fees .................................................................... 31
2.5 Prepayments and Payments.......................................................... 31
A. Prepayments................................................................... 31
B. Manner and Time of Payment.................................................... 35
C. Payments on Non-Business Days................................................. 35
D. Notation of Payment........................................................... 36
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Section Heading Page
<S> <C> <C>
2.6 Use of Proceeds................................................................... 36
A. Bridge Loan................................................................... 36
B. Term Loan..................................................................... 36
C. Margin Regulations............................................................ 36
SECTION 3 CONDITIONS........................................................................ 37
3.1 Conditions to Bridge Loan......................................................... 37
3.2 Conditions to Term Loan........................................................... 44
SECTION 4 REPRESENTATIONS AND WARRANTIES.................................................... 45
4.1 Organization and Good Standing; Capitalization.................................... 45
4.2 Authorization and Power........................................................... 46
4.3 No Conflicts or Consents.......................................................... 46
4.4 Enforceable Obligations........................................................... 47
4.5 Properties; Liens................................................................. 48
4.6 Financial Condition............................................................... 48
4.7 Full Disclosure................................................................... 50
4.8 No Default........................................................................ 50
4.9 Compliance with Contracts, Etc.................................................... 51
4.10 No Litigation..................................................................... 51
4.11 [Intentionally omitted]........................................................... 51
4.12 Taxes............................................................................. 51
4.13 ERISA............................................................................. 52
4.14 Compliance with Law............................................................... 52
4.15 Government Regulation............................................................. 53
4.16 Capital Structure and Subsidiaries................................................ 53
4.17 Intellectual Property............................................................. 53
4.18 Environmental Matters............................................................. 54
4.19 Survival of Representations and Warranties........................................ 56
4.20 Permits........................................................................... 56
4.21 Insurance......................................................................... 57
4.22 Labor Matters..................................................................... 57
4.23 Guarantees........................................................................ 57
4.24 Senior Secured Indenture; etc..................................................... 58
4.25 Broker's or Finder's Fees......................................................... 58
4.26 Debt Agreements................................................................... 59
4.27 Security Interest................................................................. 59
4.28 Pari Passu Loan Obligations....................................................... 59
SECTION 5 AFFIRMATIVE COVENANTS............................................................. 60
5.1 Financial Statements and Other Reports............................................ 60
5.2 Corporate Existence, Etc.......................................................... 65
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Section Heading Page
<S> <C> <C>
5.3 Payment of Taxes and Claims; Tax Consolidation.................................... 65
5.4 Maintenance of Properties; Insurance.............................................. 66
5.5 Inspection........................................................................ 66
5.6 Equal Security for Loans and Notes ............................................... 67
5.7 Compliance with Laws, Etc. ....................................................... 67
5.8 Maintenance of Accurate Records, Etc. ............................................ 67
5.9 Take-Out Financing ............................................................... 67
5.10 ERISA Compliance ................................................................. 68
5.11 Exchange of Term Notes ........................................................... 69
5.12 Payments in U.S. Dollars ......................................................... 70
5.13 Register ......................................................................... 70
5.14 Lenders Meeting .................................................................. 71
5.15 Local Counsel Opinions; Mortgaged Properties Documentation;
Non-Perfected Collateral.......................................................... 71
SECTION 6 NEGATIVE COVENANTS................................................................ 73
6.1 Coverage Ratios; Indebtedness..................................................... 73
6.2 Liens............................................................................. 76
6.3 Restricted Payments............................................................... 77
6.4 Investments; Joint Ventures....................................................... 78
6.5 Contingent Obligations............................................................ 79
6.6 Restriction on Fundamental Changes................................................ 80
6.7 Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries............................................................ 81
6.8 Transactions with Shareholders and Affiliates..................................... 82
6.9 Subsidiary Stock.................................................................. 83
6.10 Business Activities............................................................... 83
6.11 [Intentionally omitted]........................................................... 83
6.12 [Intentionally omitted]........................................................... 83
6.13 Refinancing of the Loans in Part.................................................. 83
6.14 Asset Sales....................................................................... 84
6.15 Transfer of Assets to Subsidiaries................................................ 84
6.16 Additional Guarantees............................................................. 84
6.17 Security Interests................................................................ 85
6.18 Impairment of Security Interest .................................................. 85
6.19 [Intentionally omitted] .......................................................... 85
6.20 Restriction on Tax Consolidation ................................................. 86
6.21 Sale and Lease-Backs ............................................................. 86
6.22 Limitation on Other Restrictions on Amendment of Loan
Documents......................................................................... 86
6.23 Modifications of Certain Documents; Etc. ......................................... 86
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Section Heading Page
<S> <C> <C>
6.24 Pledge of Additional Collateral .................................................. 87
6.25 Restrictions on Capital Expenditures ............................................. 87
SECTION 7 EVENTS OF DEFAULT................................................................. 88
7.1 Failure To Make Payments When Due ................................................ 88
7.2 Default in Other Agreements ...................................................... 88
7.3 Breach of Certain Covenants ...................................................... 89
7.4 Breach of Warranty ............................................................... 89
7.5 Other Defaults Under Agreement or Loan Documents ................................. 89
7.6 Involuntary Bankruptcy; Appointment of Custodian, Etc. ........................... 89
7.7 Voluntary Bankruptcy; Appointment of Custodian, Etc............................... 90
7.8 Judgments and Attachments ........................................................ 90
7.9 Dissolution....................................................................... 90
7.10 Guarantee......................................................................... 90
7.11 Collateral Document Default ...................................................... 91
7.12 ERISA Matters .................................................................... 91
7.13 Environmental Matters............................................................. 91
7.14 Non-Monetary Judgment ............................................................ 92
7.15 Injunction ....................................................................... 92
7.16 Damage, Strike, Casualty; Etc. ................................................... 92
7.17 Licenses and Permits ............................................................. 92
7.18 Subordination Provisions ......................................................... 92
7.19 Debt Tender Offer ................................................................ 93
SECTION 8 PROVISIONS RELATING TO THE COLLATERAL
AGENT AND CIBC/WG ................................................................ 94
8.1 Appointment ...................................................................... 94
8.2 Delegation of Duties ............................................................. 94
8.3 Exculpatory Provisions ........................................................... 94
8.4 Reliance by Collateral Agent ..................................................... 95
8.5 Notice of Default ................................................................ 96
8.6 Non-Reliance on Collateral Agent and Other Lenders ............................... 96
8.7 Indemnification .................................................................. 97
8.8 Collateral Agent or CIBC/WG in Its Individual Capacity............................ 97
8.9 Resignation of the Collateral Agent; Successor
Collateral Agent ................................................................. 98
SECTION 9 GUARANTEE ........................................................................ 98
9.1 Unconditional Guarantee .......................................................... 98
9.2 Ranking of Guarantee ............................................................. 99
9.3 Severability...................................................................... 99
9.4 Release of a Guarantor ........................................................... 99
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
Section Heading Page
<S> <C> <C>
9.5 Limitation of Guarantor's Liability ............................................. 100
9.6 Guarantors May Consolidate, etc., on Certain Terms .............................. 100
9.7 Contribution .................................................................... 101
9.8 Waiver of Subrogation ........................................................... 101
9.9 Evidence of Guarantee ........................................................... 102
9.10 Waiver of Stay, Extension or Usury Laws ......................................... 102
SECTION 10 MISCELLANEOUS ................................................................... 102
10.1 Representation of the Lenders ................................................... 102
10.2 Participations in and Assignments of Loans and Notes ............................ 104
10.3 Expenses......................................................................... 106
10.4 Indemnity........................................................................ 107
10.5 Setoff........................................................................... 108
10.6 Amendments and Waivers........................................................... 108
10.7 Independence of Covenants........................................................ 109
10.8 Entirety......................................................................... 109
10.9 Notices.......................................................................... 109
10.10 Survival of Warranties and Certain Agreements.................................... 110
10.11 Failure or Indulgence Not Waiver; Remedies Cumulative............................ 110
10.12 Severability..................................................................... 110
10.13 Headings......................................................................... 110
10.14 Applicable Law................................................................... 111
10.15 Successors and Assigns; Subsequent Holders of Notes ............................. 111
10.16 Counterparts; Effectiveness...................................................... 111
10.17 Consent to Jurisdiction; Venue; Waiver of Jury Trial............................. 111
10.18 Sharing of Benefits.............................................................. 112
10.19 Taxes and Other Taxes............................................................ 113
10.20 Waiver of Stay, Extension or Usury Laws ......................................... 114
10.21 Requirements of Law.............................................................. 114
10.22 Confidentiality.................................................................. 115
10.23 Role of Special Counsel.......................................................... 115
10.24 Joint and Several Liability...................................................... 116
10.25 Collateral Agent Third Party Beneficiary......................................... 116
SIGNATURE PAGES........................................................................................ 117
</TABLE>
v
<PAGE> 7
SCHEDULES
A SUBSIDIARIES
B EXISTING INDEBTEDNESS
C EXISTING LIENS
D LITIGATION
E ERISA
F EXISTING INVESTMENTS
G INTELLECTUAL PROPERTY
H PERMITS
I BROKERS FEES
J TAXES
EXHIBITS
I FORM OF BRIDGE NOTE
II FORM OF TERM NOTE
III FORM OF COMPLIANCE CERTIFICATE
IV-A FORM OF NOTICE OF BORROWING
IV-B FORM OF NOTICE OF CONVERSION
V FORM OF OPINION OF PAUL, WEISS, RIFKIND, WHARTON
& GARRISON AND JOHN R. JACKSON, ESQ. - GENERAL
COUNSEL FOR THE PARENT GUARANTOR
VI FORM OF OPINION OF CAHILL GORDON & REINDEL
- SPECIAL COUNSEL FOR THE LENDERS
VII FORM OF NOTATION OF GUARANTEE
VIII FORM OF SECURITY AGREEMENT
IX FORM OF INTERCOMPANY NOTE
vi
<PAGE> 8
1
This Senior Secured Credit Agreement is dated as of December
4, 1996, and entered into by and among Cosmar Corporation, a Delaware
corporation (the "Borrower"), Renaissance Cosmetics, Inc., a Delaware
corporation (the "Parent Guarantor"), the other Guarantors named on the
signature pages hereto and the Lenders named on the signature pages hereto (the
"Lenders").
RECITALS
WHEREAS, the Parent Guarantor and the Borrower desire that the
Lenders extend a senior secured credit facility to the Borrower in connection
with the Acquisitions and the Nomura Refinancing (each as defined herein);
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties hereby agree
as follows:
SECTION 1. DEFINITIONS
1.1 Certain Defined Terms
The following terms used in this Agreement shall have the
following meanings:
"Acquired Business" means the capital stock of MEM Company,
Inc. and its affiliates and the assets associated with the fragrance division of
Procter & Gamble Corporation, as described in the Acquisition Agreements.
"Acquisitions" means the P&G Acquisition and the MEM
Acquisition, including without limitation the repayment of all Indebtedness of
the Acquired Business.
"Acquisition Agreements" means the P&G Acquisition Agreement
and the MEM Acquisition Agreement.
"Additional Collateral" has the meaning ascribed to such term
in Section 6.24.
"Adjusted Net Assets" has the meaning ascribed to such term in
Section 9.7.
"Affiliate," as applied to any Person, means any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means (i) the possession, directly or
indirectly, of the power to direct or
<PAGE> 9
2
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities or by contract or otherwise, or (ii)
the ownership of more than 10% of the voting securities of that Person; provided
that neither the Canadian Imperial Bank of Commerce ("CIBC") nor any of its
Affiliates shall be treated as an Affiliate of the Parent Guarantor or of any
Subsidiary of the Parent Guarantor.
"Agreement" means this Senior Secured Credit Agreement dated
as of December 4, 1996, as it may be amended, supplemented or otherwise modified
from time to time in accordance with the terms hereof.
"Amount of Unfunded Benefit Liability" means, with respect to
any Pension Plan, (i) if set forth on the most recent actuarial valuation report
with respect to such Pension Plan, the amount of unfunded benefit liabilities
(as defined in Section 4001(a)(18) of ERISA) and (ii) otherwise, the excess of
(a) the greater of the current liability (as defined in Section 412(l)(7) of the
Internal Revenue Code) or the actuarial present value of the accrued benefits
with respect to such Pension Plan over (b) the market value of the assets of
such Pension Plan.
"Applicable Rate" means 11.5% for the period from the Closing
Date to the six month anniversary of the Closing Date and 12.5% thereafter.
"Applicable Spread" means 0% from the Closing Date until the
nine month anniversary of the Closing Date and for each consecutive 90-day
period after the nine month anniversary of the Closing Date, the Applicable
Spread in effect for the immediately preceding 90-day period plus .5%.
"Asset Sale" means any direct or indirect sale, issuance,
conveyance, lease, assignment, transfer or other disposition for value
(including, without limitation, pursuant to any amalgamation, merger or
consolidation or pursuant to any sale-and-leaseback transaction) by the Parent
Guarantor, the Borrower or by any Subsidiary of the Parent Guarantor to any
Person other than the Parent Guarantor, the Borrower or any of its wholly-owned
Subsidiaries (any such transaction, a "disposi tion") of (i) any of the stock of
any of the Parent Guarantor's Subsidiaries, (ii) substantially all of the assets
of any division or line of business of the Parent Guarantor or of any
Subsidiaries of the Parent Guarantor, or (iii) any other assets (whether
tangible or intangible) of the Parent Guarantor or of any Subsidiaries of the
Parent Guarantor; excluding (a) any disposition of Cash Equivalents or inventory
in the ordinary course of business or obsolete equipment in the ordinary course
of business consistent with past practices of the Parent Guarantor or such
Subsidiary, any disposition of slow-moving inventory acquired in connection with
an acquisition of business or assets of any other Person or the lease or
sub-lease of any real or personal property in the ordinary course of business,
(b) any transfer of properties or assets in which 100% of the consideration
received by the transferor consists of properties or assets (other than cash)
that will be used in the business of the
<PAGE> 10
3
transferor, (c) any transfer of properties or assets that constitutes an
Investment permitted under and made in accordance with Section 6.4, (d) any
transfer of MEM Company, Inc.'s facility (and related fixtures and equipment)
located in Northvale, New Jersey, provided that the proceeds of such transfer
shall be used by the Parent Guarantor and its Subsidiaries within 60 days of the
closing of such transfer to purchase, make improvements to and commence
operations in the facility in Mountaintop, Pennsylvania currently identified by
the Parent Guarantor and its Subsidiaries as the "Central Distribution Center",
and (e) any disposition of stock or assets in any single transaction or related
series of transactions the aggregate value of which is equal to $500,000 or
less.
"Available Cash Flow" means, with respect to any Person for
any period, the consolidated earnings before interest, taxes, depreciation and
amortization, or "EBITDA," of such Person, to be calculated as the sum, without
duplication, of (i) Consolidated Net Income, (ii) Consolidated Cash Interest and
Dividend Expense, (iii) Consolidated Tax Expense, (iv) depreciation, (v)
amortization and (vi) all other non-cash charges deducted in the calculation of
Consolidated Net Income (but excluding any non-cash charges related to the item
described in clause (v) of the definition of "Consolidated Net Income") for the
period as to which the computation of Available Cash Flow is made, all as
determined in accordance with GAAP.
"Bankruptcy Law" means Title 11 of the United States Code
entitled "Bankruptcy", as now and hereafter in effect, or any successor statute
or any other United States federal, state or local law or the law of any other
jurisdiction relating to bankruptcy, insolvency, winding up, liquidation,
reorganization or relief of debtors, whether in effect on the date hereof or
hereafter.
"Bankruptcy Order" means any court order made in a proceeding
pursuant to or within the meaning of any Bankruptcy Law, containing an
adjudication of bankruptcy or insolvency, or providing for liquidation, winding
up, dissolution or reorganization, or appointing a custodian of a debtor or of
all or any substantial part of a debtor's property, or providing for the
staying, arrangement, adjustment or composition of indebtedness or other relief
of a debtor.
"Board of Directors" means, with respect to any Person, the
Board of Directors of such Person or any duly authorized committee of that
Board.
"Borrower" has the meaning ascribed to such term in the
introduction to this Agreement.
"Bridge Loan Commitment" means the commitment of the Lenders
to make the Bridge Loan as set forth in Section 2.1A.
"Bridge Loan" means, collectively, the loans made by the
Lenders pursuant to Section 2.1A.
<PAGE> 11
4
"Bridge Notes" has the meaning ascribed to such term in
Section 2.1D.
"Business Day" means any day excluding Saturday, Sunday and
any day which is a legal holiday under the laws of New York, New York or is a
day on which banking institutions therein located are authorized or required by
law or other governmental action to close.
"Capital Expenditures" has the meaning ascribed to such term
in Section 6.25.
"Capital Lease," as applied to any Person, means any lease of
any property (whether real, personal or mixed) by that Person as lessee which,
in conformity with GAAP, is required to be accounted for as a capital lease on
the balance sheet of that Person.
"Capitalized Lease Obligation" means obligations under a lease
that is required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of Indebtedness represented by such
obligations shall be the capitalized amount of such obligations determined in
accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including,
without limitation, each class of Common Stock and Preferred Stock of such
Person and (ii) with respect to any Person that is not a corporation, any and
all partnership or other equity interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations
issued or unconditionally guaranteed by the United States Government or issued
by any agency thereof and backed by the full faith and credit of the United
States, in each case maturing within one year from the date of acquisition
thereof; (ii) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having a rating from either Standard &
Poor's Rating Group ("S&P") of AA or Moody's Investors Service, Inc. ("Moody's")
of Aa; (iii) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating from either
S&P's of A-1 or Moody's of P-1; and (iv) certificates of deposit or bankers'
acceptances maturing within one year from the date of acquisition thereof issued
by any commercial bank organized under the laws of the United States of America
or any state thereof or the District of Columbia that (a) is "well capitalized"
(as defined in the regulations of its primary Federal banking regulator) and (b)
has Tier 1 capital (as defined in such regulations) of not less than $100
million.
<PAGE> 12
5
"Cash Flow Leverage Ratio" means the ratio of (i) the sum of
the aggregate outstanding principal amount of all Indebtedness of the Parent
Guarantor, the Borrower and Subsidiaries of the Parent Guarantor determined as
of the date of such calculation on a consolidated basis in accordance with GAAP
to (ii) Available Cash Flow of the Parent Guarantor, the Borrower and
Subsidiaries of the Parent Guarantor determined on a consolidated basis for the
period of such calculation.
"Cash Proceeds" means, with respect to any Asset Sale, cash
payments (including any cash received by way of deferred payment pursuant to, or
monetization of, a note receivable or otherwise (other than the portion of such
deferred payment constituting interest, which shall be deemed not to constitute
Cash Proceeds) but only as and when so received) received from such Asset Sale.
"Casualty Event" means, with respect to any Property of any
Person, any loss of or damage to, or any condemnation or other taking of, such
Property for which such Person or any of its Subsidiaries receives insurance
proceeds or proceeds of a condemnation award. Casualty Event shall not include
any taking or Destruction or loss of title to Real Property Assets.
"Change of Control" means the occurrence of one or more of the
following events: (i) any Person (including a Person's Affiliates and
associates), other than a Permitted Holder, becomes the beneficial owner (as
defined under Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act) of 50% or more of the total voting power of the Parent
Guarantor Common Stock, (ii) prior to a Public Equity Offering, the Permitted
Holders collectively shall dispose of more than 50% of the shares of the Parent
Guarantor Common Stock owned by the Permitted Holders in the aggregate as of the
date hereof (excluding dispositions made to another Permitted Holder), (iii) any
Person (including a Person's Affiliates and associates), other than a Permitted
Holder, becomes the beneficial owner of more than 35% of the total voting power
of the Parent Guarantor Common Stock, and the Permitted Holders together with
the officers and employees of the Parent Guarantor beneficially own, in the
aggregate, a lesser percentage of the total voting power of the Parent Guarantor
Common Stock than such other Person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Parent Guarantor, as the case may be,
(iv) there shall be consummated any consolidation or merger of the Parent
Guarantor in which the Parent Guarantor is not the continuing or surviving
corporation or pursuant to which the Parent Guarantor Common Stock would be
converted into cash, securities or other property, other than a merger or
consolidation of the Parent Guarantor in which the holders of the Parent
Guarantor Common Stock outstanding immediately prior to the consolidation or
merger hold, directly or indirectly, at least a majority of the Common Stock of
the surviving corporation immediately after such consolidation or merger, (v)
subsequent to a Public Equity Offering, during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of the Parent Guarantor (together with any new
<PAGE> 13
6
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Parent Guarantor has been approved by 66
2/3% of the directors then still in office who either were directors at the
beginning of such period or whose election or recommendation for election was
previously so approved) cease to constitute a majority of the Board of Directors
of the Parent Guarantor or (vi) the occurrence of any "Change of Control" as
defined in the Senior Secured Indenture or the indenture pursuant to which any
Demand Take-Out Notes are issued.
"Change of Control Date" has the meaning ascribed to such term
in Section 2.5A(iv).
"CIBC" has the meaning ascribed to such term in the definition
of "Affiliate" in this Section 1.1.
"CIBC/WG" means CIBC Wood Gundy Securities Corp.
"Change of Control Offer" has the meaning ascribed to such
term in Section 2.5A(iv).
"Closing Date" means December 4, 1996 or such other date on or
before December 21, 1996 on which the Bridge Loan is made and the conditions set
forth in Section 3.1 are satisfied or waived in accordance with Section 10.6.
"Closing Date Guarantors" means the Parent Guarantor, Dana
Perfumes Corp., Great American Cosmetics, Inc., Houbigant (1995)
Limited/Houbigant (1995) Limitee and MEM Company, Inc.
"Collateral" shall mean all of the Pledged Collateral and
Mortgaged Real Property.
"Collateral Agent" means the collateral agent appointed
pursuant to Section 8.1 and each successor collateral agent appointed under the
Security Agreement with the consent of the Borrower and the Required Lenders.
"Commission" means the Securities and Exchange Commission.
"Commitment Letter" means the commitment letter dated November
21, 1996 between the Parent Guarantor and CIBC Wood Gundy Securities Corp.
"Common Stock" of any Person means any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or non-voting) of, such Person's common stock, whether
outstanding on the Closing Date or issued after the Closing Date, and includes,
without limitation, all series and classes of such common stock.
<PAGE> 14
7
"Compliance Certificate" means a certificate substantially in
the form of Exhibit III annexed hereto delivered to the Lenders by the Parent
Guarantor and the Borrower pursuant to Section 5.1(iv)(b).
"Consolidated Cash Interest and Dividend Expense" means, with
respect to any Person for any period, without duplication, the sum of (i) the
total cash interest expense of such Person and Subsidiaries of the Person for
such period, on a consolidated basis, determined in accordance with GAAP,
whether paid or accrued, to the extent such expense was deducted in computing
the Consolidated Net Income of such Person, and (ii) all cash dividends paid or
declared during such period on any preferred stock of such Person and
Subsidiaries of such Person.
"Consolidated Net Income" means, with respect to any Person,
for any period, the aggregate of the net income (or loss) of such Person and
Subsidiaries of the Person for such period, on a consolidated basis, determined
in accordance with GAAP; provided that (a) the net income of any other Person in
which such Person or any Subsidiaries of the Person has an interest (which
interest does not cause the net income of such other Person to be consolidated
with the net income of such Person and Subsidiaries of the Person in accordance
with GAAP) shall be included only to the extent of the amount of dividends or
distributions actually paid to such Person or such Subsidiary by such other
Person during such period; (b) the net income of any Subsidiary of such Person
that is subject to any Payment Restriction shall be excluded to the extent such
Payment Restriction would prevent the payment of an amount that otherwise could
have been paid to such Person or to a Subsidiary of such Person not subject to
any Payment Restriction; and (c) there shall be excluded (i) the net income (or
loss) of any other Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition, (ii) all gains and losses realized
on any Asset Sale (without regard to the $500,000 threshold set forth in the
definition of Asset Sale), (iii) all gains and losses realized on the purchase
or other acquisition by such Person or any Subsidiaries of such Person of any
Securities of such Person or any Subsidiaries of such Person, (iv) all other net
extraordinary gains and losses, and (v) all deferred financing costs written off
in connection with the early extinguishment of any Indebtedness, in each case,
incurred by the Parent Guarantor or any Subsidiaries of the Parent Guarantor in
connection with the Transactions.
"Consolidated Tax Expense" means, for any Person, for any
period, the aggregate income tax expense of such Person and Subsidiaries of the
Person determined on a consolidated basis in accordance with GAAP, excluding,
however, the income tax expense of such Person attributable to a disposition of
assets the gain from which is excluded form the calculation of "Consolidated Net
Income," but only to the extent such income tax expense does not exceed the cash
portion of the consideration received by such Person in connection with the
disposition of such assets.
<PAGE> 15
8
"Contested Claim" means any Tax, Indebtedness or other claim
or liability (i) the validity or amount of which is being diligently contested
in good faith, (ii) for which adequate reserve, or other appropriate provision,
if any, as required in conformity with GAAP shall have been made, and (iii) with
respect to which any right to execute upon or sell any assets of the Parent
Guarantor or of any Subsidiaries of the Parent Guarantor has not matured or has
been and continues to be effectively enjoined, superseded or stayed.
"Contingent Obligation," as applied to any Person, means any
direct or indirect liability, contingent or otherwise, of that Person (i) with
respect to any Indebtedness, lease, dividend or other obligation of another if
the primary purpose or intent thereof by the Person incurring the Contingent
Obligation is to provide assurance to the obligee of such obligation of another
that such obligation of another will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected (in whole or in part) against loss in respect
thereof, (ii) with respect to any letter of credit issued for the account of
that Person or as to which that Person is otherwise liable for reim bursement of
drawings, or (iii) under Interest Rate Agreements and Currency Agreements.
Contingent Obligations shall include, without limitation, (a) the direct or
indirect guaranty, endorsement (otherwise than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or sale with
recourse by such Person of the obligation of another, (b) the obligation to make
take-or-pay or similar payments if required regardless of non-performance by any
other party or parties to an agreement, and (c) any liability of such Person for
the obligation of another through any agreement (contingent or otherwise) (X) to
purchase, repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise) or (Y) to maintain the solvency or any balance sheet item, level
of income or financial condition of another if, in the case of any agreement
described under subclause (X) or (Y) of this sentence, the primary purpose or
intent thereof is as described in the preceding sentence. The amount of any
Contingent Obligation shall be equal to the amount of the obligation so
guaranteed or otherwise supported or, if less, the amount to which such
Contingent Obligation is specifically limited.
"Contractual Obligation", as applied to any Person, means any
provision of any Security issued by that Person or of any indenture, mortgage,
deed of trust, contract, undertaking, agreement or other instrument to which
that Person is a party or by which it or any of its properties is bound or to
which it or any of its properties is subject.
"Conversion Date" means the one year anniversary of the
Closing Date or such later date to which the Conversion Date may be deferred
pursuant to Section 3.2D.
<PAGE> 16
9
"Creditor" means the Collateral Agent or any Lender;
"Creditors" means all of them.
"Currency Agreement" means any foreign exchange contract,
currency swap agreement, futures contract, option contract, synthetic cap or
other similar agreement or arrangement designed to protect Parent Guarantor or
any Subsidiaries of the Parent Guarantor against fluctuations in currency
values.
"Custodian" means any receiver, interim receiver, receiver and
manager, trustee, assignee, liquidator, sequestrator or similar official charged
with maintaining possession or control over property for one or more creditors,
whether under any Bankruptcy Law or otherwise.
"Demand Take-Out Notes" means unsecured senior subordinated
notes of the Parent Guarantor issued under a senior subordinated indenture
(substantially similar to senior subordinated indentures generally utilized in
the offering of high yield securities at the time of execution) the proceeds of
which shall be used to repay the Bridge Notes in whole or in part, which Demand
Take-Out Notes shall be guaranteed by, or shall contain restrictive covenants
extending to, each entity that guarantees the Bridge Loan.
"Destruction" has the meaning assigned to the term in the
Mortgages. Destruction shall not include a Casualty Event.
"Disqualified Capital Stock" means any Capital Stock which, by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable at the sole option of the holder), or upon the
happening of any event (other than an event which would constitute a Change of
Control), (i) matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof (except upon the occurrence of a Change of Control), in whole or in
part, on or prior to the final maturity date of the Notes, or (ii) is
convertible into or exchangeable for (at the sole option of the holder thereof)
(a) debt securities or (b) any Capital Stock referred to in (i) above, in each
case at any time prior to the final maturity of the Notes; provided that only
the portion of Capital Stock which so matures or is mandatorily redeemable, is
so convertible or exchangeable or is so redeemable at the option of the holder
thereof prior to such final maturity date shall be deemed to be Disqualified
Capital Stock.
"Dollars" or the sign "$" means the lawful money of the United
States of America.
"Employee Benefit Plan" means any "employee benefit plan" as
defined in Section 3(3) of ERISA (i) which is, or, at any time within the five
calendar years immediately preceding the date hereof, was, maintained or
contributed to by any of the Parent Guarantor or Subsidiaries of the Parent
Guarantor or any of their
<PAGE> 17
10
respective ERISA Affiliates or (ii) with respect to which the Parent Guarantor
or any Subsidiaries of the Parent Guarantor retains any liability, including any
potential joint and several liability as a result of an affiliation with an
ERISA Affiliate or a party that would be an ERISA Affiliate except for the fact
the affiliation ceased more than five calendar years prior to the date hereof.
"Environmental Claim" means any accusation, allegation, notice
of violation, claim, demand, abatement order or other order or direction
(conditional or otherwise) by any governmental authority or any Person for any
response or corrective action, any damage, including, without limitation,
personal injury (including sickness, disease or death), tangible or intangible
property damage, contribution, indemnity, indirect or consequential damages,
damage to the environment, nuisance, pollution, contamination or other adverse
effects on the environment, or for fines, penalties or restrictions, in each
case arising under any Environmental Law, including without limitation, relating
to, resulting from or in connection with Hazardous Materials and relating to the
Parent Guarantor, any Subsidiaries of the Parent Guarantor or any of their
respective properties or predecessors in interest.
"Environmental Laws" means all principles of common law,
statutes, ordinances, orders, rules, regulations, plans, policies or decrees and
the like relating to (i) pollution or protection of human health or the
environment, including without limitation ambient air, indoor air, soil, surface
water, ground water, land or subsurface strata, including, without limitation,
those relating to fines, injunctions, penalties, damages, contribution, cost
recovery compensation, losses or injuries resulting from the Release or
threatened Release of Hazardous Materials, (ii) the generation, use, storage,
transportation or disposal of Hazardous Materials (but excluding the Federal
Food, Drug and Cosmetic Act (21 U.S.C. Section 301 et seq.)), or (iii)
occupational safety and health, industrial hygiene, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution
Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C.
Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601
et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C.
Section 136 et seq.), the Occupational Safety and Health Act (29 U.S.C. Section
651 et seq.) and the Emergency Planning and Community Right-to-Know Act (42
U.S.C. Section 11001 et seq.), each as amended or supplemented, and any
analogous future or present statutes and regulations promulgated pursuant
thereto, each as in effect as of the date of determination.
"Environmental Lien" means a Lien in favor of a Tribunal or
other Person (i) for any liability under an Environmental Law or (ii) for
damages arising from or costs incurred by such Tribunal or other Person in
response to a release or
<PAGE> 18
11
threatened release of any hazardous or toxic waste, substance or constituent
into the environment.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute.
"ERISA Affiliate", as applied to any Person, means (i) any
corporation which is, or was at any time within the five calendar years
immediately preceding the date hereof, a member of a controlled group of
corporations within the meaning of Section 414(b) of the Internal Revenue Code
of which that Person is, or was at any time within the five calendar years
immediately preceding the date hereof, a member; (ii) any trade or business
(whether or not incorporated) which is, or was at any time within the five
calendar years immediately preceding the date hereof, a member of a group of
trades or businesses under common control within the meaning of Section 414(c)
of the Internal Revenue Code of which that Person is, or was at any time within
the five calendar years immediately preceding the date hereof, a member; and
(iii) any member of an affiliated service group within the meaning of Section
414(m) or (o) of the Internal Revenue Code of which that Person, any corporation
described in clause (i) above or any trade or business described in clause (ii)
above is, or was at any time within the five calendar years immediately
preceding the date hereof, a member.
"ERISA Event" means (i) a "reportable event" within the
meaning of Section 4043 of ERISA and the regulations issued thereunder with
respect to any Pension Plan (excluding those for which the provision for 30-day
notice to the PBGC has been waived by regulation); (ii) the failure to meet the
minimum funding standard of Section 412 of the Internal Revenue Code with
respect to any Pension Plan (whether or not waived in accordance with Section
412(d) of the Internal Revenue Code) or the failure to make by its due date a
required installment under Section 412(m) of the Internal Revenue Code with
respect to any Pension Plan or the failure to make any required contribution to
a Multiemployer Plan; (iii) the provision by the administrator of any Pension
Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate
such plan in a distress termination described in Section 4041(c) of ERISA; (iv)
the withdrawal by any of the Parent Guarantor or Subsidiaries of the Parent
Guarantor or any of their respective ERISA Affiliates from any Pension Plan with
two or more contributing sponsors or the termination of any such Pension Plan
resulting in liability pursuant to Sections 4063 or 4064 of ERISA; (v) the
institution by the PBGC of proceedings to terminate any Pension Plan, or the
occurrence of any event or condition which might reasonably be expected to
constitute grounds under ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan; (vi) the imposition of liability on any
of the Parent Guarantor or Subsidiaries of the Parent Guarantor or any of their
respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by
reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal by
any of the Parent Guarantor or Subsidiaries of the Parent Guarantor or any of
their respective ERISA
<PAGE> 19
12
Affiliates in a complete or partial withdrawal (within the meaning of Sections
4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential
liability therefor, or the receipt by any of the Parent Guarantor or
Subsidiaries of the Parent Guarantor or any of their respective ERISA Affiliates
of notice from any Multiemployer Plan that it is in reorganization or insolvency
pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or
has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an
act or omission which could reasonably be expected to give rise to the
imposition on any of the Parent Guarantor or Subsidiaries of the Parent
Guarantor or any of their respective ERISA Affiliates of fines, penalties, taxes
or related charges under Chapter 43 of the Internal Revenue Code or under
Section 409 or 502(c), (i) or (l) or 4071 of ERISA in respect of any Employee
Benefit Plan; (ix) the assertion of a material claim (other than routine claims
for benefits) against any Employee Benefit Plan other than a Multiemployer Plan
or the assets thereof, or against any of the Parent Guarantor or Subsidiaries of
the Parent Guarantor or any of their respective ERISA Affiliates in connection
with any such Employee Benefit Plan; (x) receipt from the Internal Revenue
Service of notice of the failure of any Pension Plan (or any other Employee
Benefit Plan intended to be qualified under Section 401(a) of the Internal
Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or
the failure of any trust forming part of any Pension Plan to qualify for
exemption from taxation under Section 501(a) of the Internal Revenue Code; or
(xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the
Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan.
"Event of Default" means each of the events set forth in
Section 7.
"Excess Cash Flow" means, with respect to any Person for any
fiscal year, the excess of (a) Available Cash Flow less Consolidated Cash
Interest and Dividend Expense that was payable in cash, less Taxes paid, less
Capital Expenditures actually incurred, all for or during the previous fiscal
year, all as determined in accordance with GAAP following the preparation of
such Person's audited financial statements for such previous fiscal year, over
(b) $2.5 million.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute.
"Exchange Document Request" has the meaning ascribed to such
term in Section 5.11(a).
"Exchange Notes" has the meaning ascribed to such term in
Section 5.11(b).
"Exchange Request" has the meaning ascribed to such term in
Section 5.11(c).
<PAGE> 20
13
"Facilities" means any and all real property (including,
without limitation, all buildings, fixtures or other improvements located
thereon) now, hereafter or heretofore owned, leased, operated or used by any of
the Parent Guarantor or Subsidiaries of the Parent Guarantor or any of their
respective predecessors in interest.
"Foreign Plan" has the meaning ascribed to such term in
Section 4.13E.
"Form S-4" means the Parent Guarantor's Registration Statement
on Form S-4 (No. 333-13171) filed with the Commission on October 1, 1996.
"Funding Guarantor" has the meaning ascribed to such term in
Section 9.7.
"GAAP" means those generally accepted accounting principles
and practices which are recognized as such by the Financial Accounting Standards
Board and which are consistently applied for all periods after the date hereof
so as to properly reflect the financial conditions, and the results of
operations and changes in financial position, of the Parent Guarantor and
Subsidiaries of the Parent Guarantor, except that any accounting principle or
practice required to be changed in order to continue as a generally accepted
accounting principle or practice may be so changed.
"Guarantee Obligations" has the meaning ascribed to such term
in Section 9.1.
"Guarantees" means, collectively, the guarantees delivered to
the Lenders by the Guarantors pursuant to Section 9 which are evidenced by
notations of guarantee substantially in the form of Exhibit VII hereto.
"Guarantors" means (i) the Parent Guarantor, (ii) each of the
other Closing Date Guarantors and (iii) each of the Parent Guarantor's
Subsidiaries which becomes a Guarantor pursuant to Section 6.16 hereof.
"Hazardous Materials" means (i) any chemical, material or
substance at any time defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely hazardous
waste," "restricted hazardous waste," "infectious waste," "toxic substances" or
any other formulations intended to define, list or classify substances by reason
of deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP
toxicity" or words of similar import under any applicable Environmental Laws or
publications promulgated pursuant thereto; (ii) any oil, petroleum, petroleum
fraction or petroleum derived substance; (iii) any drilling fluids, produced
waters and other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal resources; (iv) any flammable
<PAGE> 21
14
substances or explosives; (v) any radioactive materials; (vi) asbestos in any
form; (vii) urea formaldehyde foam insulation; (viii) electrical equipment which
contains any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty parts per million; (ix) pesticides; and (x) any
other chemical, material or substance, exposure to which is prohibited, limited
or regulated by any governmental authority or which may or could pose a hazard
to human health or safety or the environment.
"Incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall
have meanings correlative to the foregoing); provided, however, that any
amendment, modification or waiver of any document pursuant to which Indebtedness
was previously Incurred shall only be deemed to be an Incurrence of Indebtedness
if and to the extent such amendment, modification or waiver (i) increases the
principal thereof or interest rate or premium payable thereon or (ii) changes to
an earlier date the stated maturity thereof or the date of any scheduled or
required principal payment thereon or the time or circumstances under which such
Indebtedness shall be redeemed; provided, further, that any Indebtedness of a
Person existing at the time such Person becomes (after the Closing Date) a
Subsidiary of the Parent Guarantor (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary of the Parent Guarantor.
"Indebtedness" means, with respect to any Person, (i) all
indebtedness, obligations and liabilities of such Person for borrowed money,
(ii) that portion of obligations with respect to Capital Leases that is properly
classified as a liability on a balance sheet of such Person in conformity with
GAAP, (iii) notes payable and drafts accepted representing extensions of credit,
whether or not representing obligations for borrowed money, of such Person, (iv)
any indebtedness, obligation or liability of such Person owed for all or any
part of the deferred purchase price of property or services (excluding any such
obligations incurred under ERISA), which purchase price is (a) due more than six
months (or a longer period of up to one year, if such terms are available from
suppliers in the ordinary course of business) from the date of incurrence of the
obligation in respect thereof or (b) evidenced by a note or similar written
instrument, (v) all indebtedness, obligations and liabilities secured by any
Lien on any property or asset owned or held by that Person regardless of whether
the indebtedness secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person except that "Indebtedness" shall not
include trade payables and accrued liabilities Incurred in the ordinary course
of business for the purchase of goods or services which are not secured by a
Lien other than a Permitted Encumbrance and obligations under Interest Rate
Agreements and Currency Agreements (which constitute Contingent Obligations, not
Indebtedness), (vi) guarantees of such Person in respect of Indebtedness of
other Persons and (vii) all
<PAGE> 22
15
Disqualified Capital Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the greater of its
voluntary or involuntary liquidation preference and its maximum fixed repurchase
price, but excluding accrued dividends, if any. For purposes hereof, the
"maximum fixed repurchase price" of any Disqualified Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to this Agreement, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value to be determined reasonably and in good faith by the board of
directors of the issuer of such Disqualified Capital Stock.
"indemnified liabilities" has the meaning ascribed to such
term in Section 10.4.
"Indemnitees" has the meaning ascribed to such term in Section
10.4.
"Intellectual Property" means all patents, trademarks,
tradenames, copyrights, technology, know-how and processes used in or necessary
for the conduct of the business of the Parent Guarantor, the Borrower and
Subsidiaries of the Parent Guarantor as currently conducted that are material to
the condition (financial or otherwise), business or operations of the Parent
Guarantor, the Borrower and Subsidiaries of the Parent Guarantor, taken as a
whole.
"Intercompany Indebtedness" means any Indebtedness of the
Parent Guarantor or any of its Subsidiaries which, in the case of the Parent
Guarantor, is owing to any wholly-owned Subsidiary of the Parent Guarantor and
which, in the case of any such Subsidiary, is owing to the Parent Guarantor or
any wholly-owned Subsidiary of the Parent Guarantor; provided, however, that if
as of any date any Person other than the Parent Guarantor or a wholly-owned
Subsidiary of the Parent Guarantor owns or holds such Indebtedness, or holds any
Lien in respect thereof, such Indebtedness shall no longer be Intercompany
Indebtedness permitted to be Incurred pursuant to Section 6.1(vi).
"Intercompany Note" has the meaning ascribed to such term in
the definition of "Permitted Investments" in this Section 1.1.
"Interest Rate Agreement" means any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement or arrangement designed to protect Parent Guarantor or any
Subsidiaries of the Parent Guarantor against fluctuations in interest rates.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time, and any successor code or statute.
<PAGE> 23
16
"Investment" means (i) any direct or indirect purchase or
other acquisition of, or of a beneficial interest in, any Securities of any
other Person or (ii) any direct or indirect loan, advance (other than advances
to employees for moving, entertainment and travel expenses, drawing accounts and
similar expenditures in the ordinary course of business), extension of credit or
capital contribution to any other Person, including all indebtedness and
accounts receivable from that other Person that are not current assets or did
not arise from sales to that other Person in the ordinary course of business.
The amount of any Investment shall be the original cost of such Investment plus
the cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment less the sum of all amounts received in respect of such Investment.
"Joint Venture" means a joint venture, partnership or other
similar arrangement, whether in corporate, partnership or other legal form;
provided, however, that, as to any such arrangement in corporate form, such
corporation shall not, as to any Person of which such corporation is a
Subsidiary, be considered to be a Joint Venture to which such Person is a party.
"Laws" means all applicable statutes, laws, ordinances,
regulations, rules, orders, judgments, writs, injunctions or decrees of any
state, commonwealth, nation, territory, possession, province, county, parish,
town, township, village, municipality or Tribunal, and "Law" means each of the
foregoing.
"Lenders" has the meaning ascribed to that term in the
introduction to this Agreement and shall include any assignee of any Loan, Note
or Loan Commitment to the extent of such assignment; provided, however, from and
after the Closing Date, the Borrower shall be entitled to treat the registered
holders of the Notes (including, without limitation, any registered holder
acting as nominee for a Lender) as reflected on the Register as a "Lender" and
the Borrower and the Guarantors shall be entitled to rely on the Register to
determine the identity of the "Lenders" and the amount of Loans held by each for
all purposes of this Agreement and the other Loan Documents, including, without
limitation, for purposes of determining Persons entitled to receive payment or
to consent to amendments and waivers under the Loan Documents. Notwithstanding
the foregoing, no Lender shall be relieved of its obligations under this
Agreement as a result of causing its Notes to be registered in the name of a
nominee.
"Lien" means any lien, mortgage, pledge, assignment, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest) and any option, trust or other
preferential arrangement having the practical effect of any of the foregoing.
<PAGE> 24
17
"Litigation" means any action, suit, proceeding, claim,
lawsuit and/or investigation conducted or threatened by or before any Tribunal.
"Loan Commitment" means the Bridge Loan Commitment and the
Term Loan Commitment.
"Loan Documents" means this Agreement, the Bridge Notes, the
Term Notes, the Guarantees, the Senior Secured Indenture, the Exchange Notes,
the Registration Rights Agreement and the Security Documents.
"Loans" means the Bridge Loan and the Term Loan as each may be
outstanding.
"Margin Stock" has the meaning ascribed to such term in
Regulation U and Regulation G of the Board of Governors of the Federal Reserve
System as in effect from time to time.
"Material Adverse Effect" means (i) a material adverse effect
upon the business, operations, properties, assets or condition (financial or
otherwise) of the Parent Guarantor and Subsidiaries of the Parent Guarantor,
taken as a whole, or (ii) the material impairment of the ability of the Parent
Guarantor, the Borrower or any other Guarantor to perform, or the material
impairment of the ability of the Collateral Agent or Lenders to enforce, the
Obligations.
"Material Subsidiary" means, with respect to any accounting
period, any Subsidiary of the Parent Guarantor incorporated or otherwise
organized in any jurisdiction within the United States or Canada and (i) whose
revenues constitute greater than 10% of the aggregate dollar value of the
revenues of the Parent Guarantor and Subsidiaries of the Parent Guarantor, taken
as a whole, for such accounting period or (ii) the fair market value of whose
assets at any time during such accounting period is greater than 10% of the fair
market value of all of the assets of the Parent Guarantor and Subsidiaries of
the Parent Guarantor at such time.
"Maximum Cash Interest Rate" means an interest rate of 15% per
annum; provided that in computing such interest rate, fees paid to the Lenders
shall not be deemed an interest payment.
"MEM Acquisition" means the acquisition by the Parent
Guarantor or its affiliates of the capital stock of MEM Company, Inc. and its
affiliates pursuant to the MEM Acquisition Agreement.
"MEM Acquisition Agreement" means the Agreement and Plan of
Merger, dated as of August 6, 1996, as amended, between MEM Company, Inc., the
Parent Guarantor and RAI.
<PAGE> 25
18
"Mortgage" means a term loan mortgage, assignment of leases,
security agreement and fixture filing, or a term loan deed of trust, assignment
of leases, security agreement and fixture filing, creating and evidencing a Lien
on a Mortgaged Real Property, which shall be in form and substance reasonably
satisfactory to CIBC/WG and the Borrower and which shall be dated the date of
delivery thereof and made by the owner of the Mortgaged Real Property described
therein for the benefit of the Collateral Agent, as mortgagee (grantee or
beneficiary), assignee and secured party, as the same may at any time be
amended, modified or supplemented in accordance with the terms thereof and
hereof.
"Mortgaged Real Property" means each Real Property Asset which
shall be subject to a Mortgage delivered pursuant to Sections 5.15 and 6.24.
"Multiemployer Plan" means a Pension Plan which is a
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA.
"Net Award" shall have the meaning ascribed to such term in
each Mortgage.
"Net Cash Proceeds" means, with respect to any Asset Sale,
Cash Proceeds of such Asset Sale net of bona fide direct costs of sale including
(i) income taxes reasonably estimated to be actually payable as a result of such
Asset Sale within two years of the date of such Asset Sale and (ii) payment of
the outstanding principal amount of, premium or penalty, if any, and interest
on, any Indebtedness that is secured by a Lien on the stock or assets in
question and that is required to be repaid under the terms thereof as a result
of such Asset Sale.
"Nomura Refinancing" means the Refinancing and retirement of
all amounts outstanding under the Note Purchase Agreement dated December 21,
1994, as amended, by and among the Parent Guarantor, the Borrower and Nomura
Holding America Inc.
"Non-Perfected Collateral" means non-United States
Intellectual Property; Inventory and Equipment not in the possession or located
at the premises of the Debtors; fixtures; and any Collateral in which a security
interest may not be perfected by the filing in any state of the United States of
a Uniform Commercial Code financing statement (other than the Pledged Stock).
Capitalized terms used in this definition and not defined in this Agreement have
the meanings ascribed thereto in the Security Agreement.
"Notes" means, collectively, the Bridge Notes and the Term
Notes.
"Notice of Borrowing" means a notice substantially in the form
of Exhibit IV-A annexed hereto with respect to a proposed borrowing.
<PAGE> 26
19
"Notice of Conversion" means a notice substantially in the
form of Exhibit IV-B annexed hereto with respect to a proposed conversion.
"Obligations" means all obligations of every nature of the
Borrower and the Guarantors from time to time owed to the Lenders and the
Collateral Agent under the Loan Documents, whether for principal,
reimbursements, interest, fees, expenses, indemnities or otherwise, and whether
primary, secondary, direct, indirect, contingent, fixed or otherwise (including
obligations of performance).
"Offer Payment Date" has the meaning ascribed to such term in
Section 2.5A(iv).
"Officer" means the Chairman of the Board, the President, any
Vice President, the Chief Financial Officer, the Controller, the Treasurer or
the Secretary of the Parent Guarantor and the Borrower.
"Officers' Certificate" means, as applied to any corporation,
a certificate executed on behalf of such corporation by two Officers; provided,
however, that every Officers' Certificate with respect to the compliance with a
condition precedent to the making of the Loans hereunder shall include (i) a
statement that the officer or officers making or giving such Officers'
Certificate have read such condition and any definitions or other provisions
contained in this Agreement relating thereto, (ii) a statement that, in the
opinion of the signers, they have made or have caused to be made such
examination or investigation as is necessary to enable them to express an
informed opinion as to whether or not such condition has been complied with, and
(iii) a statement as to whether, in the opinion of the signers, such condition
has been complied with.
"Operating Lease" means, as applied to any Person, any lease
(including, without limitation, leases that may be terminated by the lessee at
any time) of any property (whether real, personal or mixed) that is not a
Capital Lease other than any such lease under which that Person is the lessor.
"Original Term Notes" has the meaning ascribed to such term in
Section 2.2E.
"Other Taxes" has the meaning ascribed to such term in Section
10.19.
"P&G Acquisition" means the acquisition by the Parent
Guarantor or its affiliates of the assets associated with the fragrance division
of Procter & Gamble Corporation pursuant to the P&G Acquisition Agreement.
"P&G Acquisition Agreement" means the Asset Sale and Purchase
Agreement dated as of October 29, 1996, as amended, by and among Procter &
Gamble Corporation, the Parent Guarantor and certain of its affiliates.
<PAGE> 27
20
"Parent Guarantor" has the meaning ascribed to such term in
the introduction to this Agreement.
"Parent Guarantor Common Stock" means the common stock, par
value $.01 per share, of the Parent Guarantor.
"Pari Passu Indebtedness" means, with respect to the Borrower
or any Guarantor, Indebtedness of such Person which ranks pari passu in right of
payment to the Loans or the Guarantee of such Guarantor, as the case may be.
"Payment Restriction" has the meaning ascribed to such term in
Section 6.7.
"PBGC" means the Pension Benefit Guaranty Corporation, and any
successor to all or any of the Pension Benefit Guaranty Corporation's functions
under ERISA.
"Pension Plan" means an Employee Benefit Plan which is subject
to the provisions of Title IV of ERISA.
"Permits" has the meaning ascribed to such term in Section
4.20.
"Permitted Encumbrances" means (i) Liens granted to secure the
Obligations hereunder; (ii) Liens existing on the Closing Date set forth on
Schedule C hereto to the extent and in the manner such Liens are in effect on
the Closing Date; (iii) Liens for taxes, assessments or governmental charges or
claims the payment of which is not, at the time, required by Section 5.3; (iv)
statutory Liens of landlords and banks and rights of offset, and Liens of
carriers, warehousemen, workmen, repairmen, mechanics and materialmen and other
Liens imposed by law incurred in the ordinary course of business for sums not
yet delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been made
therefor; (v) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts, trade
contracts, utility payments, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money); (vi) any attachment or judgment Lien not constituting an Event of
Default; (vii) leases or subleases granted to others not interfering in any
material respect with the ordinary conduct of the business of the Parent
Guarantor and Subsidiaries of the Parent Guarantor, taken as a whole; (viii)
easements, rights-of-way, restrictions, minor defects, encroachments or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the business of
the Parent Guarantor and Subsidiaries of the Parent Guarantor, taken as a whole;
(ix) any (a) interest or title of a lessor or sublessor (other than the Parent
<PAGE> 28
21
Guarantor or any Subsidiaries of the Parent Guarantor) under any lease, (b)
restriction or encumbrance that the interest or title of such lessor or
sublessor may be subject to (including without limitation ground leases or other
prior leases of the demised premises, mortgages, mechanics liens, tax liens, and
easements), or (c) subordination of the interest of the lessee or sublessee
under such lease to any restrictions or encumbrance referred to in the preceding
clause (b); (x) Liens arising from filing UCC financing statements for
precautionary purposes relating solely to true leases of personal property
permitted by this Agreement under which the Parent Guarantor or any Subsidiaries
of the Parent Guarantor is a lessee; (xi) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (xii) any zoning or similar law or
right reserved to or vested in any governmental office or agency to control or
regulate the use of any real property; (xiii) Liens securing obligations (other
than obligations representing Indebtedness for borrowed money) under operating,
reciprocal easement or similar agreements entered into in the ordinary course of
business of the Parent Guarantor and Subsidiaries of the Parent Guarantor; (xiv)
Liens upon specific items of inventory or other goods and proceeds of any Person
securing such Person's obligations in respect of bankers' acceptances issued or
created for the account of such Person to facilitate the purchase, shipment or
storage of such inventory or other goods in the ordinary course of business;
(xv) Liens securing reimbursement obligations with respect to letters of credit
which encumber documents and other property relating to such letters of credit
and the products and proceeds thereof; (xvi) Liens arising out of consignment or
similar arrangements for the sale of goods entered into by the Parent Guarantor
or any Subsidiary in the ordinary course of business in accordance with past
practices; (xvii) Liens to secure Permitted Refinancing Indebtedness to the
extent the Indebtedness Refinanced was secured and such Liens do not extend to
any property other than the property which was subject to the Lien under the
Indebtedness being Refinanced; (xviii) Liens resulting from financing statements
and other liens of record that secure either Indebtedness repaid in full on the
Closing Date or Indebtedness of MEM Company, Inc. repaid in full at the closing
of the MEM Acquisition, in each case as evidenced by pay-off documentation
(including the former lenders' further assurances as to termination of such
Liens) in form and substance reasonably satisfactory to CIBC/WG and, in the case
of Uniform Commercial Code financing statements, as to which the Parent
Guarantor and the Borrower shall have delivered to the Lenders properly
completed and duly and fully executed Uniform Commercial Code termination
statements reasonably satisfactory to CIBC/WG; (xix) Liens on properties or
assets of MEM Company, Inc. or any of its Subsidiaries not otherwise permitted
under this Agreement, provided that such Liens are terminated or released within
10 Business Days of the Borrower becoming aware of them; (xx) Liens on each
Mortgaged Real Property to the extent indicated on Schedule B of the title
insurance policy being issued to insure Lenders' Lien on such Mortgaged Real
Property; and (xxi) customary provisions of any lease, license or contract
prohibiting the assignment, subletting or transfer of any rights of the Parent
Guarantor, the Borrower and the Subsidiaries of the Parent Guarantor either in
existence on the Closing Date or contained in a lease, license or agreement
entered
<PAGE> 29
22
into in the ordinary course of business that is not material to the Parent
Guarantor or the Subsidiary of the Parent Guarantor which is a party thereto.
"Permitted Holders" means (i) Kidd Kamm Equity Partners, L.P.
or Thomas V. Bonoma, (ii) the heirs, executors, administrators, testamentary
trustees, legatees or beneficiaries of Kidd Kamm Equity Partners, L.P. or Thomas
V. Bonoma or of any Person described in this clause (ii), (iii) a trust the
beneficiaries of which include only persons described in clauses (i) and (ii)
above and their respective spouses and lineal descendants, (iv) the general
partner and each limited partner of Kidd Kamm Equity Partners, L.P. and (v) any
Subsidiary of either Kidd Kamm Equity Partners, L.P. or Thomas V. Bonoma or both
of them jointly.
"Permitted Investments" means (a) Investments in cash and Cash
Equivalents; (b) Investments by the Parent Guarantor or by any Subsidiary of the
Parent Guarantor in any Person that is or will become immediately after such
Investment a wholly-owned Subsidiary of the Parent Guarantor that either (I) has
not Incurred (and will not Incur as a result of or in connection with such
transaction) any Indebtedness (other than Indebtedness permitted to be Incurred
by such Subsidiary under Section 6.1) or (II) is a Guarantor; provided, however,
that (x) such Investment shall be a Permitted Investment only for so long as any
such Subsidiary in which the Investment has been made meets the conditions set
forth above and (y) no Investment in any such Person or Subsidiary (including
any transaction pursuant to which any Person becomes a Subsidiary of the Parent
Guarantor) will be a Permitted Investment if and for so long as such Subsidiary
is or would be subject to any Payment Restriction; (c) Investments made by the
Parent Guarantor or by Subsidiaries of the Parent Guarantor out of the Net Cash
Proceeds of an Asset Sale made in compliance with Section 2.5A(ii)(a); (d)
Intercompany Indebtedness by and between the Parent Guarantor and Subsidiaries
of the Parent Guarantor which is subordinated to the Parent Guarantor's and the
Borrower's Obligations hereunder, as the case may be, as set forth in a note
substantially in the form of Exhibit IX annexed hereto and with appropriate
insertions (the "Intercompany Note"); and (e) Intercompany Indebtedness owed by
any Subsidiary of the Parent Guarantor that is not a Guarantor to the Parent
Guarantor, the Borrower or any other Guarantor either (i) outstanding on the
Closing Date or (ii) Incurred after the Closing Date in an amount not to exceed
$5 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means (A) any Refinancing
by the Parent Guarantor of Indebtedness of the Parent Guarantor or of
Subsidiaries of the Parent Guarantor (other than Indebtedness Incurred or
outstanding pursuant to clauses (ii), (vi) and (xi) of Section 6.1) and (B) any
Indebtedness incurred pursuant to a Refinancing by any Subsidiary of the Parent
Guarantor of Indebtedness Incurred by such Subsidiary (other than Indebtedness
Incurred or outstanding pursuant to clauses (ii), (iv), (vi) and (xi) of Section
6.1), in the case of each of (A) and (B), that does not (1) result in an
increase in the total of the aggregate principal amount of the Indebtedness of
such Person being Refinanced as of the date of such proposed
<PAGE> 30
23
Refinancing (if such Indebtedness that is Refinancing the existing Indebtedness
is issued at a price less than 100% of the principal amount thereof, an increase
shall not be deemed to have occurred unless the gross proceeds of such
Indebtedness that is Refinancing the existing Indebtedness is in excess of the
total of the aggregate principal amount of the Indebtedness being Refinanced as
of the date of such proposed Refinancing) or (2) create Indebtedness with a
Weighted Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced; provided, however, that (x) if
such Indebtedness being Refinanced is Indebtedness of the Parent Guarantor, then
such Refinancing Indebtedness shall be Indebtedness solely of the Parent
Guarantor and (y) if such Indebtedness being Refinanced is subordinate or junior
in right of payment to the Loans or if recourse in respect of the Indebtedness
being Refinanced is limited in any respect, then such Indebtedness proposed to
be Incurred to Refinance the existing Indebtedness shall be subordinate in right
of payment to the Loans and recourse with respect thereto, as the case may be,
shall be limited at least to the same extent and in the same manner as the
Indebtedness being Refinanced.
"Person" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships, joint
stock companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
"PIK Interest Amount" has the meaning ascribed to such term in
Section 2.3B.
"Pledged Collateral" means all of the Pledged Collateral as
defined in the Security Agreement.
"Potential Event of Default" means a condition or event which,
after notice or lapse of time or both, would constitute an Event of Default if
that condition or event were not cured or removed within any applicable grace or
cure period.
"Preferred Stock" of any Person means any Capital Stock of
such Person that has preferential rights (as compared to any other Capital Stock
of such Person) with respect to dividends or redemptions or upon liquidation.
"Principal Office" means, as to each Lender, the office of the
registered holder of the Notes as reflected on the Register or, in the case of
the registered holders as of the Closing Date, as set forth on Annex I to this
Agreement or such other office as such registered holder of the Notes may
designate in writing to the Parent Guarantor and the Borrower from time to time.
"Public Equity Offering" means a public offering by the Parent
Guarantor of Parent Guarantor Common Stock (however designated and whether
<PAGE> 31
24
voting or non-voting) and any and all rights, warrants or options to acquire
such Parent Guarantor Common Stock.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"RAI" means Renaissance Acquisition, Inc., a Delaware
corporation and a wholly-owned Subsidiary of the Parent Guarantor.
"Real Property Assets" means fee simple interests in land,
buildings, improvements, and fixtures attached thereto or used in the operation
thereof, in each case owned by the Parent Guarantor, the Borrower or any other
Guarantor and with a fair market value of $1 million or more.
"Refinance" means, in respect of any security or Indebtedness,
to refinance, extend, renew, refund or defease, or to issue a security or
Indebtedness in exchange or replacement for, such security or Indebtedness in
whole or in part. "Refinanced" and "Refinancing" shall have correlative
meanings.
"Register" has the meaning ascribed to such term in Section
5.13.
"Registration Rights Agreement" means a registration rights
agreement substantially in the form contemplated by the Commitment Letter and
this Agreement (with such changes thereto as CIBC/WG, the Parent Guarantor and
the Borrower shall approve).
"Related Business Investment" means any Investment by a Person
in any other Person a majority of whose revenues are derived or will, as a
consequence of such Investment, be derived from the operation of any line of
business engaged in or reasonably related to a line of business engaged in by
the Parent Guarantor or any Subsidiaries of the Parent Guarantor as of the
Closing Date.
"Release" means any release, spill, emission, leaking,
pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, the abandonment or disposal of any
barrels, containers or other closed receptacles containing any Hazardous
Materials), or into or out of any Facility, including the movement of any
Hazardous Material through the air, soil, surface water, groundwater or
property.
"Reportable Event" has the meaning ascribed to such term in
Section 4043 of ERISA, but excluding any event for which the 30-day notice
requirement has been waived by applicable regulations of the PBGC.
<PAGE> 32
25
"Required Lenders" means Lenders that are the registered
holders in the aggregate of more than 50% of the outstanding principal amount of
Notes as reflected on the Register.
"Restricted Payment" has the meaning ascribed to such term in
Section 6.3.
"Securities" means any stock, shares, partnership interests,
voting trust certificates, certificates of interest or participation in any
profit sharing agreement or arrangement, bonds, debentures, options, warrants,
notes, or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.
"Security Agreement" means a Security Agreement substantially
in the form of Exhibit VIII among the Borrower, the Guarantors and the
Collateral Agent, as the same may be amended, modified or supplemented in
accordance with the terms thereof and hereof.
"Security Documents" means the Mortgages and the Security
Agreement.
"Senior Notes" has the meaning ascribed to such term in
Section 6.7.
"Senior Officers" means each of the Chief Executive Officer,
Senior Vice President and Chief Financial Officer of the Parent Guarantor.
"Senior Secured Indenture" means an indenture between the
Parent Guarantor or the Borrower and a trustee substantially in the form
contemplated by the Commitment Letter and this Agreement (with such changes
thereto as CIBC/WG, the Parent Guarantor and the Borrower shall approve, and, at
such time as notes issued thereunder are sold in a public offering, with other
appropriate changes to reflect such public offering), as the same may at any
time be amended, modified and supplemented and in effect.
"Subordinated Indebtedness" means Indebtedness of the Parent
Guarantor, the Borrower or any other Guarantor which is expressly subordinated
in right of payment to the Notes or the Guarantee of such Guarantor, as the case
may be.
"Subsequent Term Note" has the meaning ascribed to such term
in Section 2.2E.
<PAGE> 33
26
"Subsidiary" means, with respect to any Person, any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of stock or other equity interest entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereto is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof.
"Take-Out Banks" has the meaning ascribed to such term in
Section 3.1Q.
"Take-Out Securities" means any Securities of the Borrower
and/or the Guarantors the proceeds of which are used to repay the Notes in full
and any Securities of the Borrower and/or the Guarantors issued in accordance
with Section 6.13 the proceeds of which are used to Refinance the Notes in part,
including, without limitation, the Demand Take-Out Notes.
"Taxes" means all taxes, assessments, fees, levies, imposts,
duties, penalties, deductions, liabilities, withholdings or other charges of any
nature whatsoever, including interest penalties, from time to time or at any
time imposed by any Law or any Tribunal.
"Term Loan Commitment" has the meaning ascribed to such term
in Section 2.2A.
"Term Notes" has the meaning ascribed to such term in Section
2.2E.
"Transactions" shall mean, collectively, (i) the Acquisitions,
(ii) the Nomura Refinancing, (iii) the incurrence of the Loans hereunder on the
Closing Date, (iv) the repayment of all Indebtedness and other obligations of
the Parent Guarantor and Subsidiaries of the Parent Guarantor (except for
Indebtedness listed on Schedule B hereto not to exceed $73,699,684 which may
remain outstanding and Intercompany Indebtedness), (v) any other transaction on
the Closing Date contemplated in relation to the foregoing and (vi) the payment
of Transaction Costs.
"Transaction Costs" means the fees, costs and expenses payable
by the Parent Guarantor pursuant hereto and other fees, costs and expenses
payable by the Parent Guarantor or a Subsidiary of the Parent Guarantor in
connection with the Transactions.
"Tribunal" means any government, any arbitration panel, any
court or any governmental department, commission, board, bureau, agency,
authority or instrumentality of the United States or any state, province,
commonwealth, nation, territory, possession, county, parish, town, township,
village or municipality, whether now or hereafter constituted and/or existing.
<PAGE> 34
27
"U.S. Legal Tender" means such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
"Voting Stock" means, with respect to any Person, securities
of any class or classes of Capital Stock in such Person entitling the holders
thereof to vote under ordinary circumstances in the election of members of the
board of directors or other governing body of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment.
"wholly-owned Subsidiary" means, with respect to any Person,
any corporation, association or other business entity of which 100% of the total
voting power of shares of stock or other equity interest entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other wholly-owned
Subsidiaries of that Person or a combination thereof, other than directors'
qualifying shares or similar shares held by a director or officer of a foreign
Subsidiary.
1.2 Accounting Terms
For the purposes of this Agreement, all accounting terms not
otherwise defined herein shall have the meanings assigned to them in conformity
with GAAP.
1.3 Other Definitional Provisions; Anniversaries
Any of the terms defined in Section 1.1 may, unless the
context otherwise requires, be used in the singular or the plural depending on
the reference. For purposes of this Agreement, a monthly anniversary of the
Closing Date shall occur on the same day of the applicable month as the day of
the month on which the Closing Date occurred; provided, however, that if the
applicable month has no such day (i.e., 29, 30 or 31), the monthly anniversary
shall be deemed to occur on the last day of the applicable month.
<PAGE> 35
28
SECTION 2. AMOUNT AND TERMS OF LOAN COMMITMENT
AND LOANS; NOTES
2.1 Bridge Loan and Bridge Note
A. Bridge Loan Commitment. Subject to the terms and conditions
of this Agreement and in reliance upon the representations and warranties of the
Parent Guarantor and the Borrower herein set forth, the Lenders hereby agree to
lend to the Borrower on the Closing Date $117,500,000 in the aggregate (the
"Bridge Loan"), each such Lender committing to lend the amount set forth next to
such Lender's name on the signature pages hereto. The Lenders' commitments to
make the Bridge Loan to the Borrower pursuant to this Section 2.1A are herein
called individually, the "Bridge Loan Commitment" and collectively, the "Bridge
Loan Commitments."
B. Notice of Borrowing. When the Borrower desires to borrow
under this Section 2.1, it shall deliver to the Lenders a Notice of Borrowing no
later than 11:00 A.M. (New York time), at least one Business Day in advance of
the Closing Date or such later date as shall be agreed to by the Lenders. The
Notice of Borrowing shall specify the applicable date of borrowing (which shall
be a Business Day).
C. Disbursement of Funds. (a) Upon satisfaction or waiver of
the conditions set forth in Section 3.1, no later than 12:00 Noon (New York
time) on the Closing Date, each Lender will make available its pro rata share
(based on its Bridge Loan Commitment then in effect) of the Bridge Loan
requested to be made on such date in the manner provided below. All amounts
shall be made available in U.S. Legal Tender and immediately available funds to
the Borrower by depositing to its account at the place in the United States
notified by the Borrower to the Lenders in writing at least two Business Days in
advance of the Loan to be made by each such Lender.
(b) Nothing herein shall be deemed to relieve any Lender from
its obligation to fulfill its Bridge Loan Commitment hereunder or to prejudice
any rights which the Borrower may have against any Lender as a result of any
default by such Lender hereunder.
D. Bridge Notes. The Borrower shall execute and deliver to
each Lender or its nominee on the Closing Date a Bridge Note dated the Closing
Date substantially in the form of Exhibit I annexed hereto to evidence the
portion of the Bridge Loan made on such date by such Lender and with appropriate
insertions ("Bridge Notes").
<PAGE> 36
29
E. Scheduled Payment of Bridge Loan. Subject to Section 2.2,
the Borrower shall pay in full the outstanding amount of the Bridge Loan and all
other Obligations owing hereunder no later than the Conversion Date.
F. Termination of Bridge Loan Commitments. The Bridge Loan
Commitments hereunder shall terminate on the earlier of (i) the date on which
either of the Acquisition Agreements are terminated in accordance with their
respective terms or (ii) December 21, 1996 if the Bridge Loan is not made on or
before such date unless the Acquisition Agreements, in form and substance
satisfactory to CIBC/WG have been extended beyond such date. The Borrower shall
have the right, without premium or penalty, to reduce or terminate the aggregate
Bridge Loan Commitments of the Lenders hereunder at any time.
G. Pro Rata Borrowings. The Bridge Loan made under this
Agreement shall be made by the Lenders pro rata on the basis of their respective
Bridge Loan Commitments. It is understood that no Lender shall be responsible
for any default by any other Lender of its obligation to make its portion of the
Bridge Loan hereunder and that each Lender shall be obligated to make its
portion of the Bridge Loan hereunder, regardless of the failure of any other
Lender to fulfill its commitments hereunder.
2.2 Term Loan and Term Note
A. Term Loan Commitment. Subject to the terms and conditions
of this Agreement and in reliance upon the representations and warranties of the
Parent Guarantor and the Borrower herein set forth, the Lenders hereby agree, on
the Conversion Date, upon the request of the Borrower, to convert the then
outstanding principal amount of the Bridge Notes into a term loan (the "Term
Loan"), such Term Loan to be in the aggregate principal amount of the then
outstanding principal amount of the Bridge Notes. The Lenders' commitments under
this Section 2.2A are herein called individually, the "Term Loan Commitment" and
collectively, the "Term Loan Commitments."
B. Notice of Conversion. If the Borrower has not repaid the
Bridge Loan in full on or prior to the Conversion Date, then the Borrower shall
convert the then outstanding principal amount of the Bridge Notes into a Term
Loan under this Section 2.2. The Borrower shall deliver to the Lenders a Notice
of Conversion no later than 11:00 A.M. (New York time), at least two Business
Days in advance of the Conversion Date. The Notice of Conversion shall specify
the Conversion Date (which shall be a Business Day) and the principal amount of
the Bridge Notes outstanding on the Conversion Date to be converted into a Term
Loan.
C. Making of Term Loan. Upon satisfaction or waiver of the
conditions precedent specified in Section 3.2 hereof, each Lender shall extend
to the Borrower the portion of the Term Loan to be issued on the Conversion Date
by such
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Lender by cancelling on its records a corresponding principal amount of the
Bridge Notes held by such Lender.
D. Maturity of Term Loan. The Term Loan shall mature and the
Borrower shall pay in full the outstanding principal amount thereof and accrued
interest thereon on the seventh anniversary of the Closing Date (the "Maturity
Date").
E. Term Notes. The Borrower shall execute and deliver to each
Lender on the Conversion Date a Term Note dated the Conversion Date
substantially in the form of Exhibit II annexed hereto to evidence the portion
of the Term Loan made on such date by such Lender, in the principal amount of
the Bridge Notes held by such Lender on such date and with other appropriate
insertions ("Original Term Notes"). On or after the Conversion Date, on each
interest payment date on which the Borrower elects to pay a PIK Interest Amount
pursuant to Section 2.3B, the Borrower shall execute and deliver to each Lender
on such interest payment date a Term Note dated such interest payment date
substantially in the form of Exhibit II annexed hereto in a principal amount
equal to such Lender's pro rata portion of such PIK Interest Amount and with
other appropriate insertions (each a "Subsequent Term Note" and, together with
the Original Term Notes, the "Term Notes"). A Subsequent Term Note shall bear
interest at the same rate borne by all Term Notes.
2.3 Interest on the Loans
A. Rate of Interest. The Loans shall bear interest on the
unpaid principal amount thereof from the date made through maturity (whether by
prepayment, acceleration or otherwise) at a rate per annum equal to the
Applicable Rate, as in effect from time to time, plus the Applicable Spread, as
in effect from time to time; provided, that, in no event will the combined sum
of interest (cash or otherwise) on the Loans exceed 20.00% per annum.
B. Interest Payments. Interest shall be payable (i) with
respect to the Bridge Loan, in arrears on the 15th day of each month commencing
January 15, 1997, and upon any prepayment of the Bridge Loan (to the extent
accrued on the amount being prepaid) and at maturity of the Bridge Loan and (ii)
with respect to the Term Loan, in arrears on December 15, March 15, June 15 and
September 15 of each year, commencing on December 15, 1997, upon any prepayment
of the Term Loan (to the extent accrued on the amount being prepaid) and at
maturity of the Term Loan; provided, however, that if, on any interest payment
date, the interest rate borne by the Term Loan, exceeds the Maximum Cash
Interest Rate, the Borrower may pay all or a portion of the interest payable in
excess of the Maximum Cash Interest Rate by issuance of Subsequent Term Notes in
an aggregate principal amount equal to the amount of such interest being so paid
(the "PIK Interest Amount").
C. Post-Maturity Interest. Any principal payments on a Loan
not paid when due and, to the extent permitted by applicable law, any interest
payment on
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a Loan not paid when due, in each case whether at stated maturity, by notice of
prepayment, by acceleration or otherwise, shall thereafter bear interest payable
upon demand at a rate which is 2.00% per annum in excess of the rate of interest
otherwise payable under this Agreement on such Loan.
D. Computation of Interest. Interest on the Loans shall be
computed on the basis of a 360-day year and twelve 30-day months. In computing
interest on the Loans, the date of the making of the Loans shall be included and
the date of payment shall be excluded; provided, however, that if a Loan is
repaid on the same day on which it is made, one day's interest shall be paid on
that Loan.
2.4 Fees
The Borrower agrees to pay to each Lender (i) a funding fee in
an amount equal to 1.0% of the full amount of the Bridge Loan made by such
Lender, which amount shall be paid by the Borrower to CIBC/WG for the benefit of
all of the Lenders and (ii) to the extent the Bridge Loans are outstanding 91
days after the Closing Date, an extension fee in an amount equal to 0.5% of the
Bridge Loan made by such Lender outstanding on such date, in each case payable
to each Lender in accordance with the Commitment Letter. In addition, at the
time of the issuance of any Term Notes, the Borrower shall pay to each holder of
the Term Notes a fee of 3.0% of the principal amount of the Term Notes so issued
to such holder.
Once paid, the foregoing fees shall not be refundable under
any circumstances. All fees payable hereunder shall be paid in cash.
2.5 Prepayments and Payments
A. Prepayments
(i) Voluntary Prepayments. The Borrower may, upon not less
than two Business Days' prior written or telephonic notice confirmed in
writing to the Lenders, at any time and from time to time, prepay the
Loans made to the Borrower in whole or in part in an aggregate minimum
amount of $500,000 and integral multiples of $100,000 in excess of that
amount; provided that unless Loans are to be prepaid in full, such
voluntary prepayments shall not result in the aggregate amount of the
Loans outstanding being less than $75 million or shall not be made at a
time when the aggregate amount of the Loans outstanding is less than
$75 million. Notice of prepayment having been given as aforesaid, the
principal amount of the Loans to be prepaid shall become due and
payable on the prepayment date. Amounts of the Loans so prepaid may not
be reborrowed.
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(ii) Mandatory Prepayments
(a) Prepayments from Asset Sales. Upon receipt by the
Parent Guarantor, the Borrower or any Subsidiary of the Parent
Guarantor of Cash Proceeds of any Asset Sale or series of related Asset
Sales in excess of $10 million occurring after the Closing Date, the
Parent Guarantor or any Subsidiary of the Parent Guarantor (whether or
not the Borrower) shall use the Net Cash Proceeds of such Asset Sale(s)
to prepay the Loans. Not later than 180 days after receipt by the
Parent Guarantor, the Borrower or any Subsidiary of the Parent
Guarantor of Cash Proceeds of any Asset Sale or series of related Asset
Sales in excess of $5 million occurring after the Closing Date, the
Parent Guarantor or any Subsidiary of the Parent Guarantor (whether or
not the Borrower) shall use the Net Cash Proceeds of such Asset Sale(s)
to prepay the Loans to the extent not reinvested prior to that date in
any line of business engaged in or reasonably related to a line of
business engaged in by the Parent Guarantor or any Subsidiary of the
Parent Guarantor as of the Closing Date. Concurrently with the
consummation of an Asset Sale, the Parent Guarantor and the Borrower
shall deliver to the Lenders an Officer's Certificate demonstrating the
derivation of Net Cash Proceeds from the gross sales price of such
Asset Sale(s).
(b) Casualty Events. On the date (or next Business
Day if such date is not a Business Day) on which the Parent Guarantor,
the Borrower or any Subsidiary of the Parent Guarantor receives any Net
Cash Proceeds from any Casualty Event with respect to Property pledged
pursuant to the Security Agreement, the Parent Guarantor and the
Borrower shall prepay the Loans in an aggregate principal amount equal
to 100% of such Net Cash Proceeds; provided, however, that so long as
no Event of Default or Potential Event of Default then exists and such
Net Cash Proceeds do not exceed $1.0 million, such Net Cash Proceeds
shall not be required to be so applied on such date to the extent that
the Parent Guarantor and the Borrower have delivered an Officers'
Certificate to the Lenders on or prior to such date stating that such
proceeds shall be used to (1) repair, replace or restore any Property
in respect of which such Net Cash Proceeds were paid or (2) fund the
expansion or substitution of other Property used or usable in the
business of the Parent Guarantor, the Borrower and the Subsidiaries of
the Parent Guarantor, in each case within 180 days following the date
of the receipt of such Net Cash Proceeds; provided, further, however,
that (i) if the amount of such Net Cash Proceeds exceeds $1.0 million,
then the entire amount and not just the portion in excess of $1.0
million shall be applied and (ii) if all or any portion of such Net
Cash Proceeds not required to be applied to the prepayment of the Loans
pursuant to the preceding proviso is not so used within 180 days after
the date of the receipt of such Net Cash Proceeds, such remaining
portion shall be applied on the last Business Day of such period as
specified in subsection (iii) of this Section 2.5A.
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(c) Recovery Events. On the date (or next Business
Day if such date is not a Business Day) on which the Parent Guarantor,
the Borrower or any Subsidiary of the Parent Guarantor receives any Net
Cash Proceeds from any taking or Destruction or loss of title to any
Mortgaged Real Property, the Parent Guarantor and the Borrower shall
prepay the Loans in an aggregate principal amount equal to 100% of such
Net Cash Proceeds; provided, however, that so long as no Event of
Default or Potential Event of Default then exists and such Net Cash
Proceeds do not exceed $1.0 million, such Net Cash Proceeds shall not
be required to be so applied on such date to the extent that the Parent
Guarantor and the Borrower have delivered an Officers' Certificate to
the Lenders on or prior to such date stating that such proceeds shall
be used to (1) repair, replace or restore any Mortgaged Real Property
in respect of which such Net Cash Proceeds were paid or (2) fund the
purchase of substitute or additional Mortgaged Real Property, in each
case within 180 days following the date of the receipt of such Net Cash
Proceeds; provided, further, however, that (i) if the amount of such
Net Cash Proceeds exceeds $1.0 million, then the entire amount and not
just the portion in excess of $1.0 million shall be applied and (ii) if
all or any portion of such Net Cash Proceeds not required to be applied
to the prepayment of Term Loans pursuant to the preceding proviso is
not so used within 180 days after the date of the receipt of such Net
Cash Proceeds, such remaining portion shall be applied on the last
Business Day of such period as specified in subsection (iii) of this
Section 2.5A.
(d) Prepayments from Issuances of Take-Out
Securities. Concurrently with the receipt by the Parent Guarantor or
the Borrower of proceeds from the issuance of Take-Out Securities or
from sales of debt or equity securities by the Parent Guarantor, the
Borrower or any Subsidiary of the Parent Guarantor in excess of $5
million individually or in the aggregate, the Borrower shall prepay the
Loans in a principal amount equal to the lesser of the proceeds thereof
(net of expenses payable by the Parent Guarantor or the Borrower to any
Person other than an Affiliate of the Parent Guarantor in connection
with the issuance thereof) or the aggregate principal amount of the
Notes then outstanding.
(e) P&G Acquisition. In the event the P&G Acquisition
has not been consummated, following satisfaction (or waiver or
amendment, with the prior written consent of CIBC/WG) of each of the
conditions thereto in the MEM Acquisition Agreement in the form
delivered to the Lenders pursuant to Section 3.1(A)(9) hereof, prior to
December 21, 1996, the Borrower shall be required to redeem $40 million
aggregate principal amount of the Notes, pro rata among the holders
thereof, on or before December 24, 1996 at a price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest to the date
of redemption. Notice of redemption shall be by 10:00 A.M. (New York
time) on December 23, 1996.
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34
(f) Notice. The Parent Guarantor and the Borrower
shall notify the Lenders of any prepayment to be made pursuant to this
Section 2.5A(ii) at least two Business Days prior to such prepayment
date (unless otherwise specified above or shorter notice is
satisfactory to the Required Lenders).
(iii) Borrower's Mandatory Prepayment Obligation; Application
of Prepayments. All prepayments shall include payment of accrued
interest on the principal amount so prepaid and shall be applied to
payment of interest before application to principal.
(iv) Mandatory Offer to Purchase Notes.
(a) Upon the occurrence of a Change of Control (the
date of such occurrence, the "Change of Control Date"), the Lenders
shall have the right to require the repurchase of all of the Notes
pursuant to an offer to purchase (the "Change of Control Offer") at a
purchase price equal to 100% of the aggregate principal amount thereof,
plus accrued interest thereon to the date of repurchase.
(b) The notice to the Lenders shall contain all
instructions and materials necessary to enable the Lenders to tender
Notes.
(c) Within 30 days following any Change of Control
the Parent Guarantor shall mail a notice to the Lenders stating:
(1) that the Change of Control Offer is
being made pursuant to this Section 2.5(A)(iv) and that all
Notes validly tendered will be accepted for payment;
(2) the purchase price and the purchase
date, which shall be no earlier than 30 days nor later than 40
days from the date such notice is mailed (the "Offer Payment
Date");
(3) that any Note not tendered will continue
to accrue interest;
(4) that any Note accepted for payment
pursuant to the Change of Control Offer shall cease to accrue
interest after the Offer Payment Date unless the Borrower
shall default in the payment of the repurchase price of the
Notes;
(5) that if a Lender elects to have a Note
purchased pursuant to the Change of Control Offer it will be
required to surrender the Note, with the form entitled "Option
of Holder to Elect Purchase"
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35
on the reverse of the Note completed, to the Parent Guarantor
and the Borrower prior to 5:00 p.m. New York time on the Offer
Payment Date;
(6) that a Lender will be entitled to
withdraw its election if the Parent Guarantor and the Borrower
receive, not later than 5:00 p.m. New York time on the
Business Day preceding the Offer Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the
principal amount of Notes such Lender delivered for purchase,
and a statement that such Lender is withdrawing its election
to have such Note purchased; and
(7) that if Notes are purchased only in part
a new Note of the same type will be issued in principal amount
equal to the unpurchased portion of the Notes surrendered.
(d) On or before the Offer Payment Date, the Parent
Guarantor and the Borrower shall (i) accept for payment Notes or
portions thereof which are to be purchased in accordance with the
above, and (ii) wire transfer, to the extent they have received wire
instructions from the Lenders, or otherwise mail, to the Lenders whose
Notes are so accepted payment in an amount equal to the purchase price.
(e) The Parent Guarantor and the Borrower shall
comply with the requirements of Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the purchase of
Notes pursuant to an offer hereunder. To the extent the provisions of
any securities laws or regulations conflict with the provisions under
this Section, the Parent Guarantor and the Borrower shall comply with
the applicable securities laws and regulations and shall not be deemed
to have breached their obligations under this Section by virtue
thereof.
B. Manner and Time of Payment. All payments of principal and
interest and fees hereunder and under the Notes by the Parent Guarantor and the
Borrower shall be made without defense, set-off or counterclaim and in same-day
funds and delivered to the Lenders, unless otherwise specified, not later than
12:00 Noon (New York time) on the date due at the Principal Office of each of
the Lenders; funds received by the Lenders after that time shall be deemed to
have been paid by the Parent Guarantor or the Borrower, as the case may be, on
the next succeeding Business Day.
C. Payments on Non-Business Days. Whenever any payment to be
made hereunder or under the Notes shall be stated to be due on a day which is
not a Business Day, the payment shall be made on the next succeeding Business
Day and
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36
such extension of time shall be included in the computation of the payment of
interest hereunder or under the Notes or of the commitment and other fees
hereunder, as the case may be.
D. Notation of Payment. Each Lender agrees that before
disposing of any Note held by it, or any part thereof (other than by granting
participations therein), such Lender will make a notation thereon of all
principal payments previously made thereon and of the date to which interest
thereon has been paid and will notify the Parent Guarantor and the Borrower of
the name and address of the transferee of that Note; provided, however, that the
failure to make (or any error in the making of) such a notation or to notify the
Parent Guarantor and the Borrower of the name and address of such transferee
shall not limit or otherwise affect the obligation of the Borrower hereunder or
under such Notes with respect to the Loans and payments of principal or interest
on any such Note.
2.6 Use of Proceeds
A. Bridge Loan. The proceeds of the Bridge Loan shall be
applied for general corporate purposes and to pay the consideration for the
Acquisitions, to consummate the Nomura Refinancing and to the payment of
Transaction Costs.
B. Term Loan. The proceeds of the Term Loan shall be used to
cancel any outstanding amount of Bridge Notes converted to Term Notes on such
date.
C. Margin Regulations. No portion of the proceeds of any
borrowing under this Agreement shall be used by the Parent Guarantor or the
Borrower in any manner which might cause the borrowing or the application of
such proceeds to violate the applicable requirements of Regulation G, Regulation
U, Regulation T or Regulation X of the Board of Governors of the Federal Reserve
System or any other regulation of the Board or to violate the Exchange Act, in
each case as in effect on the date or dates of such borrowing and such use of
proceeds. None of the Loans or the Notes are "indirectly secured" within the
meaning of Regulation G and Regulation U by Margin Stock, and notwithstanding
anything to the contrary in this Agreement or any other Loan Document, any
provisions contained in this Agreement or any other Loan Document that may be
deemed to cause the Loans or the Notes to be "indirectly secured" by Margin
Stock shall not apply to such Margin Stock to the extent that the value
(determined by any reasonable means) thereof exceeds 25% of the aggregate value
(determined by any reasonable means) of all of the assets of the Parent
Guarantor and the Subsidiaries of the Parent Guarantor so subject to such
provisions.
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37
SECTION 3 CONDITIONS
3.1 Conditions to Bridge Loan
The obligation of the Lenders to make the Bridge Loan is
subject to prior or concurrent satisfaction of each of the following conditions:
A. Principal Documents. On or before the Closing Date, all
corporate and other proceedings taken or to be taken in connection with the
transactions contemplated hereby and all documents incidental thereto not
previously found acceptable by the Lenders shall be reasonably satisfactory in
form and substance to CIBC/WG, and the Lenders shall have received the following
items, each of which shall be in form and substance satisfactory to CIBC/WG and,
unless otherwise noted, dated the Closing Date:
1. a certified copy of the Parent Guarantor's, the Borrower's
and each other Closing Date Guarantor's charter, together with a
certificate of status, compliance, good standing or like certificate
with respect to the Parent Guarantor, the Borrower and each other
Guarantor issued by the appropriate government officials of the
jurisdiction of its incorporation and of each jurisdiction in which it
owns any material assets or carries on any material business, each to
be dated a recent date prior to the Closing Date;
2. a copy of the Parent Guarantor's, the Borrower's and each
other Closing Date Guarantor's bylaws, certified as of the Closing Date
by its Secretary or one of its Assistant Secretaries;
3. resolutions of the Parent Guarantor's, the Borrower's and
each other Closing Date Guarantor's Board of Directors approving and
authorizing the execution, delivery and performance of this Agreement,
each of the other Loan Documents and any other documents, instruments
and certificates required to be executed by the Parent Guarantor, the
Borrower or such other Closing Date Guarantor in connection herewith
and therewith and approving and authorizing the execution, delivery and
payment of the Notes and the consummation of the Transactions, each
certified as of the Closing Date by its Secretary or one of its
Assistant Secretaries as being in full force and effect without
modification or amendment;
4. signature and incumbency certificates of the Parent
Guarantor's, the Borrower's and each other Closing Date Guarantor's
officers executing this Agreement, the Security Agreement and/or the
Bridge Notes;
5. originally executed copies of this Agreement and the Bridge
Notes substantially in the form of Exhibit I annexed hereto executed in
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accordance with Section 2.1D drawn to the order of the Lenders and with
appropriate insertions;
6. an originally executed Notice of Borrowing substantially in
the form of Exhibit IV-A annexed hereto, signed by the President or a
Vice President of the Borrower;
7. originally executed copies of (I) one or more favorable
written opinions of (a) Paul, Weiss, Rifkind, Wharton & Garrison and
John R. Jackson, Esq., counsel for the Parent Guarantor, the Borrower
and the other Guarantors, substantially in the form of Exhibit V
annexed hereto and addressed to the Lenders and (b) Cahill Gordon &
Reindel, special counsel for the Lenders, substantially in the form of
Exhibit VI annexed hereto and addressed to the Lenders and (II) such
other opinions of counsel and such certificates or opinions of
accountants, appraisers or other professionals as the Required Lenders
shall have reasonably requested;
8. a certificate of the chief financial officer of the Parent
Guarantor and the Borrower, stating that (A) after giving effect to the
consummation of the Transactions, (i) the Parent Guarantor, the
Borrower and the other Closing Date Guarantors are not insolvent and
will not be rendered insolvent by the borrowings under the loans, and
(ii) the fair saleable value of the assets of the Parent Guarantor, the
Borrower and the other Closing Date Guarantors will not be less than
the probable liability on their debts, (B) each of the Parent
Guarantor, the Borrower and the other Closing Date Guarantors will be
able to pay its debts as they mature and (C) each will not have
unreasonably small capital to conduct its business, all in form and
substance satisfactory to CIBC/WG;
9. true and correct copies of the Acquisition Agreements,
which shall not have been amended without the prior written consent of
CIBC/WG and which shall be in full force and effect; each of the
conditions to purchase contained in the MEM Acquisition Agreement shall
have been satisfied and not waived or amended without the prior written
consent of CIBC/WG;
10. a notation of Guarantee, executed and delivered by each
Closing Date Guarantor, dated the Closing Date, substantially in the
form of Exhibit VII annexed hereto, as applicable;
11. an originally executed copy of the Security Agreement
substantially in the form of Exhibit VIII amended hereto; and
12. a copy of all closing documents relating to the MEM
Acquisition and all such counterpart originals or certified copies of
such
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39
documents, instruments, certificates and opinions as the Required
Lenders may reasonably request.
B. Environmental Matters. The Lenders shall have received
reports and other information in form, scope and substance reasonably
satisfactory to CIBC/WG concerning environmental liabilities of the Parent
Guarantor, the Borrower and Subsidiaries of the Parent Guarantor and the
Acquired Business; provided, that no environmental audits or surveys shall be
required to be conducted.
C. Consents. On or before the Closing Date, all
authorizations, consents and approvals necessary in connection with the
Transactions (other than the P&G Acquisition) shall have been obtained and
remain in full force and effect and all applicable waiting periods under Law
applicable to the MEM Acquisition shall have expired without any action being
taken by any competent authority (including without limitation, any Tribunal)
which restrains, prevents or imposes materially adverse conditions upon the
completion of the MEM Acquisition, the financing thereof or the operation of the
portion of the Acquired Business to be acquired in the MEM Acquisition and
evidence of the receipt of such authorizations, consents and approvals
satisfactory to CIBC/WG shall have been delivered to the Lenders.
D. Existing Indebtedness. On or before the Closing Date, all
existing indebtedness (including Indebtedness owed to Nomura Holding America
Inc.) of the Parent Guarantor, the Borrower and Subsidiaries of the Parent
Guarantor (except for Indebtedness listed on Schedule B hereto not to exceed
$73,699,684 which may remain outstanding and Intercompany Indebtedness) shall be
repaid in full and all commitments thereunder shall be terminated.
E. Fees. On or before the Closing Date, the Parent Guarantor
shall have paid to the Lenders the fees payable on or before the Closing Date
pursuant to the Commitment Letter.
F. Agreements Performed. On or before the Closing Date, the
Parent Guarantor shall have performed in all material respects all agreements
which this Agreement provides shall be performed on or before the Closing Date
except as otherwise disclosed to and agreed to in writing by CIBC/WG.
G. Officers' Certificate. Simultaneously with the making of
the Bridge Loan by the Lenders, the Parent Guarantor and the Borrower shall have
delivered to the Lenders an Officers' Certificate from the Parent Guarantor and
the Borrower in form and substance satisfactory to CIBC/WG to the effect that
(i) the representations and warranties in Section 4 are true, correct and
complete in all material respects on and as of the Closing Date to the same
extent as though made on and as of that date, (ii) on or prior to the Closing
Date, the Parent Guarantor and the Borrower have performed and complied with in
all material respects all covenants and conditions to be performed and observed
by the Parent Guarantor and the Borrower
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40
on or prior to the Closing Date and (iii) all conditions to the consummation of
the MEM Acquisition in the MEM Acquisition Agreement have been satisfied
substantially on the terms set forth therein and have not been waived or amended
without the prior written consent of CIBC/WG.
H. MEM Acquisition. Immediately following the making of the
Bridge Loan by the Lenders, the MEM Acquisition and the Nomura Refinancing shall
be consummated without the waiver of any conditions precedent thereto.
I. Losses, etc. Neither the Parent Guarantor, the Borrower nor
any Subsidiary of the Parent Guarantor shall have sustained any loss or
interference with respect to its businesses or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding, which loss or
interference, in the sole judgment of the Required Lenders, has had or has a
material adverse effect on the business, condition (financial or other), results
of operations or prospects of the Parent Guarantor, the Borrower and
Subsidiaries of the Parent Guarantor, taken as a whole; there shall not have
been, in the sole judgment of the Required Lenders, any material adverse change,
or any development involving a prospective material adverse change, in the
business, condition (financial or other), results of operations or prospects of
the Parent Guarantor, the Borrower and Subsidiaries of the Parent Guarantor,
taken as a whole.
J. No Defaults. No event shall have occurred and be continuing
or would result from the consummation of the borrowing contemplated by the
Notice of Borrowing which would constitute an Event of Default or Potential
Event of Default. The funding of the Bridge Loan will not cause or result in any
breach or default (including any event, which, with notice or lapse of time or
both would be a breach or a default) or trigger any repurchase requirements
under any of the terms or provisions of any of the instruments governing the
existing indebtedness of the Parent Guarantor, the Borrower or any of their
subsidiaries to remain outstanding after funding of the Bridge Loan.
K. Asset Coverage; No Adverse Change of Development; Conduct
of Business. There shall have been no material adverse change from the date of
the Commitment Letter in the asset coverage levels for the repayment of the
Bridge Notes. Since the date of the Commitment Letter, nothing shall have
occurred which could reasonably be likely to have a material adverse effect on
the material rights or remedies of the Lenders, or on the ability of the Parent
Guarantor, the Borrower and the other Closing Date Guarantors to perform their
respective material obligations to the Lenders; and there shall not have been,
in the sole judgment of the Required Lenders, any material adverse change, or
any development involving (or which may reasonably be expected to involve) a
prospective material adverse change, in the business, condition (financial or
other), results of operations, operations, property, assets, liabilities or
prospects of the Parent Guarantor, the Borrower and the
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41
Subsidiaries of the Parent Guarantor, taken as a whole. From the date of the
Commitment Letter, the Parent Guarantor and the Borrower shall have operated its
business in the ordinary course except for the consummation of the Acquisitions.
L. Legal Proceedings. There shall not be pending or, to the
knowledge of the Parent Guarantor or the Borrower, threatened any action, suit,
proceeding, governmental investigation or arbitration against or affecting the
Parent Guarantor or any Subsidiaries of the Parent Guarantor, or any property or
asset of the Parent Guarantor or any Subsidiaries of the Parent Guarantor which
has not been disclosed by the Parent Guarantor in writing to the Lenders (and
the Lenders shall have received on the Closing Date an Officer's Certificate
dated the Closing Date attesting to the same) and there shall have occurred no
development not so disclosed in any such action, suit, proceeding, governmental
investigation or arbitration so disclosed, which, in each case, singly or in the
aggregate could reasonably be expected to materially and adversely affect the
business, operations, properties, assets, prospects or condition (financial or
otherwise) of the Parent Guarantor and Subsidiaries of the Parent Guarantor,
taken as a whole, or to impair the ability or obligation of the Parent Guarantor
or any Subsidiary of the Parent Guarantor to perform, or of the Lenders to
enforce, the Obligations under this Agreement. No injunction or other
restraining order shall have been issued and no hearing to cause an injunction
or other restraining order to be issued shall be pending or noticed with respect
to any action, suit or proceeding seeking to restrain, enjoin, delay, prohibit
or otherwise prevent the consummation of, or to recover any damages or obtain
relief as a result of, the Transactions other than as set forth on Schedule D.
Except as set forth on Schedule D, there shall not be threatened, instituted or
pending any action, proceeding or application before or by any Tribunal, or any
other Person, domestic or foreign (i) challenging the Transactions or seeking to
enjoin, restrain, delay or prohibit the consummation thereof; (ii) seeking to
prohibit or impose material limitations on the Parent Guarantor's ownership or
operation of all or any portion of the Parent Guarantor's business or assets
(including the business or assets of any Subsidiary of the Parent Guarantor and
the Acquired Business) or to compel the Parent Guarantor to dispose of or hold
separate all or any portion of the Parent Guarantor's business or assets
(including the business or assets of any Subsidiary of the Parent Guarantor) as
a result of the Acquisitions; (iii) which, in any event, might adversely affect
the Bridge Loan; or (iv) seeking to impose any materially adverse conditions
upon the Transactions.
M. Margin Rules. The making of the Bridge Loan in the manner
contemplated in this Agreement shall not violate the applicable provisions of
Regulation G, T, U or X of the Board of Governors of the Federal Reserve Board
or any other regulation of the Board.
N. Capital Structure. The pro forma consolidated capital
structure of the Parent Guarantor, the Borrower and Subsidiaries of the Parent
Guarantor, after
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42
giving effect to the Transactions, shall not differ from that contemplated by
the Commitment Letter.
O. Take-Out Banks. The Parent Guarantor shall have engaged one
or more investment banks (collectively, the "Take-Out Banks") to publicly sell
or privately place the Demand Take-Out Notes. Such engagement shall have been
definitively documented on terms and conditions and in the form and substance
reasonably satisfactory to the Required Lenders, such documentation shall be in
full force and effect and the parties thereto shall be in compliance with all
material agreements thereunder.
P. Market and Other Conditions. There shall not have occurred
(i) any general suspension of, or limitation on times or prices for, trading in
securities on the New York Stock Exchange, American Stock Exchange or Toronto
Stock Exchange or in the over-the-counter market in the United States; (ii) a
declaration of a banking moratorium or any suspension of payments in respect of
the banks in the United States, New York or Canada; or (iii) either (A) an
outbreak or escalation of hostilities between the United States or Canada and
any foreign power, or (B) an outbreak or escalation of any other insurrection or
armed conflict involving the United States, Canada or any other national or
international calamity or emergency, or (C) any material change in the financial
markets of the United States or Canada, which, in the sole judgement of the
Required Lenders, makes it impracticable or inadvisable to proceed with the
consummation of the Transactions or the Bridge Loan or any of the other
transactions contemplated hereby including, without limitation, the issuance and
sale of the Demand Take-Out Notes or that would materially affect the ability to
sell or syndicate the Bridge Loan.
Q. Strategy. The Lenders shall be satisfied with its review of
the Parent Guarantor's operating strategy, including, without limitation, any
planned asset dispositions and the tax implications of any such dispositions and
the operating income and cash flow budgets of the Parent Guarantor and
Subsidiaries of the Parent Guarantor for the first year following the Closing
Date.
R. Accounting Matters. The Lenders shall be satisfied with its
review of the accounting policies and procedures utilized by the Parent
Guarantor and Subsidiaries of the Parent Guarantor and to be utilized by the
Parent Guarantor and Subsidiaries of the Parent Guarantor after the
Acquisitions.
S. Financial Statements. The Lenders shall be satisfied that
audited, unaudited and pro forma financial statements meeting the requirements
of Regulation S-X under the Securities Act of 1933, as amended, of the Parent
Guarantor, the Borrower and each other Guarantor are available as of the Closing
Date (if required) or will be available no later than a date which would permit
the commencement of the marketing efforts for the Take-Out Securities no later
than sixty days following the Closing Date.
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43
T. Security Interest. The Lenders shall have a perfected first
priority (except with respect to Permitted Encumbrances) security interest in
the Pledged Stock (as defined in the Security Agreement), and the Parent
Guarantor, the Borrower and the other Closing Date Guarantors shall have
authorized, executed and delivered documents in appropriate form for filing with
the United States Patent and Trademark Office as may be reasonably necessary or
appropriate to perfect the Liens created, or purported to be created, by the
Security Agreement in the Intellectual Property (as defined in the Security
Agreement) (to the extent perfection may be made by filing with the United
States Patent and Trademark Office).
U. Lien Searches; Etc. The Parent Guarantor, the Borrower and
the other Closing Date Guarantors shall have authorized, executed and delivered
each of the following:
(1) UCC Financing Statements (Form UCC-1) in appropriate form
for filing under the UCC and any other applicable Law, rule or
regulation in each jurisdiction as may be reasonably necessary or
appropriate to perfect the Liens created, or purported to be created,
by the Security Agreement;
(2) certified copies of Requests for Information (Form
UCC-11), or equivalent reports or lien search reports, each of a recent
date listing all effective financing statements or comparable documents
that name any Obligor as debtor and that are filed in those
jurisdictions in which any of the Pledged Collateral is located and the
jurisdictions in which the Borrower's and each Closing Date Guarantor's
principal place of business is located, none of which encumber the
Collateral covered or intended to be covered by the Security Agreement
other than those encumbrances which constitute Permitted Encumbrances;
(3) to the extent a material portion of equipment or inventory
of the Borrower or any Closing Date Guarantor is maintained on a leased
premise, a copy of each lease or other agreement relating to such
possessory interest; and
(4) delivery of such other documents as may be reasonably
necessary to perfect the Liens created, or purported to be created, by
the Security Agreement.
V. Closing Date. The Closing Date shall occur no later than
December 21, 1996 unless the Acquisition Agreements, in form and substance
satisfactory to CIBC/WG, have been extended beyond such date.
W. Applicable Law. The Lenders and their special counsel shall
be reasonably satisfied that the consummation of the Transactions shall be in
compliance with all applicable statutes, laws, rules and regulations of all
applicable governmental and regulatory agencies and authorities. There shall not
have occurred after the date
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44
of the Commitment Letter any change in law, rule or regulation which would
prohibit or impose conditions upon the Lenders' ability to provide the Bridge
Loan or the commitment hereunder which are materially adverse to any Lenders or
would result in or require any change to the net capital of any Lenders.
The obligation of any Lender to make any extension of credit
hereunder is also subject to the payment by the Parent Guarantor and the
Borrower of such reasonable fees and expenses as the Parent Guarantor and the
Borrower shall have agreed to pay or deliver to any Creditor in connection
herewith, including the fees and expenses of Cahill Gordon & Reindel, special
New York counsel to the Lenders in connection with the negotiation, preparation,
execution and delivery of the Loan Documents and the extensions of credit
hereunder.
Each notice or request submitted by the Parent Guarantor or
the Borrower hereunder for an extension of credit hereunder shall constitute a
representation and warranty by the Parent Guarantor and the Borrower, as of the
date of such notice and as of the relevant borrowing date, that the applicable
conditions in Section 3.1 are satisfied.
3.2 Conditions to Term Loan
The obligation of the Lenders to make the Term Loan on the
Conversion Date is subject to the prior or concurrent satisfaction or waiver of
the following conditions precedent:
A. The Lenders shall have received in accordance with the
provisions of Section 2.2B an originally executed Notice of Conversion
substantially in the form of Exhibit IV-B annexed hereto, signed by the
President or a Vice President of the Borrower.
B. The Parent Guarantor, the Borrower or any other Material
Subsidiaries shall not be subject to a Bankruptcy Order or a bankruptcy or other
insolvency proceeding and an Event of Default or Potential Event of Default
shall not have occurred under Section 7.6, 7.7 or 7.9.
C. No Event of Default or Potential Event of Default (whether
matured or not) shall have occurred under Section 7.1.
D. No Event of Default or Potential Event of Default shall
have occurred under Section 7.2; provided that if an event described in this
Section 3.2D is continuing at the Conversion Date but 30 days has not passed
since the date of written notice of the commencement of such 30-day period from
the holder or holders of not less than 25% in aggregate principal amount of the
Loans then outstanding (the "Grace Period"), the Conversion Date shall be
deferred until the earlier to occur of (x) the cure of such event or (y) the
expiration of such Grace Period.
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45
E. On the Conversion Date, the Lenders shall have received an
Officers' Certificate from the Parent Guarantor and the Borrower dated the
Conversion Date and satisfactory in form and substance to CIBC/WG, to the effect
that the conditions in this Section 3.2 are satisfied on and as of the
Conversion Date.
F. The Borrower shall have executed and delivered to the
Lenders on the Conversion Date for delivery to the Lenders Term Notes dated the
Conversion Date substantially in the form of Exhibit II annexed hereto to
evidence the Term Loan, in the principal amount of (which principal amount shall
be the aggregate principal amount of the Bridge Loan outstanding on the
Conversion Date) the Term Loan and with other appropriate insertions.
G. The Borrower shall have paid any fees owing to the Lenders.
H. The making of the Term Loan shall not violate Regulation G,
T, U or X of the Board of Governors of the Federal Reserve Board or any other
regulation of the Board.
SECTION 4 REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Agreement
and to make the Loans, the Parent Guarantor and the Borrower, jointly and
severally, represent and warrant to each Creditor that, at the time of execution
hereof and after consummation of the Transactions, the following statements are
true, correct and complete:
4.1 Organization and Good Standing; Capitalization
(a) Each of the Parent Guarantor, the Borrower and the
Subsidiaries of the Parent Guarantor is a corporation duly organized and
existing and in good standing under the laws of its jurisdiction of
incorporation. Each of the Parent Guarantor, the Borrower and the Subsidiaries
of the Parent Guarantor has the corporate power and authority to own and operate
its properties and to carry on its business as now conducted and as proposed to
be conducted and is duly qualified as a foreign corporation and in good standing
in all jurisdictions in which it is doing business, except where failure to be
so qualified or in good standing, singly or in the aggregate, has not had and
will not have a Material Adverse Effect.
(b) All of the Subsidiaries of the Parent Guarantor as of the
Closing Date, after giving effect to the Transactions, are identified in
Schedule A annexed hereto. The Capital Stock of each of the Parent Guarantor's
Subsidiaries, including the Borrower, identified in Schedule A annexed hereto
is, and in the case of any entities that become Subsidiaries of the Parent
Guarantor in connection with the Acquisitions will be, duly authorized, validly
issued, fully paid and nonassessable
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46
and, except for the common stock of MEM Companies, Inc., none of such capital
stock constitutes Margin Stock. The Parent Guarantor has no direct Subsidiaries
other than the Borrower and RAI, and no direct or indirect Material Subsidiaries
other than the Borrower and the other Closing Date Guarantors.
(c) As of the date hereof, there are issued and outstanding
825,086 shares of Parent Guarantor Common Stock, 119,018 shares of Parent
Guarantor 14.0% Senior Redeemable Preferred Stock, shares of Parent Guarantor
Cumulative Exchangeable Preferred Stock having an aggregate liquidation value as
of September 30, 1996 of $12,410,719 and 100 shares of Common Stock of the
Borrower. Such shares of Parent Guarantor and Borrower Capital Stock have been
duly and validly issued and are fully paid and nonassessable. No stockholder of
the Borrower has or will have any preemptive rights to subscribe for any
additional equity securities of the Borrower.
4.2 Authorization and Power
Each of the Parent Guarantor, the Borrower and the other
Closing Date Guarantors has the corporate power and requisite authority, and has
taken all corporate action necessary, to consummate the Transactions and to
execute, deliver and perform its obligations under the Loan Documents, and each
other document and instrument to be delivered in connection with the
Transactions executed or to be executed by it and to issue the Notes and the
Exchange Notes.
4.3 No Conflicts or Consents
(a) The execution and delivery of the Loan Documents to be
executed and delivered on or before the Closing Date, and each other document to
be executed and delivered on or before the Closing Date in connection with the
Transactions, the consummation of each of the transactions herein or therein
contemplated, the compliance with each of the terms and provisions hereof or
thereof, and the issuance, delivery and performance of the Notes do not and will
not (i) violate any provision of any law or any governmental rule or regulation
applicable to any of the Parent Guarantor, the Borrower and any Subsidiaries of
the Parent Guarantor, the Certificate or Articles of Incorporation, Bylaws or
any other organizational document of any of them or any order, judgment or
decree of any court or other agency of government binding on any of them, (ii)
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any Contractual Obligation of any of the Parent
Guarantor, the Borrower and any Subsidiaries of the Parent Guarantor which could
reasonably be expected to result in a Material Adverse Effect, (iii) result in
or require the creation or imposition of any Lien upon any of the properties or
assets of any of the Parent Guarantor, the Borrower and any Subsidiaries of the
Parent Guarantor (other than any Liens created under the Loan Documents), or
(iv) require any approval of equity holders or any approval or consent of any
Person under any Contractual Obligation of any of the Parent Guarantor, the
Borrower and
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47
any Subsidiaries of the Parent Guarantor except for such approvals or consents
which will be obtained on or before the Closing Date and disclosed in writing to
the Lenders or such approvals or consents the failure to obtain which could not
reasonably be expected to singly or in the aggregate result in a Material
Adverse Effect.
(b) No consent, approval, authorization or order of any
Tribunal or other Person is required in connection with the execution and
delivery by the Parent Guarantor, the Borrower or any Subsidiaries of the Parent
Guarantor of the Loan Documents or any other document or instrument to be
delivered on or before the Closing Date in connection with the Transactions or
the consummation of the transactions contemplated hereby or thereby, other than
any such consent, approval, authorization or order which has been obtained and
remains in full force and effect or which has been waived in writing by the
Required Lenders or the failure of which to obtain would not, singly or in the
aggregate, have a Material Adverse Effect.
(c) Based on the assumption that each of the Lenders is a
"qualified institutional buyer" as defined in Regulation 144A under the
Securities Act of 1933, as amended, and a letter from CIBC/WG as to the manner
of such offering, the offering, issuance, sale and delivery of the Bridge Notes
by the Borrower to the Lenders at the closing pursuant to this Agreement are
exempt from the registration requirements of the federal Securities Act of 1933,
as now in effect.
4.4 Enforceable Obligations
Each of the Loan Documents to be executed and delivered on or
before the Closing Date and each other document or instrument to be delivered on
or before the Closing Date in connection therewith has been duly authorized;
each of the Loan Documents to be executed and delivered on or before the Closing
Date and each other document or instrument to be delivered in connection
therewith to be executed and delivered on or prior to the Closing Date has been
duly executed and delivered by the Parent Guarantor, the Borrower and each of
the Subsidiaries of the Parent Guarantor that are a party thereto; and each of
the Loan Documents and each other document or instrument to be delivered in
connection therewith to be executed and delivered on or prior to the Closing
Date is, and each of the Loan Documents and each other document to be delivered
in connection therewith to be executed and delivered after the Closing Date will
be, upon such execution and delivery, the legal, valid and binding obligations
of the Parent Guarantor, the Borrower and each such Subsidiary (to the extent a
party thereto), enforceable in accordance with their respective terms, except to
the extent that the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization or similar laws affecting the enforcement
of creditors' rights generally or by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
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4.5 Properties; Liens
Each of the Parent Guarantor, the Borrower and the
Subsidiaries of the Parent Guarantor has, and after consummation of the
Acquisitions will have, good, sufficient and legal title to all their respective
properties and assets, and all properties held under lease by any of them, are,
and immediately after the consummation of the Acquisitions will be, held under
valid, subsisting and enforceable leases, and none of the Parent Guarantor, the
Borrower or the Subsidiaries of the Parent Guarantor and, to the knowledge of
the Parent Guarantor or the Borrower, any other party thereto, is in default
under any lease, except in each case for such defects or defaults that, singly
or in the aggregate, would not have a Material Adverse Effect. Except as
permitted by this Agreement, all such properties and assets owned or leased are
so owned or leased free and clear of Liens.
4.6 Financial Condition
(a) The audited consolidated balance sheets of the Parent
Guarantor, the Borrower and their respective Subsidiaries as at March 31, 1996
and the related consolidated statements of operations, common stockholders'
capital deficiency and cash flows of the Parent Guarantor, the Borrower and
their respective Subsidiaries for the period ended March 31, 1996 certified by
the Parent Guarantor's independent certified public accountants, copies of which
have been delivered to the Lenders, were prepared in accordance with GAAP, have
been prepared from, and are consistent with, the books and records of the Parent
Guarantor, the Borrower and their respective Subsidiaries and fairly present in
all material respects the consolidated financial position of the Parent
Guarantor, the Borrower and their respective Subsidiaries as at such date and
the consolidated results of operations and cash flows of the Parent Guarantor,
the Borrower and their respective Subsidiaries for the period then ended. On
March 31, 1996, the Parent Guarantor, the Borrower and their respective
Subsidiaries did not have any material contingent liabilities, liabilities for
Taxes or long-term leases, unusual forward or long-term commitments or
unrealized or unanticipated losses from any unfavorable commitments which are
not reflected or reserved against in the foregoing statements or in the notes
thereto. No events which have had or could reasonably be expected to have a
Material Adverse Effect have occurred since March 31, 1996.
(b) The unaudited consolidated balance sheet of the Parent
Guarantor, the Borrower and their respective Subsidiaries as at September 30,
1996 and the related consolidated statements of operations and cash flows of the
Parent Guarantor, the Borrower and their respective Subsidiaries for the
six-month period then ended, a copy of which has been delivered to the Lenders,
were prepared in accordance with GAAP consistently applied, have been prepared
from, and are consistent with, the books and records of the Parent Guarantor,
the Borrower and their respective Subsidiaries and fairly present in all
material respects the consolidated financial position of the Parent Guarantor,
the Borrower and their
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49
respective Subsidiaries as of such date and the consolidated results of
operations and cash flows of the Parent Guarantor, the Borrower and their
respective Subsidiaries for the period covered thereby, subject to normal
year-end audit adjustments, consistent with past practices. On such date, the
Parent Guarantor, the Borrower and their respective Subsidiaries did not have
any material contingent liabilities, liabilities for Taxes or long-term leases,
unusual forward or long-term commitment or unrealized or unanticipated losses
from any unfavorable commitment which are not reflected or reserved against in
the foregoing statements or in the notes thereto.
(c) The audited consolidated balance sheet of MEM Company,
Inc. as at December 31, 1995 and the related consolidated statements of
operations and cash flows for the fiscal periods then ended, a copy of which has
been delivered to the Lenders, were prepared in accordance with GAAP
consistently applied, have been prepared from, and are consistent with, the
books and records of MEM Company, Inc. and fairly present in all material
respects the consolidated financial position of MEM Company, Inc. as of such
date and the consolidated results of operations and cash flows of MEM Company,
Inc. for the period covered thereby consistent with past practices. The
unaudited consolidated balance sheet of MEM Company, Inc. as at September 30,
1996 and the related consolidated statements of operations and cash flows of MEM
Company, Inc. for the nine months then ended, a copy of which has been delivered
to the Lenders, were prepared in accordance with GAAP consistently applied, have
been prepared from, and are consistent with, the books and records of MEM
Company, Inc. and fairly present in all material respects the consolidated
financial position of MEM Company, Inc. as of such date and the consolidated
results of operations and cash flows of MEM Company, Inc. for the period covered
thereby, subject to normal year-end audit adjustments, consistent with past
practices.
(d) Upon giving effect to the Transactions:
(i) The fair saleable value of the assets of the Parent
Guarantor, the Borrower and the Subsidiaries of the Parent Guarantor,
on a stand-alone basis, exceeds the amount that will be required to be
paid on or in respect of the existing debts and other liabilities
(including contingent liabilities) of such Person as they mature.
(ii) The assets of each of the Parent Guarantor, the Borrower
and Subsidiaries of the Parent Guarantor, on a stand-alone basis, do
not constitute unreasonably small capital for any such Person to carry
out its business as now conducted and as proposed to be conducted
including the capital needs of any such Person, taking into account the
particular capital requirements of the business conducted by such
Person, and projected capital requirements and capital availability
thereof.
(iii) The Parent Guarantor and the Borrower do not intend to,
and will not permit any Subsidiaries of the Parent Guarantor to, incur
debts beyond
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their ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of debt of
each of such Person). The cash flow of the Parent Guarantor, the
Borrower and the Subsidiaries of the Parent Guarantor, after taking
into account all anticipated uses of the cash of each such Person, will
at all times be sufficient to pay all amounts on or in respect of debt
of each such company when such amounts are required to be paid.
(iv) The Parent Guarantor and the Borrower do not intend, and
do not believe, that final judgments against any of the Parent
Guarantor, the Borrower or the Subsidiaries of the Parent Guarantor in
actions for money damages will be rendered at a time when, or in an
amount such that, any such Person will be unable to satisfy any such
judgments promptly in accordance with their terms (taking into account
the maximum reasonable amount of such judgments in any such actions and
the earliest reasonable time at which such judgments might be
rendered). The cash flow of the Parent Guarantor, the Borrower and the
Subsidiaries of the Parent Guarantor, on a stand-alone basis, after
taking into account all other anticipated uses of the cash of each such
Person (including the payments on or in respect of debt referred to in
paragraph (iii) of this Section 4.6(e)), will at all times be
sufficient to pay all such judgments promptly in accordance with their
terms.
4.7 Full Disclosure
The financial projections (including, without limitation, the
pro forma financial statements included therewith) heretofore furnished to any
Creditor by the Parent Guarantor and the Borrower were prepared in good faith on
the basis of information and assumptions that the Parent Guarantor and the
Borrower believed to be fair, complete and reasonable as of the date of such
information, and which assumptions are believed to be fair, complete and
reasonable as of the date hereof. All other factual information heretofore or
contemporaneously furnished in writing by or on behalf of the Parent Guarantor,
the Borrower or any Subsidiaries of the Parent Guarantor to any Creditor for
purposes of or in connection with this Agreement does not, as amended or
supplemented by any subsequent delivery by the same means, contain any untrue
statement of a material fact or omit to state any material fact necessary to
keep the statements contained herein or therein from being misleading. No fact
is known, no condition exists nor has any event occurred which has not been
disclosed herein or in any other document, certificate or statement furnished to
any Creditor for use in the transactions contemplated hereby which, singly or in
the aggregate, could reasonably be expected to have a Material Adverse Effect.
4.8 No Default
No event has occurred and is continuing which constitutes a
Potential Event of Default or an Event of Default.
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4.9 Compliance with Contracts, Etc.
None of the Parent Guarantor, the Borrower or any Subsidiaries
of the Parent Guarantor is in violation of (A) its certificate of incorporation,
by-laws or other organizational documents or (B) any applicable law, ordinance,
administrative or governmental rule or regulation, except, with respect to this
clause (B), for such violations that would not, singly or in the aggregate, have
a Material Adverse Effect, or (C) any order, decree or judgment of any Tribunal
having jurisdiction over any of them; no event of default or event that but for
the giving of notice or the lapse of time, or both, would constitute an event of
default exists under any material Contractual Obligation.
4.10 No Litigation
Except as described in Schedule D attached hereto, there is no
Litigation pending or, to the best knowledge of the Parent Guarantor, the
Borrower or any Subsidiary of the Parent Guarantor after due investigation,
threatened, by, against, or which may relate to or affect (a) any benefit plan
or any fiduciary or administrator thereof, (b) the Transactions, or (c) the
Parent Guarantor, the Borrower or any Subsidiaries of the Parent Guarantor
which, singly or in the aggregate, could reasonably be expected to have a
Material Adverse Effect or that could reasonably be expected to materially and
adversely affect the ability of the Parent Guarantor, the Borrower or any
Subsidiary of the Parent Guarantor to consummate the Transactions in a timely
manner. There are no outstanding injunctions or restraining orders prohibiting
consummation of any of the Transactions or any other transactions contemplated
by the Loan Documents. Neither the Parent Guarantor, the Borrower nor any
Subsidiaries of the Parent Guarantor is in default with respect to any judgment,
order, writ, injunction or decree of any court or governmental agency, and there
are no unsatisfied judgments against any such Person or its business or
activities. Except as specifically noted on Schedule D, neither the Parent
Guarantor, the Borrower nor any Subsidiaries of the Parent Guarantor has been
advised that there is a reasonable likelihood of an adverse determination of any
Litigation which adverse determination, should it occur, would have a Material
Adverse Effect.
4.11 [Intentionally omitted]
4.12 Taxes
Except as set forth on Schedule J hereto, all material tax
returns, foreign and domestic, required to be filed by the Parent Guarantor, the
Borrower and each of the Subsidiaries of the Parent Guarantor in any
jurisdiction have been filed, and all material Taxes for which they are directly
or indirectly liable or to which any of their respective properties or assets
are subject have been paid prior to the time that such Taxes could give rise to
a Lien (other than Permitted Encumbrances) thereon. There is no material
proposed tax assessment against the Parent Guarantor,
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the Borrower or any Subsidiaries of the Parent Guarantor, and there is no basis
for such assessment, except for Contested Claims.
4.13 ERISA
A. The Parent Guarantor, the Borrower, each Subsidiary
of the Parent Guarantor and each of their respective ERISA Affiliates are in
compliance with all applicable provisions and requirements of the Internal
Revenue Code and ERISA and the regulations and published interpretations
thereunder with respect to each Employee Benefit Plan, and have performed all
their obligations under each Employee Benefit Plan except for non-compliance or
non-performance which could not reasonably be expected to have a Material
Adverse Effect.
B. No ERISA Events have occurred or are reasonably
expected to occur which individually or in the aggregate resulted in or might
reasonably be expected to result in a liability of the Parent Guarantor, the
Borrower or any Subsidiary of the Parent Guarantor or any of their respective
ERISA Affiliates which would have a Material Adverse Effect.
C. Except as disclosed on Schedule E annexed hereto and
except to the extent required under Section 4980B of the Internal Revenue Code,
no Employee Benefit Plan (other than a Multiemployer Plan) provides health or
welfare benefits (through the purchase of insurance or otherwise) for any
retired or former employees of the Parent Guarantor, the Borrower or any
Subsidiary of the Parent Guarantor.
D. In accordance with the most recent actuarial
valuations, the Amount of Unfunded Benefit Liabilities individually or in the
aggregate for all Pension Plans (excluding for purposes of such computation any
Pension Plans which have a negative Amount of Unfunded Benefit Liabilities),
does not exceed $100,000.
E. The Parent Guarantor, the Borrower and each
Subsidiary of the Parent Guarantor and each of the Foreign Plans are in
compliance in all material respects with all applicable laws and regulations
with respect to the Foreign Plans and the terms of the Foreign Plans, and all
required contributions have been made to the Foreign Plans. For purposes hereof,
the term "Foreign Plans" shall mean any plan, program, policy, arrangement or
agreement maintained or contributed to by, or entered into with, the Parent
Guarantor, the Borrower or any Subsidiaries of the Parent Guarantor with respect
to employees employed outside the United States.
4.14 Compliance with Law
The Parent Guarantor, the Borrower and each of the
Subsidiaries of the Parent Guarantor are in compliance with all Laws, except
where the failure to comply, singly or in the aggregate, would not have a
Material Adverse Effect.
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4.15 Government Regulation
Neither the Parent Guarantor, the Borrower nor any
Subsidiaries of the Parent Guarantor is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act of 1940 (as any of the preceding acts have been amended) or other
Law which regulates the Incurrence by the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor of Indebtedness, including, but not limited
to, Laws relating to common contract carriers or the sale of electricity, gas,
steam, water or other public utility services.
4.16 Capital Structure and Subsidiaries
After giving effect to the Transactions, the Parent Guarantor
will have no interest in any Person other than the Borrower and the surviving
corporation of the merger of RAI with and into MEM Company, Inc., and the
Borrower will have no interest in any Person other than the Subsidiaries of the
Borrower set forth on Schedule A and other Investments of the Parent Guarantor
and the Borrower as set forth on Schedule F attached hereto and the Parent
Guarantor and the Borrower will own, free and clear of all Liens, claims or
restrictions on voting or transfer (other than as permitted by this Agreement),
100% of all classes of outstanding Capital Stock of each of the entities set
forth on such Schedule A, except as specified on Schedule A. All of the issued
and outstanding shares of Capital Stock of the Parent Guarantor and the Borrower
and of each of the Subsidiaries of the Parent Guarantor is, and at and as of the
date of consummation of the Transactions will be, duly authorized, validly
issued, fully paid and nonassessable. Neither the Borrower nor any Subsidiaries
of the Parent Guarantor has granted or issued, or has agreed to grant or issue,
any options, warrants or similar rights to any Person to acquire any shares of,
or other securities convertible into, any Subsidiaries of the Parent Guarantor's
Capital Stock.
4.17 Intellectual Property
A. Schedule G annexed hereto sets forth a complete and
correct list, as of the Closing Date, of: (i) all patented or registered
Intellectual Property and pending patent applications or applications for
registration of Intellectual Property owned or filed by or on behalf of the
Parent Guarantor, the Borrower or any other Closing Date Guarantor; (ii) all
trade names and unregistered trademarks or service marks owned by or used by the
Parent Guarantor, the Borrower or any other Closing Date Guarantor; and (iii)
all licenses of Intellectual Property to which the Parent Guarantor, the
Borrower or any other Closing Date Guarantor is a party, either as licensee or
licensor. Except as set forth in the Form S-4, the Parent Guarantor, the
Borrower and the other Closing Date Guarantors own or are licensed to use all
the Intellectual Property.
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B. Except as disclosed in the Form S-4, no material
claim has been asserted by any Person with respect to the use of any such
Intellectual Property, or challenging or questioning the validity or
effectiveness of any such Intellectual Property. Except as disclosed in the Form
S-4, the use of such Intellectual Property by the Parent Guarantor, the Borrower
or any Subsidiaries of the Parent Guarantor does not infringe on the rights of
any Person, subject to such claims and infringements as do not, in the
aggregate, give rise to any liabilities on the part of the Parent Guarantor, the
Borrower or any Subsidiaries of the Parent Guarantor that are material to the
Borrower and Subsidiaries of the Parent Guarantor, taken as a whole. The
consummation of the Transactions will not in any material manner or to any
material extent impair the ownership of (or the license to use, as the case may
be) any of such Intellectual Property by the Parent Guarantor, the Borrower or
any Subsidiaries of the Parent Guarantor.
4.18 Environmental Matters
Except as set forth in the Form S-4:
(i) the operations of each of the Parent Guarantor,
the Borrower and the Subsidiaries of the Parent Guarantor (including,
without limitation, all operations and conditions at or in the
Facilities) comply in all material respects with all Environmental Laws
except for any such noncompliance which would not reasonably be
expected to have a Material Adverse Effect;
(ii) each of the Parent Guarantor, the Borrower and
the Subsidiaries of the Parent Guarantor has obtained all Permits under
Environmental Laws necessary to their respective operations, and all
such Permits are being maintained in good standing, and each of the
Parent Guarantor, the Borrower and Subsidiaries of the Parent Guarantor
is in compliance with all material terms and conditions of such Permits
except for any such failure to obtain, maintain or comply which would
not reasonably be expected to have a Material Adverse Effect;
(iii) none of the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor has received (a) any notice or
claim to the effect that it is or may be liable to any Person under any
Environmental Law, including without limitation, any relating to any
Hazardous Materials except as would not reasonably be expected to have
a Material Adverse Effect or (b) any letter or request for information
under Section 104 of the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. Section 9604) or comparable
foreign or state laws regarding any matter which could reasonably be
expected to result in a Material Adverse Effect, and, to the best of
the Parent Guarantor's and the Borrower's knowledge, none of the Parent
Guarantor, the Borrower or any Subsidiaries of the Parent Guarantor is
involved in any investigation, response or corrective action relating
to or in
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connection with any Hazardous Materials at any Facility or at any other
location except for such of the foregoing which would not reasonably be
expected to have a Material Adverse Effect;
(iv) none of the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor is subject to any judicial or
administrative proceeding alleging the violation of or liability under
any Environmental Laws which if adversely determined could reasonably
be expected to have a Material Adverse Effect;
(v) none of the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor or any of their respective
Facilities or operations is subject to any outstanding written order or
agreement with any governmental authority or private party relating to
(a) any actual or potential violation of or liability under
Environmental Laws or (b) any Environmental Claims except for such of
the foregoing which would not reasonably be expected to have a Material
Adverse Effect;
(vi) none of the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor has any contingent liability in
connection with any Release or threatened Release of any Hazardous
Materials by any of the Parent Guarantor, the Parent Guarantor or any
Subsidiaries of the Borrower except for such of the foregoing which
would not reasonably be expected to have a Material Adverse Effect;
(vii) none of the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor or, to the best of the Parent
Guarantor's or the Borrower's knowledge, any predecessor of any of the
Parent Guarantor, the Borrower or any Subsidiaries of the Parent
Guarantor has filed any notice under any Environmental Law indicating
past or present treatment, storage or disposal of hazardous waste, as
defined under 40 C.F.R. Parts 260-270 or any state equivalent;
(viii) no Hazardous Materials exist on, under or about
any Facility in a manner that would reasonably be expected to give rise
to an Environmental Claim having a Material Adverse Effect, and none of
the Parent Guarantor, the Borrower or any Subsidiaries of the Parent
Guarantor has filed any notice or report of a Release of any Hazardous
Materials that would reasonably be expected to give rise to an
Environmental Claim having a Material Adverse Effect;
(ix) none of the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor or, to the best of the Parent
Guarantor's or the Borrower's knowledge, any of their respective
predecessors has disposed of any Hazardous Materials in a manner that
would reasonably be
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expected to give rise to an Environmental Claim having a Material
Adverse Effect; and
(x) no Lien in favor of any Person relating to or in
connection with any Environmental Claim has been filed or has been
attached to any Facility or other assets of the Parent Guarantor, the
Borrower or any Subsidiaries of the Parent Guarantor except for any
such Lien which would not reasonably be expected to have a Material
Adverse Effect.
Notwithstanding anything in this subsection 4.18 to the contrary, no event or
condition has occurred which may interfere with present compliance by the Parent
Guarantor, the Borrower or Subsidiaries of the Parent Guarantor with any
Environmental Law, or which may give rise to any liability under any
Environmental Law, including, without limitation, any matter disclosed in the
Form S-4 annexed hereto, which, in either case, individually or in the
aggregate, has had or would reasonably been expected to have a Material Adverse
Effect.
4.19 Survival of Representations and Warranties
Subject to Section 10.10B, all representations and warranties
in the Loan Documents shall survive delivery of the Bridge Notes and the making
of the Bridge Loan and shall continue until one year after repayment of the
Notes and the Obligations, and any investigation at any time made by or on
behalf of the Lenders shall not diminish the Lenders' right to rely thereon.
4.20 Permits
Except as disclosed on Schedule H, the Parent Guarantor, the
Borrower and the Subsidiaries of the Parent Guarantor have, and immediately
after the consummation of the Transactions will have, such certificates,
permits, licenses, franchises, consents, approvals, authorizations and
clearances that are material to the condition (financial or otherwise), business
or operations of the Parent Guarantor, the Borrower and the Subsidiaries of the
Parent Guarantor, taken as a whole ("Permits"), and are (and will be immediately
after the consummation of the Transactions) in compliance in all material
respects with all applicable Laws of all Tribunals as are necessary to own,
lease or operate their respective properties and to conduct their businesses in
the manner as presently conducted and to be conducted immediately after the
consummation of the Transactions, and all such Permits are valid and in full
force and effect and will be valid and in full force and effect immediately upon
consummation of the Transactions. The Parent Guarantor, the Borrower and the
Subsidiaries of the Parent Guarantor are, and immediately after the consummation
of the Transactions will be, in compliance in all material respects with their
respective obligations under such Permits and no event has occurred that allows,
or after notice or lapse of time would allow, revocation or termination of such
Permits, except for
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any such revocation or termination as would not, singly or in the aggregate,
have a Material Adverse Effect.
4.21 Insurance
The Parent Guarantor, the Borrower and the Subsidiaries of the
Parent Guarantor carry or are entitled to the benefits of insurance (including
self-insurance) in such amounts and covering such risks as is generally
maintained by companies of established repute engaged in the same or similar
businesses, and all such insurance is (and will be immediately after the
consummation of the Transactions) in full force and effect.
4.22 Labor Matters
No labor disturbance by the employees of the Parent Guarantor,
the Borrower and the Subsidiaries of the Parent Guarantor exists or, to the best
knowledge of the Parent Guarantor or the Borrower, is threatened, and the Parent
Guarantor and the Borrower are not aware of any existing or imminent labor
disturbance by the employees of the Parent Guarantor, the Borrower or their
respective Subsidiaries' principal suppliers, manufacturers or customers that
could, singly or in the aggregate, have a Material Adverse Effect.
4.23 Guarantees
Each Guarantor shall, on the date it executes and delivers a
Guarantee hereunder, have the full corporate power, authority and capacity to
execute and deliver such Guarantee and to perform all of its obligations to be
performed thereunder; all corporate and other acts, conditions and things
required to be done and performed or to have occurred prior to such execution
and delivery to constitute such Guarantee as a valid and legally binding
obligation of such Guarantor enforceable in accordance with its terms shall have
been done and performed and shall have occurred in due compliance with all
applicable Laws; on the date of such execution and delivery, the execution,
delivery and performance of such Guarantee by such Guarantor will not (i)
violate any provision of Law or any provision of the charter or bylaws of such
Guarantor, or (ii) result in a breach of, a default under (including, without
limitation, any event which with notice or lapse of time, or both, would
constitute a breach of or a default under), or the creation of any Lien on the
properties or assets of such Guarantor, the Borrower or any other Subsidiary of
the Parent Guarantor under any Contract to which such Guarantor or the Borrower
or any other Subsidiary of the Parent Guarantor is a party or by which the
properties or assets of such Guarantor, the Borrower or any other Subsidiary of
the Parent Guarantor may be bound or affected; on the date of such execution and
delivery, each Guarantee executed and delivered by a Guarantor shall constitute
legal, valid, binding and unconditional obligations of the Guarantor executing
and delivering it to the Lenders hereunder, enforceable in accordance with its
terms, except to the extent that
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the enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting the enforcement of creditors' rights
generally or by general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law); and the
foregoing representations and warranties of the Parent Guarantor and the
Borrower shall be deemed for all purposes to have been made on each date when a
Guarantee is delivered hereunder with respect solely to that Guarantee and the
Guarantor so issuing such Guarantee.
4.24 Senior Secured Indenture; etc.
Each of the Borrower and the Guarantors shall, on the date it
executes and delivers the Senior Secured Indenture and the Exchange Notes and
the Demand Take-Out Notes and the indenture governing the Demand Take-Out Notes
(or the guarantees related thereto, as the case may be), have the full corporate
power, authority and capacity to do so and to perform all of its obligations to
be performed thereunder; all corporate and other acts, conditions and things
required to be done and performed or to have occurred prior to such execution
and delivery to constitute them as valid and legally binding obligations of the
Borrower enforceable against the Borrower and the Guarantors in accordance with
their respective terms except to the extent that the enforceability thereof may
be limited by applicable bankruptcy, insolvency, reorganization or similar laws
affecting the enforcement of creditors' rights generally or by general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law), shall have been done and performed and shall
have occurred in due compliance with all applicable Laws; on the date of such
execution and delivery by the Borrower and the Guarantors, the Senior Secured
Indenture and the Exchange Notes and the Demand Take-Out Notes (and the
guarantees) and the indenture governing the Demand Take-Out Notes shall
constitute legal, valid, binding and unconditional obligations of the Borrower
and the Guarantors, as the case may be, enforceable against the Borrower and the
Guarantors, as the case may be, in accordance with their respective terms,
except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization or similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law).
4.25 Broker's or Finder's Fees
Except as disclosed on Schedule I, no broker's or finder's
fees or commissions will be payable by the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor with respect to any of the Transactions and
no similar fees or commissions will be payable by the Parent Guarantor, the
Borrower or any of its Subsidiaries for any other services rendered to the
Parent Guarantor, the Borrower or any Subsidiaries of the Parent Guarantor in
connection with the transactions contemplated hereby and thereby. The Parent
Guarantor and the Borrower represent, warrant, covenant and agree that the
Parent Guarantor and the
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Borrower will, jointly and severally, indemnify the Creditors against, and hold
each of them completely harmless from and against, any and all claims, demands
or liabilities for broker's or finder's fees or similar fees or commissions
asserted to have been incurred in connection with any of the Transactions.
4.26 Debt Agreements
Schedule B is a complete and correct list, as of the date
hereof after giving effect to the Transactions, of any Indebtedness (other than
Intercompany Indebtedness) of the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor, the aggregate principal or face amount of
which equals or exceeds (or may equal or exceed) $100,000 and the aggregate
principal or face amount outstanding or which may become outstanding under each
such arrangement is correctly described in Schedule B. The aggregate principal
or face amount of Indebtedness (other than Intercompany Indebtedness) of the
Parent Guarantor, the Borrower, and the Subsidiaries of the Parent Guarantor
under any agreement or other arrangement not set forth on Schedule B does not
exceed $100,000.
4.27 Security Interest
There has been created in favor of the Collateral Agent for
the benefit of the Lenders a valid and enforceable security interest in the
Pledged Collateral (to the extent that a security interest may be created under
the Uniform Commercial Code (as defined in the Security Agreement)), and upon
due filing of the financing statements on Form UCC-1 and possession by the
Collateral Agent of the Pledged Stock a duly perfected first priority (except as
may be expressly permitted under Section 6.2) security interest in the Pledged
Collateral (other than the Non-Perfected Collateral), in each case that secures
the full amount of the Loan to be made and all other amounts outstanding under
this Agreement and the other Loan Documents and such other amounts as are
provided in the Security Agreement (subject to Section 9.5). The pledgor has
good and legal title to all Collateral covered by the Security Agreement free
and clear of all Liens, except as may be expressly permitted under Section 6.2
and except as would not have a Material Adverse Effect. No filings or recordings
are required to perfect the security interests created under the Security
Agreement, except for such filings or recordings required in connection with the
Security Agreement as to which the Borrower and the Guarantors shall cooperate
in all respects so that the filing thereof may be made as required by this
Agreement.
4.28 Pari Passu Loan Obligations
The Obligations of the Borrower and the Guarantors under this
Agreement and each other Loan Document to which it is a party rank at least pari
passu in right of payment with all of such Borrower's or Guarantor's other
unsubordinated Indebtedness, other than any such Indebtedness which is preferred
by mandatory provisions of Law.
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SECTION 5 AFFIRMATIVE COVENANTS
The Parent Guarantor and the Borrower, jointly and severally,
covenant and agree that, until the Loans and the Notes and all other amounts due
under this Agreement have been indefeasibly paid in full, they shall perform or
cause to be performed all covenants in this Section 5 required to be performed
by it:
5.1 Financial Statements and Other Reports
(a) The Parent Guarantor and the Borrower will maintain,
and cause each of Subsidiaries of the Parent Guarantor to maintain, a system of
accounting established and administered in accordance with sound business
practices to permit preparation of consolidated financial statements in
conformity with GAAP. The Parent Guarantor will deliver to each Lender:
(i) as soon as available and in any event within 45
days after the end of each of the first three fiscal quarters of each
fiscal year, (1) the consolidated balance sheets of the Parent
Guarantor and its Subsidiaries and the consolidating balance sheets of
the Borrower and the other Material Subsidiaries as at the end of such
fiscal quarter, (2) the related consolidated and consolidating
statements of operations, stockholders' equity and cash flows for such
fiscal quarter and for the period from the beginning of the then
current fiscal year to the end of such fiscal quarter, setting forth in
each case in comparative form the corresponding figures for the
corresponding periods of the previous fiscal year (where available) and
the corresponding figures from the consolidated plan and financial
forecast for the current fiscal year delivered pursuant to Section
5.1(b)(ii), all in reasonable detail and certified by the chief
financial officer of the Parent Guarantor that they fairly present the
financial condition of the Parent Guarantor and its Subsidiaries, as at
the dates indicated and the results of their operations and their cash
flows for the periods indicated, subject to changes resulting from
audit and normal year-end adjustments, (3) the Parent Guarantor's
quarterly report on Form 10-Q for such quarterly period, if any, and
(4) only if the Parent Guarantor does not file quarterly reports on
Form 10-Q with the Commission, a narrative report describing the
operations of the Parent Guarantor and its Subsidiaries (in the form of
management's discussion and analysis of such operations which would
comply with the disclosure requirements of the Exchange Act and rules
and regulations promulgated thereunder with respect to management's
discussion and analysis set forth in quarterly reports on Form 10-Q)
prepared for such fiscal quarter and for the period from the beginning
of the then current fiscal year to the end of such fiscal quarter;
(ii) as soon as available and in any event within 90
days after the end of each fiscal year, (1) the consolidated balance
sheets of the Parent
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Guarantor and its Subsidiaries and the consolidating balance sheets of
the Borrower and the Material Subsidiaries as at the end of such fiscal
year, (2) the related consolidated and consolidating statements of
operations, stockholders' equity and cash flows for such fiscal year,
setting forth in each case in comparative form the corresponding
figures for the previous fiscal year (where available) and the
corresponding figures from the consolidated plan and financial forecast
for the current fiscal year delivered pursuant to Section 5.1(b)(ii)
for the fiscal year covered by such financial statements, all in
reasonable detail and certified by the chief financial officer of the
Parent Guarantor that they fairly present the financial condition of
the Parent Guarantor and its Subsidiaries and the Borrower and the
Material Subsidiaries, as the case may be, as at the dates and the
results of their operations and their cash flows for the periods
indicated, (3) the Parent Guarantor's annual report on Form 10-K for
such year, if any, (4) only if the Parent Guarantor does not file
annual reports on Form 10-K with the Commission, a narrative report
describing the operations of the Parent Guarantor and its Subsidiaries
(in the form of management's discussion and analysis of such operations
which would comply with the disclosure requirements of the Exchange Act
and rules and regulations promulgated thereunder with respect to
management's discussion and analysis set forth in quarterly reports on
Form 10-K) prepared for such fiscal year, and (5) a report thereon of
independent certified public accountants of recognized national
standing, which report shall express no doubts about the ability of the
Parent Guarantor and its Subsidiaries to continue as a going concern,
and shall state that such consolidated financial statements fairly
present the consolidated financial position of the Parent Guarantor and
its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated in conformity
with GAAP applied on a basis consistent with prior years (except as
otherwise disclosed in such financial statements) and that the
examination by such accountants in connection with such consolidated
financial statements has been made in accordance with generally
accepted auditing standards;
(iii) together with each delivery of financial statements
pursuant to Sections 5.1(a)(i) and (ii) above, (a) an Officers'
Certificate of the Parent Guarantor and the Borrower stating that the
signers have reviewed the terms of this Agreement and the Notes and
have made, or caused to be made under their supervision, a review in
reasonable detail of the transactions and condition of the Parent
Guarantor, the Borrower and the Subsidiaries of the Parent Guarantor
during the accounting period covered by such financial statements and
that such review has not disclosed the existence during or at the end
of such accounting period, and that the signers do not have knowledge
of the existence as at the date of the Officers' Certificate, of any
condition or event which constitutes an Event of Default or Potential
Event of Default, or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action
the Parent Guarantor and the
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Borrower have taken, are taking and propose to take with respect
thereto; and (b) a Compliance Certificate demonstrating in reasonable
detail compliance (as determined in accordance with GAAP) during and at
the end of such accounting periods with the restrictions contained in
Sections 6.1(a), 6.1(b)(iv), 6.1(b)(viii), 6.1(b)(ix), 6.1(c) (to the
extent of any Incurrence thereunder), 6.3, 6.4 and 6.14;
(iv) together with each delivery of consolidated financial
statements pursuant to Section 5.1(a)(ii) above, a written statement by
the independent certified public accountants giving the report thereon
(a) stating whether, in connection with their audit examination, any
condition or event that constitutes an Event of Default or Potential
Event of Default that relates to accounting matters has come to their
attention and, if any such condition or event has come to their
attention, specifying the nature and period of existence thereof;
provided that such accountants shall not be liable by reason of any
failure to obtain knowledge of any such Event of Default or Potential
Event of Default that would not be disclosed in the course of their
audit examination, and (b) stating that based on their audit
examination nothing has come to their attention that causes them to
believe that the information contained in the certificates delivered
therewith is not correct;
(v) promptly upon receipt thereof (unless restricted by
applicable professional standards), copies of all reports (other than
reports of a routine or ministerial nature which are not material)
submitted to the Parent Guarantor and the Borrower by independent
certified public accountants in connection with each annual, interim or
special audit of the financial statements of the Parent Guarantor, the
Borrower and the Subsidiaries of the Parent Guarantor made by such
accountants, including, without limitation, any comment letter
submitted by such accountants to management in connection with their
annual audit;
(vi) promptly upon the sending or filing thereof, copies of
(a) all financial statements, reports, notices and proxy statements
sent or made available generally by the Parent Guarantor or the
Borrower to its security holders or by any Subsidiary of the Borrower
to its security holders other than the Borrower or another Subsidiary
of the Parent Guarantor, (b) all other reports and all registration
statements (other than on Form S-8 or a similar form) and prospectuses,
if any, filed by the Parent Guarantor, the Borrower or any Subsidiaries
of the Parent Guarantor with any securities exchange or with the
Commission or any governmental authority (other than reports of a
routine or ministerial nature which are not material), and (c) all
press releases and other statements made available generally by the
Parent Guarantor, the Borrower or any Subsidiaries of the Parent
Guarantor to the public concerning material developments in the
business of the Parent Guarantor, the Borrower or any Subsidiaries of
the Parent Guarantor;
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(vii) promptly upon any Senior Officer obtaining knowledge
(a) of any condition or event which constitutes an Event of Default or
Potential Event of Default, or becoming aware that any Lender or the
Collateral Agent has given any notice or taken any other action with
respect to a claimed Event of Default or Potential Event of Default
under this Agreement, (b) that any Person has given any notice to the
Parent Guarantor, the Borrower or any Subsidiary of the Parent
Guarantor or taken any other action with respect to a claimed default
or event or condition which might result in an Event of Default
referred to in Section 7.2, (c) of any condition or event which would
be required to be disclosed in a current report filed with the
Commission on Form 8-K whether or not the Parent Guarantor or the
Borrower are required to file such reports under the Exchange Act, or
(d) of the occurrence of any event or change that has caused or
evidences, either in any case or in the aggregate, a Material Adverse
Effect, an Officers' Certificate specifying the nature and period of
existence of any such condition or event, or specifying the notice
given or action taken by such holder or Person and the nature of such
claimed default, Event of Default, Potential Event of Default, event or
condition, and what action the Parent Guarantor or the Borrower have
taken, is taking and proposes to take with respect thereto;
(viii) promptly upon any Senior Officer obtaining knowledge of
(X) the institution of, or non-frivolous threat of, any action, suit,
proceeding (whether administrative, judicial or otherwise),
governmental investigation or arbitration against or affecting the
Parent Guarantor or the Borrower or any Subsidiaries of the Parent
Guarantor or any property of the Parent Guarantor or the Borrower or
any Subsidiaries of the Parent Guarantor (collectively, "Proceedings")
not previously disclosed in writing to the Lenders or (Y) any material
development in any Proceeding that, in any case:
(1) if adversely determined, has a reasonable
possibility of giving rise to a Material Adverse Effect; or
(2) seeks to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as
a result of, the Transactions;
written notice thereof together with such other information as may be
reasonably available to the Parent Guarantor or the Borrower or any
Subsidiaries of the Parent Guarantor to enable Lenders and their
counsel to evaluate such matters;
(ix) not later than the last day of each fiscal year of
the Parent Guarantor, a list outlining all material insurance coverage
maintained as of the date of such report by the Parent Guarantor, the
Borrower and Subsidiaries of
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the Parent Guarantor and all material insurance coverage planned to be
maintained by such Persons in the subsequent fiscal year;
(x) in writing, promptly upon a Senior Officer obtaining
knowledge that the Parent Guarantor, the Borrower or any Subsidiaries
of the Parent Guarantor has received notice or otherwise learned of any
claim, demand, action, event, condition, report or investigation
indicating any potential or actual liability arising in connection with
(x) the non-compliance with or violation of the requirements of any
Environmental Law or any regulatory agency having jurisdiction over the
Acquired Business which would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect, (y) the
release or threatened release of any toxic or hazardous waste,
substance or constituent into the environment which would reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect, or (z) the existence of any Environmental Lien on any
properties or assets of the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor;
(xi) promptly after the availability thereof, copies of all
material amendments to the certificate of incorporation or by-laws of
the Parent Guarantor, the Borrower or any Subsidiaries of the Parent
Guarantor;
(xii) promptly upon any Person becoming a Subsidiary of the
Parent Guarantor, a written notice setting forth with respect to such
Person (a) the date on which such Person became a Subsidiary of the
Parent Guarantor and (b) all of the data required to be set forth in
Schedule A annexed hereto with respect to all Subsidiaries of the
Parent Guarantor; and
(xiii) with reasonable promptness, such other information and
data with respect to the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor or any of their respective
property, business or assets as from time to time may be reasonably
requested by any Creditor; provided that no information or data shall
be required to be delivered hereunder or under any other provision of
this Agreement if it would violate any applicable attorney-client or
accountant-client privilege or any confidentiality undertaking by which
the Parent Guarantor or any of its Subsidiaries may be bound.
(b) The Parent Guarantor will deliver to CIBC/WG:
(i) as soon as available and in any event within 40 days
after the end of each month ending after the Closing Date, the
financial statements and other financial information and explanatory
materials provided or to be provided to the Board of Directors of the
Parent Guarantor, in reasonable detail consistent with past practice
and certified by the chief financial officer of
<PAGE> 72
65
the Parent Guarantor that they are true and accurate in all material
respects; and
(ii) as soon as practicable but in any event no later than 40
days following the first day of each fiscal year a business plan for
the next succeeding twelve months for the Parent Guarantor and its
Subsidiaries in the form provided or to be provided to the Board of
Directors of the Parent Guarantor in reasonable detail consistent with
past practice. Together with each delivery of financial statements
pursuant to Sections 5.1(a)(i) and (ii) above, the Parent Guarantor
shall deliver a comparison of the current year to date financial
results against the budget required to be submitted pursuant to this
Section.
(c) Without limiting any of the foregoing, at any time that
the Borrower is not subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Borrower will, upon the request of any Lender and at the
Borrower's expense, provide to such Lender and any Person designated by such
Lender such financial and other information as such Lender may reasonably
determine to be necessary in order to permit compliance with the information
requirements of Rule 144A in connection with a resale or proposed resale of a
Note. The Lenders acknowledge that such requirement may be fulfilled by
providing such information as it relates to the Parent Guarantor and its
consolidated Subsidiaries.
5.2 Corporate Existence, Etc.
The Parent Guarantor and the Borrower will at all times preserve
and keep in full force and effect its corporate existence and rights and
franchises to its business and those of each of Subsidiaries of the Parent
Guarantor, except as permitted by Section 6.7 or where the failure to so
preserve or keep will not, singly or in the aggregate, have a Material Adverse
Effect.
5.3 Payment of Taxes and Claims; Tax Consolidation
A. The Parent Guarantor and the Borrower will, and will
cause each of the Subsidiaries of the Parent Guarantor to, pay all material
Taxes, assessments and other governmental charges imposed upon it or any of its
material properties or assets or in respect of any of its franchises, business,
income or property before any material penalty accrues thereon, and all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
may become a Lien upon any of its properties or assets prior to the time when
any material penalty or fine shall be incurred with respect thereto, provided,
however, that no such charge or claim need be paid if the validity or amount of
such charge or claim is being diligently contested in good faith and if such
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor.
<PAGE> 73
66
B. The Parent Guarantor and the Borrower will not, nor
will the Parent Guarantor or the Borrower permit any of their respective
Subsidiaries to, file or consent to the filing of any consolidated income tax
return with any Person (other than the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor so long as the filing of such consolidated
income tax return is permitted by applicable law).
5.4 Maintenance of Properties; Insurance
The Parent Guarantor and the Borrower will maintain or cause
to be maintained in good repair, working order and condition, ordinary wear and
tear excepted, all material properties used or useful in the business of the
Parent Guarantor, the Borrower and the Subsidiaries of the Parent Guarantor and
from time to time promptly will make or cause to be made all necessary repairs,
renewals and replacements thereof; provided, however, that nothing in this
Section 5.4 shall prevent the Parent Guarantor, the Borrower or any Subsidiaries
of the Parent Guarantor from discontinuing the use, operation or maintenance of
any such properties, or disposing of any of them, if such action is in the
ordinary course of business or, in the reasonable good faith judgment of the
Parent Guarantor and the Borrower, necessary or desirable in the conduct of its
business or otherwise permitted by this Agreement. The Parent Guarantor and the
Borrower will maintain or cause to be maintained, with financially sound and
reputable insurers or with self insurance programs, in each case to the extent
consistent with prudent business practices and customary in its industries,
insurance with respect to its properties and business and the properties and
businesses of the Subsidiaries of the Parent Guarantor against loss or damage of
the kinds (including, in any event, business interruption insurance) and in the
amounts customarily carried or maintained under similar circumstances by
corporations of established reputation engaged in similar businesses and owning
similar properties in the same general respective areas in which the Parent
Guarantor, the Borrower and Subsidiaries of the Parent Guarantor operate.
5.5 Inspection
The Parent Guarantor and the Borrower shall permit any
authorized representatives designated by the Lenders to visit and inspect any of
the properties of the Parent Guarantor, the Borrower or the Subsidiaries of the
Parent Guarantor, including, without limitation, its and their financial and
accounting records, and to make copies and take extracts therefrom, and to
discuss its and their affairs, finances and accounts with its and their officers
and independent public accountants (provided that representatives of the Parent
Guarantor, the Borrower or any Subsidiaries of the Parent Guarantor may, if it
so chooses, be present at or participate in any such discussion), all upon
reasonable notice and at such reasonable times during normal business hours and
as often as may be reasonably requested.
<PAGE> 74
67
5.6 Equal Security for Loans and Notes
If the Parent Guarantor, the Borrower or any Subsidiaries of
the Parent Guarantor shall create, assume or suffer to exist any Lien upon any
of their respective property or assets, whether now owned or hereafter acquired,
other than Liens permitted by the provisions of Section 6.2, the Parent
Guarantor shall, at the request of the Required Lenders, make or cause to be
made effective provision whereby the Obligations under this Agreement will be
secured by such Lien equally and ratably with any and all other Indebtedness
thereby secured as long as any such Indebtedness shall be secured; provided,
however, that this covenant shall not be construed as or deemed to be a consent
by the Lenders to any violation of the provisions of Section 6.2; and provided,
further, that the Parent Guarantor shall under no circumstances be required to
make or cause to be made effective provision whereby the Obligations under this
Agreement will be secured, directly or indirectly, by Margin Stock.
5.7 Compliance with Laws, Etc.
The Parent Guarantor and the Borrower shall and shall cause
each of the Subsidiaries of the Parent Guarantor to comply with the requirements
of all applicable Laws of any Tribunal, noncompliance with which, singly or in
the aggregate, would reasonably be expected to have a Material Adverse Effect.
5.8 Maintenance of Accurate Records, Etc.
The Parent Guarantor and the Borrower shall keep, and will
cause each of the Subsidiaries of the Parent Guarantor to keep, true books and
records and accounts in which full and correct entries will be made of all its
respective business transactions, and will reflect, and cause each of
Subsidiaries of the Parent Guarantor to reflect, in its respective financial
statements adequate accruals and appropriations to reserves.
5.9 Take-Out Financing
The Parent Guarantor and the Borrower agree that upon request
(a "Request") from the Take-Out Banks made at any time subsequent to 30 days
following the Closing Date (assuming that the Bridge Loan has not been
Refinanced by any other means) and prior to the Conversion Date, the Parent
Guarantor and the Borrower will take all reasonable actions necessary or
desirable (including, without limitation, providing for the cooperation of its
management and the participation of the chief executive and chief financial
officers of the Parent Guarantor and the Borrower in road show presentations and
investor meetings), so that the Take-Out Banks can, as soon as practicable after
such Request, publicly sell or privately place the Demand Take-Out Notes (the
"Initial Request Date"). The Parent Guarantor and the Borrower further agree
that upon notice by the Take-Out Banks (the "Take-Out Securities Notice"), at
any time and from time to time following the Initial Request
<PAGE> 75
68
Date but subject to the terms of the engagement letters entered into with the
Take-Out Banks, the Parent Guarantor will issue and sell Demand Take-Out Notes
upon such terms and conditions as specified in the Take-Out Securities Notice;
provided that for either a Request or Take-Out Securities Notice (i) the
effective interest rate thereon (whether floating or fixed) shall not exceed
13.00% (plus any original issue discount resulting solely from the inclusion of
common equity sold as part of a unit therewith) without the consent of the
Parent Guarantor and shall otherwise be determined by the Take-Out Banks in
light of the then prevailing market conditions; (ii) the Parent Guarantor, in
its reasonable discretion after consultation with the Take-Out Banks, shall
determine whether the Demand Take-Out Notes shall be issued through a public
offering or a private placement and, if issued in a private placement, the
Demand Take-Out Notes will be accompanied by customary registration rights;
(iii) subject to clause (i) above, the aggregate principal amount of Demand
Take-Out Notes to be issued by the Parent Guarantor shall be determined by the
Take-Out Banks in light of the then prevailing market conditions, provided that
the aggregate principal amount of Demand Take-Out Notes together with any other
securities sold therewith as contemplated by clause (v) below shall not be less
than the amount calculated to yield net proceeds sufficient to repay the Bridge
Notes in full; (iv) the Demand Take-Out Notes will contain such other terms
(including, without limitation, terms of maturity and subordination), conditions
and covenants as are customary for similar financings and as are satisfactory in
all respects to the Take- Out Banks and the Parent Guarantor; and (v) all other
arrangements with respect to the Demand Take-Out Notes shall be reasonably
satisfactory in all respects to the Take-Out Banks and the Parent Guarantor in
light of the then prevailing market conditions including, but not limited to,
the issuance and sale therewith of common equity or common equity equivalents to
the purchasers of the Demand Take-Out Notes in such amount (not to exceed 5% of
the Parent Guarantor's outstanding fully diluted common equity at the time of
issuance) as is necessary for the Parent Guarantor to receive net proceeds from
the sale of the Take-Out Securities in an amount sufficient to repay the Bridge
Loan. The foregoing shall not (x) limit the Parent Guarantor and the Borrower's
right to Refinance the Bridge Loan by any other means or (y) be deemed to impose
any obligation of the Parent Guarantor to issue Take-Out Securities the proceeds
of which are to be used to consummate a tender offer or otherwise redeem any
outstanding indebtedness of the Parent Guarantor (including, but not limited to,
the Notes and the Senior Notes) at a purchase price in excess of 116.50% of
principal amount.
5.10 ERISA Compliance
Each of the Parent Guarantor, the Borrower and the
Subsidiaries of the Parent Guarantor will (i) make prompt payment of all
contributions which it is obligated to make under all Pension Plans and which
are required to meet the minimum funding standard set forth in ERISA with
respect to each of the Pension Plans, (ii) within 30 days after the filing
thereof, furnish to the Lenders each Schedule B to the annual return/report
(Form 5500 Series), required to be filed with the Department of Labor and/or the
Internal Revenue Service pursuant to ERISA, with
<PAGE> 76
69
respect to each of the Pension Plans that is not a Multiemployer Plan for each
plan year, and (iii) notify the Lenders promptly upon becoming aware of any
fact, including but not limited to, any Reportable Event arising in connection
with any of the Pension Plans that is not a Multiemployer Plan, which could be
reasonably expected to constitute grounds for termination thereof by the PBGC or
for the appointment by the appropriate United States District Court of a trustee
to administer such Pension Plan, together with a statement as to the action, if
any, proposed to be taken with respect thereto.
5.11 Exchange of Term Notes
(a) At any time during the period commencing 60 days
prior to the Conversion Date and continuing for so long as any Term Notes remain
outstanding, if so requested in writing by CIBC/WG (the "Exchange Document
Request") and subject to Section 5.11(b) below, as promptly as practicable after
receipt of the Exchange Document Request, (i) the Borrower will execute and
deliver, cause each Guarantor to execute and deliver, and cause a bank or trust
company acting as trustee thereunder to execute and deliver, the Senior Secured
Indenture, and (ii) the Borrower will execute and deliver, for the benefit of
any holder of a note issued under the Senior Secured Indenture (the "Exchange
Notes"), the Registration Rights Agreement.
(b) The Senior Secured Indenture and Registration Rights
Agreement shall have the terms as are contemplated by the Commitment Letter. The
Parent Guarantor, the Borrower and CIBC/WG or one of its designated Affiliates
shall cooperate and negotiate in good faith as to the precise terms of the
Senior Secured Indenture and the Registration Rights Agreement, both of which
shall be in form, scope and substance as is customary for indentures and
registration right agreements relating to high-yield debt securities issued for
cash in the then prevailing market. In the event that the Parent Guarantor, the
Borrower and CIBC/WG or such Affiliate, as the case may be, have not reached
agreement as to the precise terms of the Senior Secured Indenture or the
Registration Rights Agreement within 30 days after the receipt of the Exchange
Document Request as provided in paragraph (a) above, then upon the written
request of either the Parent Guarantor or CIBC/WG, such unresolved terms shall
be determined by binding arbitration conducted in accordance with the Rules of
the Center for Public Resources Institute for Dispute Resolution by a sole
arbitrator. To the extent not governed by such rules, such arbitrator shall be
directed by CIBC/WG to set a schedule for determination of such dispute that is
reasonable under the circumstances. The arbitration will be conducted in New
York City. The arbitration will be governed by the United States Arbitration
Act, 9 U.S.C. SectionSection 1-16. Judgment upon the award rendered by the
arbitrator may be entered by any court having jurisdiction. The cost of such
arbitration shall be borne equally between the Parent Guarantor and the Lenders.
(c) The Borrower will, on the fifth Business Day
following the written request (the "Exchange Request") of the holder of any Term
Note (or
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70
beneficial owner of a portion thereof) execute and deliver to such holder or
beneficial owner in accordance with the Senior Secured Indenture, if such Senior
Secured Indenture has been executed and delivered, in exchange for such Term
Note an Exchange Note in the form attached to the Senior Secured Indenture
initially bearing interest at the rate of interest then in effect with respect
to the Term Notes and increasing thereafter in the manner and at the times set
forth in Section 2.3A hereof, dated the date of the issuance of such Exchange
Note, payable to the order of such holder or owner, as the case may be, in the
same principal amount as such Term Note (or portion thereof) being exchanged,
and cause each Guarantor to endorse its guarantee thereon. The Exchange Request
shall specify the principal amount of the Term Notes to be exchanged pursuant to
this Section 5.11 which shall be at least $5 million and integral multiples of
$100,000 in excess thereof. Term Notes delivered to the Parent Guarantor and the
Borrower under this Section 5.11 in exchange for Exchange Notes shall be
cancelled by the Parent Guarantor and the Borrower and the corresponding amount
of the Term Loan deemed repaid and the Exchange Notes shall be governed by and
construed in accordance with the terms of the Senior Secured Indenture. The bank
or trust company acting as trustee under the Senior Secured Indenture shall at
all times be a corporation organized and doing business under the laws of the
United States of America or the State of New York, in good standing and having
its principal offices in the Borough of Manhattan, in The City of New York,
which is authorized under such laws to exercise corporate trust powers and is
subject to supervision or examination by Federal or State authority and which
has a combined capital and surplus of not less than $50 million.
5.12 Payments in U.S. Dollars
Other than with respect to PIK Interest Amounts, all payments
of any Obligations to be made hereunder or under the Notes by the Borrower or
any other obligor with respect thereto shall be made solely in U.S. Dollars or
such other currency as is then legal tender for public and private debts in the
United States of America.
5.13 Register
The Borrower will maintain a register (the "Register") on
which it will record the registered holders of the Notes and the principal
amount held by each and each repayment in respect of the principal amount of the
Loans of each such holder. Failure to make any such recordation, or any error in
such recordation shall not affect the Borrower's obligations in respect of such
Loans. With respect to any Lender, the transfer of the Loan Commitments of such
Lender and the rights to the principal of, and interest on, any Loan made
pursuant to such Loan Commitments shall not be effective until such transfer is
recorded on the Register maintained by the Borrower with respect to ownership of
such Loan Commitments and Loans and prior to such recordation all amounts owing
to the transferor with respect to such Loan Commitments and Loans shall remain
owing to the transferor. The registration of
<PAGE> 78
71
assignment or transfer of all or part of any Loan Commitments and Loans shall be
recorded by the Borrower on the Register only upon the receipt by the Borrower
of a properly executed and delivered Assignment and Assumption Agreement
pursuant to Section 10.2A and written notification to the Borrower of the
Principal Office of the registered holder of such Notes. Coincident with the
delivery of such an Assignment and Assumption Agreement to the Borrower for
acceptance and registration of assignment or transfer of all or part of a Loan,
or as soon thereafter as practicable, the assigning or transferor Lender shall
surrender the Note evidencing such Loan, and thereupon one or more new Notes of
the same type and in the same aggregate principal amount shall be issued to the
assigning or transferor Lender and/or the new Lender.
5.14 Lenders Meeting
The Parent Guarantor and the Borrower will participate in a
meeting with the Lenders once during each fiscal year to be held at a location
and a time selected by the Parent Guarantor and the Parent Guarantor and
reasonably satisfactory to the Lenders.
5.15 Local Counsel Opinions; Mortgaged Properties
Documentation; Non-Perfected Collateral.
A. The Borrower shall, by January 15, 1997, furnish to
the Lenders opinions of local counsel in the jurisdictions where the Collateral
other than the Non-Perfected Collateral is located in form and substance
reasonably satisfactory to counsel for the Lenders as to perfection of the
Lender's security interest in the items of Collateral as to which such security
interest is required to be perfected as of the Closing Date.
B. The Borrower shall, by April 30, 1997:
(a) Mortgages. Furnish to counsel for the Lenders each
Mortgage, each executed and delivered by a duly authorized officer of the party
thereto, with a counterpart or a conformed copy for each Lender.
(b) Surveys. Furnish to counsel for the Lenders and the
titled insurance company issuing the policies referred to in this Section
5.15B(b) (the "Title Insurance Company") with respect to each Mortgaged Real
Property (a) maps or plats of an as-built survey that was done previously and is
dated no earlier than January 1, 1992, recertified as of a date satisfactory to
counsel for the Lenders and the Title Insurance Company; or (b) maps or plats of
an as-built survey certified to the Lenders and the Title Insurance Company in a
manner reasonably satisfactory to counsel for the Lenders and the Title
Insurance Company, dated a date satisfactory to counsel for the Lenders and the
Title Insurance Company by an independent professional licensed land surveyor
reasonably satisfactory to counsel for the Lenders and the Title
<PAGE> 79
72
Insurance Company, which maps or plats and the surveys on which they are based
shall be made in accordance with the Minimum Standard Detail Requirements for
Land Title Surveys jointly established and adopted by the American Land Title
Association and the American Congress on Surveying and Mapping in 1992, and,
without limiting the generality of the foregoing, there shall be or is, as of a
recent date, surveyed and shown on such maps, plats or surveys the following:
(i) the locations on such sites of all the buildings, structures and other
improvements and the established building setback lines; (ii) the lines of
streets abutting the sites and width thereof; (iii) all access and other
easements appurtenant to the sites or necessary or desirable to use the sites;
(iv) all roadways, paths, driveways, easements, encroachments and overhanging
projections and similar encumbrances affecting the site, whether recorded,
apparent from a physical inspection of the sites or otherwise known to the
surveyor; (v) any encroachments on any adjoining property by the building
structures and improvements on the sites; and (vi) if the site is described as
being on a filed map, a legend relating the survey to said map.
(c) Title Insurance Policy or Opinion. Furnish to counsel for
the Lenders in respect of each Mortgaged Real Property, (i) a mortgagee's title
policy (or policies) or marked up unconditional binder for such insurance dated
the date of delivery thereat but no later than April 30, 1997 and each such
policy shall (A) be in amount reasonably satisfactory to counsel for the
Lenders, (B) be issued at ordinary rates; (C) insure that the Mortgage insured,
thereby creates a valid first Lien on such parcel free and clear of all defects
and encumbrances, except such as may be approved by CIBC/WG; (D) name the
Lenders as the insured thereunder; (E) be in the then current form of ALTA Loan
Policy approved by the state in which the parcel is located or the comparable
form outside the United States, as the case may be; (F) contain such
endorsements and affirmative coverage as counsel for Lenders may reasonably
request; and (G) be issued by title companies reasonably satisfactory to counsel
for the Lenders (including any such title companies acting as co-insurers or
reinsurers, at the option of CIBC/WG), and evidence reasonably satisfactory to
counsel for the Lenders that all premiums in respect of each such policy, and
all charges for mortgage recording tax, if any, have been paid, or (ii) a title
opinion in form and substance reasonably satisfactory to counsel for the
Lenders.
(d) Copies of Documents. Furnish to the Lenders a copy of all
recorded documents referred to or listed as exceptions to title in the title
policy or policies or title opinion or opinion referred to in this Section
5.15(b) and a copy, certified by such parties as counsel for the Lenders may
deem appropriate, of all other documents affecting the property covered by each
Mortgage.
(e) Landlord Agreements. To the extent a material portion of
equipment or inventory of the Borrower or any Guarantor is maintained on a
leased premise in the United States or Canada, use its reasonable best efforts
to furnish to the Lenders executed agreements from the respective landlords of
such property confirming that such landlords have subordinated their landlord
liens in such personal
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73
property to the security interests held by the Collateral Agent pursuant to the
Security Agreement and that such landlords will provide the Collateral Agent
with reasonable access to such facilities to exercise the Collateral Agent's
remedies pursuant to such Security Agreement.
(f) Perfection of Non-Perfected Collateral. Furnish to the
Lenders any and all instruments and documents and take such other action
reasonably requested by CIBC/WG or the Collateral Agent as may be necessary or
desirable in order to perfect in favor of the Lenders a valid first priority
security interest (to the extent possible) in the Non-Perfected Collateral
(other than interests in fixtures and real property), subject to no other Liens
except as may be expressly permitted under Section 6.2.
SECTION 6 NEGATIVE COVENANTS
The Parent Guarantor and the Borrower covenant and agree that
until the satisfaction in full of the Loans and the Notes and all other
Obligations due under this Agreement it will fully and timely perform all
covenants in this Section 6.
6.1 Coverage Ratios; Indebtedness
(a) The Parent Guarantor and the Borrower will not and will
not permit any of their respective Subsidiaries to, directly or indirectly:
(i) Maintenance of Interest Coverage Ratio. Permit the
ratio of Available Cash Flow to Consolidated Cash Interest and Dividend
Expense of the Parent Guarantor and its Subsidiaries on a consolidated
basis for each period of four consecutive fiscal quarters ending with
the fiscal quarter set forth below to be less than the ratio set forth
opposite such period below as "Interest Coverage":
<TABLE>
<CAPTION>
Quarter Ended Interest Coverage
<S> <C>
March 31, 1997 0.8
June 30, 1997 0.9
September 30, 1997 1.0
December 31, 1997 1.1
March 31, 1998 1.2
June 30, 1998 1.3
September 30, 1998 1.4
December 31, 1998 1.5
March 31, 1999 and
quarters ended thereafter 1.6
</TABLE>
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74
(ii) Maintenance of Cash Flow Leverage Ratio. Permit the Cash
Flow Leverage Ratio for each period of four consecutive fiscal quarters
ending with the fiscal quarter set forth below to be greater than the
ratio set forth opposite such period below as "Cash Flow Leverage":
<TABLE>
<CAPTION>
Quarter Ended Cash Flow Leverage
<S> <C>
March 31, 1997 9.50
June 30, 1997 9.00
September 30, 1997 8.50
December 31, 1997 7.75
March 31, 1998 7.50
June 30, 1998 7.25
September 30, 1998 7.00
December 31, 1998 6.75
March 31, 1999 6.50
June 30, 1999 6.25
September 30, 1999 6.00
December 31, 1999 5.75
March 31, 2000 and
quarters ended thereafter 5.50
</TABLE>
(b) The Parent Guarantor and the Borrower shall not and will
not permit any of their respective Subsidiaries to, directly or indirectly,
Incur, or remain or become directly or indirectly liable with respect to, any
Indebtedness, except for the following ("Permitted Indebtedness"):
(i) the Parent Guarantor, the Borrower and the other
Guarantors may Incur and remain liable with respect to the Obligations;
(ii) the Parent Guarantor, the Borrower and the other
Guarantors may Incur and remain liable with respect to the Bridge
Notes, Term Notes, Take-Out Securities and Exchange Notes;
(iii) the Parent Guarantor, the Borrower and Subsidiaries of
the Parent Guarantor may Incur and remain liable with respect to
Contingent Obligations permitted by Section 6.5 and, upon any matured
obligations actually arising pursuant thereto, the Indebtedness
corresponding to the Contingent Obligations so extinguished;
(iv) commercial documentary letters of credit may be issued
for the account of the Parent Guarantor, the Borrower or any Subsidiary
of the Parent Guarantor in the ordinary course of business in an
aggregate amount not to exceed $5 million at any one time outstanding;
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(v) the Borrower and Subsidiaries of the Parent Guarantor
may Incur and remain liable with respect to Indebtedness in respect of
Capital Leases; provided that the aggregate amount of Indebtedness
incurred under this Section 6.1(v) and Section 6.1(ix) shall not exceed
$2.5 million at any time outstanding;
(vi) the Parent Guarantor, the Borrower and Subsidiaries of
the Parent Guarantor may Incur and remain liable with respect to
Intercompany Indebtedness permitted by clauses (d) or (e) of the
definition of "Permitted Investments";
(vii) the Parent Guarantor, the Borrower and Subsidiaries of
the Parent Guarantor may remain liable with respect to the Senior Notes
and the other Indebtedness which is existing on the Closing Date and is
described on Schedule B attached hereto;
(viii) the Parent Guarantor, the Borrower and Subsidiaries of
the Parent Guarantor may Incur and remain liable with respect to
Permitted Refinancing Indebtedness;
(ix) the Borrower and Subsidiaries of the Parent Guarantor
may become and remain liable with respect to Indebtedness incurred to
finance (a) the purchase price of equipment, fixtures and any other
similar property or the remodeling or other improvement costs of any
facility of the Parent Guarantor or any Subsidiaries of the Parent
Guarantor or (b) the purchase price of any Real Property Assets;
provided that the aggregate principal amount of all such Indebtedness,
together with all Indebtedness incurred under Section 6.1(v) above
shall not exceed $2.5 million at any time outstanding; and
(x) Subsidiaries of the Parent Guarantor acquired after the
Closing Date may remain liable with respect to Indebtedness existing
immediately prior to the time any such entity became a Subsidiary of
Parent Guarantor in an aggregate amount for all such Subsidiaries not
to exceed $2.5 million at any time outstanding; provided that such
Indebtedness is not incurred in contemplation of such acquisition.
In addition to the foregoing, at any time after the Conversion
Date, if no Default with respect to payment of principal of, or interest on, the
Notes or Event of Default shall have occurred and be continuing at the time of
or as a consequence of the incurrence of any such Indebtedness, the Parent
Guarantor, the Borrower or any other Guarantor may incur Indebtedness if the
Cash Flow Leverage Ratio for the Parent Guarantor's, the Borrower's and their
respective Subsidiaries most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the time at
which such additional Indebtedness is incurred would have been not greater than
6.00 to 1.00, determined on a pro forma basis to
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give effect to the incurrence of such additional Indebtedness and (if
applicable) the application of the net proceeds therefrom (including, without
limitation, to refinance other Indebtedness and/or consummate the Parent
Guarantor's or the Borrower's or any of the Parent Guarantor's Subsidiaries'
acquisition of any Person or operating assets) and (if applicable) the
availability of Available Cash Flow derived from the assets, if any, acquired in
the transaction giving rise to such additional Indebtedness, as if such
additional Indebtedness had been incurred and any such application (including,
without limitation, any refinancing and/or acquisition) had occurred and any
such Available Cash Flow was available at the beginning of such four-quarter
period. In addition, a Subsidiary of the Parent Guarantor that is not a
Guarantor may incur Indebtedness of a type described in clause (x) above
(without regard to the $2.5 million limitation set forth therein) if and to the
extent such Indebtedness could have been incurred by the Parent Guarantor, the
Borrower or any other Guarantor pursuant to this paragraph.
6.2 Liens
(a) The Parent Guarantor and the Borrower shall not, nor
shall the Parent Guarantor cause or permit any Subsidiaries of the Parent
Guarantor to, directly or indirectly, create, incur, assume or permit to exist
any Lien on or with respect to any property or asset (including any document or
instrument in respect of goods or accounts receivable) of the Parent Guarantor,
the Borrower or of any Subsidiaries of the Parent Guarantor, whether now owned
or hereafter acquired, or assign or otherwise convey any right to receive any
income or profits therefrom, or file or permit the filing of, or permit to
remain in effect, any effective financing statement or other similar notice of
any Lien with respect to any such property, asset, income or profits under the
Uniform Commercial Code of any State or under any similar recording or notice
statute, except:
(i) Permitted Encumbrances;
(ii) Liens on (a) Real Property Assets or (b) equipment,
fixtures and other similar property of Parent Guarantor, the Borrower
and any Subsidiaries of the Parent Guarantor, in each case securing
Indebtedness described in Sections 6.1(b)(v) and 6.1(b)(ix); provided
that such Liens shall extend only to the equipment, fixtures, and other
similar property so financed (and improvements or attachments thereto)
and the proceeds thereof;
(iii) Liens securing Indebtedness permitted under Section
6.1(x), which Liens are existing prior to the time the entity which
incurred such Indebtedness became a Subsidiary of the Parent Guarantor;
provided that such Liens were not incurred in connection with, or in
contemplation of, the acquisition of such Subsidiary of the Parent
Guarantor and such Liens extend or cover only the property and assets
of such entity which were covered by such Liens and which were owned by
such entity, in each case at the time
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such entity became a Subsidiary of the Parent Guarantor (and
improvements or attachments thereto); and
(iv) the replacement, extension or renewal of any Lien
permitted by this Section 6.2 upon or in the same property subject to
such Lien and as security for the same obligations or any refinancings
thereof to the extent such refinancings are permitted under Section
6.1; provided that such Lien does not extend to or cover any property
other than the property covered by such Lien immediately prior to such
replacement, extension or renewal of such Lien (and improvements or
attachments thereto) and the principal of the obligations secured
thereby is not increased.
(b) The foregoing restriction shall not apply to the common
stock of the surviving corporation in the merger of RAI with and into MEM
Company, Inc. if and to the extent such stock constitutes Margin Stock and the
value (determined by any reasonable means, as agreed between the Parent
Guarantor and CIBC/WG) thereof exceeds 25% of the aggregate value (determined by
any reasonable means, as agreed between the Parent Guarantor and CIBC/WG) of the
assets subject to this Section 6.2.
6.3 Restricted Payments
(a) The Parent Guarantor and the Borrower shall not, nor
shall the Parent Guarantor cause or permit any Subsidiaries of the Parent
Guarantor to, directly or indirectly (a) declare or pay any dividend, or make
any distribution, on any Capital Stock of the Parent Guarantor or the Borrower
(other than dividends or distributions payable solely in Qualified Capital Stock
of the Parent Guarantor or, on or after the Conversion Date, payable solely in
cash on shares of preferred stock of the Parent Guarantor outstanding at the
Closing Date), (b) purchase, redeem or otherwise acquire or retire for value any
of the Parent Guarantor's or the Borrower's Capital Stock, or any warrants,
rights or options to acquire shares of any class of such Capital Stock or (c)
make any principal or interest payment on, purchase, defease, redeem, prepay, or
otherwise acquire or retire for value, other than any scheduled final maturity,
scheduled repayment or scheduled sinking fund payment, any Subordinated
Indebtedness of the Parent Guarantor (any such dividend, distribution, purchase,
redemption, acquisition, retirement, defeasance or prepayment set forth in
clauses (a), (b) and (c) above a "Restricted Payment").
(b) Notwithstanding the foregoing, (A) if no Default or Event
of Default shall have occurred and be continuing or shall be caused as a
consequence thereof, the provisions set forth in the immediately preceding
paragraph will not prevent (1) the acquisition of any shares of Capital Stock of
the Parent Guarantor or the repurchase, redemption or other repayment of any
Subordinated Indebtedness of the Parent Guarantor in exchange for or solely out
of the proceeds of the substantially concurrent sale or exchange (other than to
a Subsidiary of the Parent Guarantor) of
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shares of Qualified Capital Stock of the Parent Guarantor or a capital
contribution to the Parent Guarantor, (2) the repurchase, redemption or other
repayment of any Subordinated Indebtedness of the Parent Guarantor in exchange
for or solely out of the proceeds of the substantially concurrent sale (other
than to a Subsidiary of the Parent Guarantor) of Subordinated Indebtedness of
the Parent Guarantor with a Weighted Average Life to Maturity equal to or
greater than the then remaining Weighted Average Life to Maturity of the
Subordinated Indebtedness repurchased, redeemed or repaid, (3) Restricted
Payments by the Parent Guarantor in an amount in any one fiscal year not to
exceed 50% of Excess Cash Flow which unused portion of any such annual amount,
if any, may not be aggregated with Restricted Payments proposed to be made with
respect to this subclause (3) in any subsequent fiscal year, (4) Restricted
Payments to and by the Parent Guarantor in an amount sufficient to permit it to
pay cash dividends on its 14.0% Senior Redeemable Preferred Stock, Series B and
Series C, if and to the extent the failure to pay cash dividends would result in
an increase in the applicable dividend rate, (5) the purchase, redemption or
other acquisition of Capital Stock (or options to acquire same) held by former
employees of the Parent Guarantor or any Subsidiary of the Parent Guarantor up
to a maximum of $500,000 in the aggregate amount during any consecutive twelve
month period after the Closing Date, (6) the payment of management and advisory
fees to Kidd Kamm Equity Partners, L.P. and its Affiliates and successors and
assigns in an amount not to exceed $675,000 per year, (7) Restricted Payments
made to the Parent Guarantor to enable it to complete the P&G Acquisition, (8)
the payment of any Restricted Payment within 60 days of the declaration thereof
if such payment was permitted when declared, (9) Restricted Payments made by any
Subsidiary of the Parent Guarantor to the Parent Guarantor, the Borrower or any
other Guarantor, (10) Restricted Payments made by any Subsidiary of the Parent
Guarantor that is not a Guarantor to any other Subsidiary of the Parent
Guarantor that is not a Guarantor, and (11) working capital loans from the
Parent Guarantor, the Borrower or any other Guarantor to any foreign Subsidiary
of the Parent Guarantor that is not a Guarantor in an aggregate amount not to
exceed $5 million at any one time outstanding; and (B) the provisions set forth
in the immediately preceding paragraph will not apply to the payment of
distributions, dividends or interest payments on Intercompany Indebtedness owed
to the Parent Guarantor in an amount sufficient to permit the Parent Guarantor
to pay interest on the Senior Notes in full when due and to make any tax payment
when due if, at the time of such dividend, interest payment or distribution, no
payment is overdue under this Agreement or the Notes and no Event of Default
shall have occurred and be then continuing.
6.4 Investments; Joint Ventures
The Parent Guarantor and the Borrower shall not, nor shall the
Parent Guarantor cause or permit any Subsidiaries of the Parent Guarantor to,
directly or indirectly, make or own any Investment (other than Permitted
Investments) in any Person, including any Joint Venture, except:
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(i) the Parent Guarantor, the Borrower and Subsidiaries of
the Parent Guarantor may continue to own the Investments owned by them
as of the Closing Date (after giving effect to the Acquisitions) in any
Subsidiaries of the Parent Guarantor and described on Schedule A
annexed hereto;
(ii) the Parent Guarantor, the Borrower and Subsidiaries of
the Parent Guarantor may continue to own the Investments owned by them
and described on Schedule F annexed hereto;
(iii) the Parent Guarantor, the Borrower or any Subsidiaries
of the Parent Guarantor may make Related Business Investments;
(iv) the Parent Guarantor, the Borrower and Subsidiaries of
the Parent Guarantor may accept promissory notes received in
consideration of, or the deferral of a portion of the sales price
accepted with respect to, any Asset Sale permitted under Section 6.15;
(v) the Parent Guarantor, the Borrower and Subsidiaries of
the Parent Guarantor may make and own Investments received in
connection with the bankruptcy of suppliers and customers or received
pursuant to a plan of reorganization of any supplier or customer, in
each case in settlement of delinquent obligations or disputes with such
suppliers or customers; and
(vi) after the Conversion Date, the Parent Guarantor, the
Borrower and Subsidiaries of the Parent Guarantor may make and own
other Investments in an aggregate amount not to exceed $2.5 million at
any time outstanding.
6.5 Contingent Obligations
The Parent Guarantor and the Borrower shall not, nor shall the
Parent Guarantor cause or permit any Subsidiaries of the Parent Guarantor to,
directly or indirectly, create or become or remain liable with respect to any
Contingent Obligation, except:
(i) the Guarantors may become and remain liable with
respect to Contingent Obligations under the Guarantees;
(ii) the Parent Guarantor, the Borrower and Subsidiaries of
the Parent Guarantor may become and remain liable with respect to
Contingent Obligations in respect of customary indemnification and
purchase price adjustment obligations incurred in connection with Asset
Sales or other sales of assets; provided that the maximum assumable
liability in respect of all such obligations shall at no time exceed
the gross proceeds actually received by the Parent Guarantor, the
Borrower and Subsidiaries of the Parent Guarantor in connection with
such Asset Sales and other sales;
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(iii) the Parent Guarantor, the Borrower and Subsidiaries of
the Parent Guarantor, as applicable, may remain liable with respect to
existing Contingent Obligations described in Schedule B annexed hereto;
(iv) the Parent Guarantor, the Borrower and Subsidiaries of
the Parent Guarantor may become and remain liable with respect to
Contingent Obligations under guarantees made under the Senior Notes;
and
(v) the Parent Guarantor, the Borrower and Subsidiaries of
the Parent Guarantor may become and remain liable with respect to
guarantees of Indebtedness or Contingent Obligations of a wholly-owned
Subsidiary of the Parent Guarantor and a Subsidiary of the Parent
Guarantor may become and remain liable with respect to guarantees of
Indebtedness or Contingent Obligations of the Parent Guarantor or a
wholly-owned Subsidiary of the Parent Guarantor.
6.6 Restriction on Fundamental Changes
Subject to Section 5.2 and other than a sale in accordance
with Section 2.5A.(ii)(a) and Section 6.14, the Parent Guarantor and the
Borrower shall not, nor shall the Parent Guarantor cause or permit any Material
Subsidiaries of the Parent Guarantor to, directly or indirectly, enter into any
transaction, or series of related transactions, of merger, amalgamation,
consolidation or combination, or consolidate, or liquidate, wind-up or dissolve
itself (or suffer any liquidation or dissolution), or convey, sell, lease,
sublease, transfer or otherwise dispose of, in one transaction or in a series of
transactions, all or substantially all of its business, property or assets,
whether now owned or hereafter acquired, except:
(i) in connection with the Acquisitions; and
(ii) any Subsidiary of the Parent Guarantor may be merged,
amalgamated, consolidated or combined with or into the Parent Guarantor
or any wholly-owned Subsidiary of the Parent Guarantor or be
liquidated, wound up or dissolved, or all or substantially all of its
business, property or assets may be conveyed, sold, leased, transferred
or otherwise disposed of, in one transaction or in a series of
transactions, to the Parent Guarantor, the Borrower or to any
wholly-owned Subsidiary of the Parent Guarantor; provided, however,
that, (A) no Potential Event of Default or Event of Default shall have
occurred and be continuing or would result therefrom, (B) in the case
of such a merger, amalgamation, consolidation or combination of the
Parent Guarantor or the Borrower, on the one hand, and a Subsidiary of
the Parent Guarantor that is not a Guarantor, on the other hand, the
Parent Guarantor or the Borrower shall be the continuing or surviving
corporation, and (C) where one or more of the predecessor entities is
the Parent Guarantor, the Borrower or another Guarantor, the surviving
entity (i) if it is the Parent
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Guarantor, the Borrower or another Guarantor (I) continues to be bound
as such under this Agreement or the Guarantee of such Guarantor, as the
case may be, and (II) executes and delivers to the Lenders immediately
upon consummation of such transaction a written confirmation or
acknowledgment to such effect, in form and substance satisfactory to
CIBC/WG, together with evidence of appropriate corporate power,
authority and action and a written legal opinion (which may be of its
General Counsel) in form and substance satisfactory to CIBC/WG to the
effect that this Agreement and such Guarantee continue to be a legal,
valid and binding obligation of such entity, enforceable against such
entity in accordance with its terms (subject to customary exceptions in
respect of bankruptcy, insolvency and other equitable remedies) and
with respect to such other matters as CIBC/WG may reasonably request,
and (ii) if it is not the Parent Guarantor, the Borrower or another
Guarantor, executes and delivers to the Lenders immediately upon the
consummation of such transaction an assumption agreement, in form and
substance satisfactory to CIBC/WG, whereby such surviving entity
assumes the due and punctual performance of all obligations and
liabilities of such predecessor Guarantor under its Guarantee, together
with evidence of appropriate corporate power, authority and action and
a written legal opinion (which may be of its General Counsel) in form
and substance satisfactory to CIBC/WG to the effect that such Guarantee
is the legal, valid and binding obligation of such surviving entity,
enforceable against such surviving entity in accordance with its terms
(subject to customary exceptions in respect of bankruptcy, insolvency
and other equitable remedies) and with respect to such other matters as
CIBC/WG may reasonably request.
6.7 Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries
The Parent Guarantor shall not, nor shall it cause or permit
any Subsidiaries of the Parent Guarantor to, directly or indirectly, create or
otherwise cause or permit or suffer to exist or become effective any encumbrance
or restriction on the ability of any Subsidiary of the Parent Guarantor to (a)
pay dividends or make any other distributions on its Capital Stock or any other
interest or participation in, or measured by, such Subsidiary's profits; (b)
make loans or advances or pay any Indebtedness or other obligation owed to the
Parent Guarantor or to any Subsidiary of the Parent Guarantor; or (c) transfer
any of its property or assets to the Parent Guarantor or to any Subsidiary of
the Parent Guarantor (any such restriction or encumbrance, other than those
excepted in clauses (i) through (iv) below, a "Payment Restriction"), except for
such encumbrances or restrictions existing under or by reason of: (1) any
restrictions contained in (i) the Loan Documents, the Senior Secured Indenture
and any instrument governing the Take-Out Securities or Exchange Notes to the
extent Incurred in accordance with this Agreement; (ii) the indenture with
respect to the 13 3/4% Senior Notes of the Parent Guarantor due 2001 and 2002
(the "Senior Notes") as in effect on the Closing Date; (iii) the Indebtedness
pertaining
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to a Subsidiary of the Parent Guarantor that is not a Subsidiary of the Parent
Guarantor on the Closing Date in existence at the time such Subsidiary becomes a
Subsidiary of the Parent Guarantor; provided, however, that any such
Indebtedness was not incurred as a result of, in connection with or in
anticipation of the transaction pursuant to which such entity becomes a
Subsidiary of the Parent Guarantor and it does not apply to any Person, or the
properties of assets of any Person, other than the Subsidiary acquired and such
Indebtedness is otherwise permitted to be incurred pursuant to Section 6.1; (iv)
secured Indebtedness otherwise permitted to be incurred pursuant to Sections 6.1
and 6.2 that limits the right of the debtor to dispose of the assets securing
such Indebtedness; (2) customary non-assignment provisions of any lease
governing a leasehold interest of any Subsidiary of the Parent Guarantor; (3)
customary net worth provisions contained in leases and other agreements entered
into by a Subsidiary in the ordinary course of business; (4) customary
restrictions with respect to a Subsidiary pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Subsidiary; (5) applicable law; and (6) any
instrument that Refinances any Indebtedness effecting any such encumbrance or
restriction pursuant to clause (1) above; provided, however, that the provisions
relating to any such encumbrance or restriction in any such instrument are
substantially similar to those contained in the agreements referred to in clause
(1).
6.8 Transactions with Shareholders and Affiliates
The Parent Guarantor and the Borrower shall not, nor shall the
Parent Guarantor cause or permit any Subsidiaries of the Parent Guarantor to,
directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate of the Parent
Guarantor or the Borrower (each of the foregoing, an "Affiliate Transaction");
provided, however, that the foregoing restriction shall not apply to: (i) any
transaction exclusively between the Parent Guarantor and the Borrower and any of
its wholly-owned Subsidiaries or exclusively between any of the Parent
Guarantor's wholly-owned Subsidiaries to the extent any are in compliance with
all of the terms of this Agreement, (ii) reasonable and customary fees paid to
members of the Board of Directors of the Parent Guarantor and the Borrower,
(iii) reasonable and customary fees and compensation paid to, and indemnity
provided on behalf of, officers, directors or employees of the Parent Guarantor
and the Borrower or any Subsidiaries of the Parent Guarantor, as determined by
the Board of Directors of the Parent Guarantor or any such Subsidiary or the
senior management thereof in good faith, including, without limitation,
issuances of stock, payment of bonuses and other transactions pursuant to
employment or compensation agreements, stock option agreements, indemnification
agreements and other arrangements in effect on the Closing Date or substantially
similar thereto; provided that no cash bonuses will be paid to officers,
directors or employees of the Parent Guarantor, the Borrower or Subsidiaries of
the Parent Guarantor other than pursuant to the bonus plans or arrangements in
effect on the Closing Date (including, without limitation, upon
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reaching performance targets determined by the Board of Directors of the Parent
Guarantor from time to time), (iv) Affiliate Transactions of aggregate value
less than $1 million which are on terms that are no less favorable to the Parent
Guarantor, the Borrower or the relevant Subsidiary than those that would have
been obtained in a comparable transaction by the Parent Guarantor, the Borrower
or such Subsidiary with an unrelated person, as determined by the Board of
Directors of the Parent Guarantor, and which are conducted in good faith, (v)
Affiliate Transactions in which the Parent Guarantor delivers to the Lenders an
opinion as to the fairness to the Parent Guarantor, the Borrower or such
Subsidiary from a financial point of view issued by an investment banking firm
of national standing, and (vi) the payment of management and advisory fees to
Kidd Kamm Equity Partners, L.P. and its Affiliates and successors and assigns in
an amount not to exceed $675,000 per year.
6.9 Subsidiary Stock
Except for any sale of 100% of the Capital Stock or other
equity securities of any of the Subsidiaries of the Parent Guarantor in
compliance with the provisions of Section 6.4, the Parent Guarantor will not and
will not permit any Subsidiaries of the Parent Guarantor to directly or
indirectly sell, assign, pledge or otherwise encumber or dispose of any shares
of Capital Stock or other equity securities of any Subsidiaries of the Parent
Guarantor, except (i) to qualify directors if required by applicable law, (ii)
in the case of the Parent Guarantor's Subsidiaries, to the Parent Guarantor or
to a wholly-owned Subsidiary of the Parent Guarantor or (iii) Asset Sales made
in compliance with this Agreement.
6.10 Business Activities
The Parent Guarantor and the Borrower shall not, nor shall the
Borrower cause or permit any Subsidiaries of the Parent Guarantor to, directly
or indirectly, materially alter the nature of the consolidated business of the
Parent Guarantor, the Borrower and Subsidiaries of the Parent Guarantor from
that in existence immediately after giving effect to the Transactions or similar
or related businesses.
6.11 [Intentionally omitted]
6.12 [Intentionally omitted]
6.13 Refinancing of the Loans in Part
The Borrower shall not, nor shall the Parent Guarantor cause
or permit any Subsidiaries of the Parent Guarantor to, Incur any Indebtedness to
Refinance the Loans in part other than the Demand Take-Out Notes or the Exchange
Notes, unless the terms, conditions, covenants, events of default and other
provisions in respect of the instruments evidencing the Indebtedness Incurred to
Refinance the Loans in part
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shall have been approved in writing by the Required Lenders prior to the
Incurrence of any such Indebtedness; and provided that no Refinancing in part
shall result in the amount of the Loans outstanding being less than $75 million
and no Refinancing in part shall occur at a time when the amount of the Loans
outstanding is less than $75 million.
6.14 Asset Sales
The Parent Guarantor and the Borrower shall not, nor shall the
Parent Guarantor cause or permit any Subsidiaries of the Parent Guarantor to,
directly or indirectly, consummate any Asset Sale unless (1) the Parent
Guarantor and the Borrower or such Subsidiary, as the case may be, receives
consideration therefor at the time thereof at least equal to the fair market
value at the time of such Asset Sale of the property, assets or stock that is
the subject of such Asset Sale, (2) at least 80% of the consideration received
therefor by the Parent Guarantor or such Subsidiary is in the form of cash or
Cash Equivalents (provided that liabilities assumed in connection therewith
shall be treated as cash solely for the purpose of determining satisfaction of
the requirement set forth in this clause (2)) and (3) all of the Net Cash
Proceeds in respect thereof are applied by the Parent Guarantor and the Borrower
or a Subsidiary of the Parent Guarantor in accordance with Section 2.5A(ii)(a).
6.15 Transfer of Assets to Subsidiaries
The Parent Guarantor and the Borrower shall not, nor shall the
Parent Guarantor cause or permit any Subsidiaries of the Parent Guarantor to,
directly or indirectly, transfer (other than in the ordinary course of business
and other than pursuant to a Permitted Investment) any assets or property to any
Subsidiary of the Parent Guarantor that is not a Guarantor unless such
Subsidiary pays fair market value therefor to the Parent Guarantor or to a
wholly-owned Subsidiary of the Parent Guarantor and except as provided in
Sections 6.3, 6.4, 6.6 and 6.8. For purposes of this Section 6.15, the fair
market value paid by such Subsidiary shall not consist in whole or in part of
any securities or debt instruments of such Subsidiary or of any Affiliate of
such Subsidiary. Notwithstanding the foregoing or any other provision of this
Agreement, nothing in this Agreement shall prohibit or restrict the ability of
the Parent Guarantor, the Borrower or any Subsidiary of the Parent Guarantor to
create, hold and transfer cash into, newly-formed foreign Subsidiaries for the
purpose of acquiring the foreign inventories and equipment being acquired in the
P&G Acquisition or from transferring foreign inventory and equipment acquired in
the P&G Acquisition to such foreign subsidiaries.
6.16 Additional Guarantees
The Parent Guarantor and the Borrower will not permit any
Material Subsidiaries of the Parent Guarantor to be created unless such
Subsidiary executes a
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Guarantee of the Obligations of the Borrower under this Agreement. Thereafter,
such Subsidiary shall be a Guarantor for all purposes of this Agreement.
6.17 Security Interests
A. The Parent Guarantor and the Borrower shall, and shall
cause each of their respective Subsidiaries that are Guarantors to, duly and
punctually perform any and all acts and, at their expense, will promptly execute
or cause to be executed any and all further instruments and documents and take
such action as CIBC/WG deem necessary or desirable in obtaining the full
benefits of this Agreement, the Security Documents and of each other Loan
Document and of the rights and powers herein and therein granted as may, in the
reasonable judgment of CIBC/WG, be necessary or desirable in order to grant and
maintain in favor of the Lenders a valid and perfected first priority security
interest in the Collateral, subject to no other Liens except as may be expressly
permitted under Section 6.2.
B. If the Collateral Agent or the Required Lenders
determine that they are required by Law to have appraisals prepared in respect
of Mortgaged Real Property, the Parent Guarantor and its Subsidiaries shall
provide to the Collateral Agent appraisals which satisfy the applicable
requirements of the Real Estate Appraisal Reform Amendments of Financial
Institutions Reform Recovery and Enforcement Act of 1989, as amended, and which
shall be in form and substance reasonably satisfactory to the Collateral Agent
and the Required Lenders.
6.18 Impairment of Security Interest
Except as contemplated by this Agreement with respect to the
Non-Perfected Collateral, the Parent Guarantor and the Borrower will not take or
omit to take any action which action or omission would have the result of
adversely affecting or impairing the security interest in favor of the Lenders
with respect to the Collateral, and neither the Parent Guarantor nor the
Borrower shall grant to any Person, or suffer any Person (in each case other
than to the creditors or to the Borrower or the Subsidiaries to the extent
permitted hereby) to have any interest whatsoever in the Collateral except as
expressly permitted under Section 6.2. The Parent Guarantor and the Borrower
will not enter into any agreement or instrument that by its terms requires the
proceeds received from any sale of Collateral to be applied to repay, redeem,
defease or otherwise acquire or retire any Indebtedness of any Person, other
than pursuant to this Agreement, the Bridge Notes and the Senior Notes.
6.19 [Intentionally Omitted]
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6.20 Restriction on Tax Consolidation
Neither the Parent Guarantor nor the Borrower will, nor will
any of them permit any of their respective Subsidiaries to, file or consent to
the filing of any consolidated income tax return with any Person other than the
Borrower and the Subsidiaries.
6.21 Sale and Lease-Backs
Neither the Parent Guarantor nor the Borrower will, nor will
any of them permit any of their respective Subsidiaries to, directly or
indirectly, become or thereafter remain liable as lessee or as guarantor or
other surety with respect to the lessee's obligations under any lease, whether
an operating lease or a capital lease, of any Property, whether now owned or
hereafter acquired, (i) which such Person has sold or transferred or is to sell
or transfer to any other Person or (ii) which sale and such lease are part of
the same transaction or a series of related transactions or such sale and such
lease occur within one year of each other or are with the same other Person,
unless, immediately after giving effect to the incurrence of liability with
respect to sale-leaseback transaction, any such entity could incur $1.00 of
Indebtedness under Section 6.1(a) and the last paragraph of Section 6.1(b).
6.22 Limitation on Other Restrictions on
Amendment of Loan Documents
Neither the Parent Guarantor nor the Borrower will, nor will
any of them permit any of their respective Subsidiaries to, directly or
indirectly, enter into, suffer to exist or become or remain subject to any
agreement or instrument, except for the Loan Documents, that would prohibit or
restrict (including by way of a covenant, representation or warranty or event of
default), or require the consent of any Person to, any amendment to, or waiver
or consent to departure from the terms of, any of the Loan Documents.
6.23 Modifications of Certain Documents; Etc.
Neither the Parent Guarantor nor the Borrower will, nor will
any of them permit any of their respective Subsidiaries to, directly or
indirectly, (a) consent to any amendment, modification, supplement or waiver of
any of the provisions of (i) the Senior Notes (except for any supplemental
indenture that may be required by the indenture relating to the Senior Notes in
order to add guarantors thereto), any Subordinated Indebtedness or the P&G
Acquisition Agreement or (ii) any other document where (in the case of this
clause (ii) only) the effect of such amendment, modification, supplement or
waiver is reasonably likely to be materially adverse to the Lenders, and (in the
case of each of clauses (i) and (ii)) without the prior written approval of the
Required Lenders; and (b) amend, modify or change in any manner which is
reasonably likely to be materially adverse to the Lenders its certificate of
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incorporation (including, without limitation, by the filing of any certificate
of designation) or its by-laws (or any other organizational document), or any
agreement entered into with respect to its Capital Stock, nor will the Borrower
or any other Subsidiary of the Parent Guarantor enter into any new agreement
with respect to its Capital Stock in any manner which is reasonably likely to be
materially adverse to the Lenders.
6.24 Pledge of Additional Collateral
Promptly, and in any event within 30 days, after the
acquisition of any property or assets of the type that would have constituted
Pledged Collateral at the Closing Date excluding the shares of common stock of
the surviving corporation of the merger of RAI with and into MEM Company, Inc.
(the "Additional Collateral"), the Borrower and each Guarantor will, and each of
them will cause each of their respective Material Subsidiaries to, take all
action necessary or desirable, including the execution and delivery of all such
agreements, assignments, documents and instruments (including amendments to the
Loan Documents) and the filing of appropriate financing statements under the
provisions of the UCC or applicable governmental requirements in each of the
offices where such filing is necessary or appropriate, to grant the Collateral
Agent for the benefit of the Lenders a duly perfected first priority Lien on
such property or assets pursuant to and to the extent required by the Security
Agreement and this Agreement as of the Closing Date (if such acquisition occurs
prior to April 30, 1997) or as of April 30, 1997 (if such acquisition occurs
thereafter); provided, however, that none of the Capital Stock of any Subsidiary
organized outside of the United States of America or Canada need be pledged. In
the event that, after the Closing Date, the Borrower or any Guarantor acquires
or holds a fee interest in any Real Property Asset, the Borrower or such
Guarantor, as the case may be, will, and will cause each such Subsidiary to, (i)
take such actions and execute such documents as the Collateral Agent shall
reasonably require to create a new mortgage on such Real Property Asset of the
Lenders, the documents and instruments reasonably requested by the Collateral
Agent by April 30, 1997 (if such Real Property Asset is acquired or held before
such date) or within 30 days of such acquisition (if it occurs after such date).
The costs of all actions taken by the parties in connection with any action to
be taken under this Section 6.24, including reasonable costs of counsel for the
Collateral Agent, shall be for the account of the Borrower or the Guarantors,
which shall pay all sums due on demand.
6.25 Restrictions on Capital Expenditures
The Parent Guarantor and the Borrower will not and will not
permit any of their respective Subsidiaries to make or commit to make any
expenditure ("Capital Expenditures") for fixed capital assets (including,
without limitation, expenditures for maintenance and repairs which should be
capitalized in accordance with GAAP and including Capitalized Lease Obligations
but excluding insurance proceeds received in connection with a Casualty Event to
effect the repair,
<PAGE> 95
88
construction or rebuilding of the Asset which is the subject of the Casualty
Event) except for expenditures in the ordinary course of business not exceeding,
in the aggregate for the Parent Guarantor, the Borrower and all Subsidiaries of
the Parent Guarantor during the fiscal years set forth below, the following:
<TABLE>
<CAPTION>
Period Amount
<S> <C>
Closing until March 31, 1997 $5,000,000
Fiscal year ending March 31, 1998 $7,500,000
Fiscal years ending March 31, 1999
and thereafter $5,000,000
</TABLE>
SECTION 7 EVENTS OF DEFAULT
If any of the following conditions or events ("Events of
Default") shall occur and be continuing:
7.1 Failure To Make Payments When Due
Failure to pay any installment of principal of the Loans when
due, whether at stated maturity, by acceleration, by notice of prepayment or
otherwise (whether or not such payment is prohibited by Section 8); or failure
to pay any interest on the Loans or any other amount due under this Agreement
which failure shall have continued for five days; or
7.2 Default in Other Agreements
Failure of the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor to pay at final maturity any principal on
one or more issues of Indebtedness or Contingent Obligations of the Borrower or
of any Subsidiaries of the Parent Guarantor (other than Indebtedness referred to
in Section 7.1) or breach or default by the Parent Guarantor, the Borrower or
any Subsidiaries of the Parent Guarantor with respect to any other term of any
one or more issues of Indebtedness or Contingent Obligations of the Parent
Guarantor, the Borrower or of any Subsidiaries of the Parent Guarantor or any
agreement or instrument evidencing or securing such Indebtedness or Contingent
Obligations and such default or breach results in the acceleration of that
Indebtedness or Contingent Obligation prior to its stated maturity and, in
either case, the principal amount of such Indebtedness or Contingent Obligation
and all other such Indebtedness or Contingent Obligations of the Parent
Guarantor, the Borrower and Subsidiaries of the Parent Guarantor in respect of
which there is a failure to pay principal or interest or which has been so
accelerated equals $3 million or more; or
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7.3 Breach of Certain Covenants
Failure of the Parent Guarantor or the Borrower to perform or
comply with any covenant, term or condition contained in Section 2.5A(ii)(e),
2.5A(iv) or 5.2; or
7.4 Breach of Warranty
Any representation, warranty or certification made by the
Parent Guarantor, the Borrower or any other Guarantor in any Loan Document or in
any statement or certificate at any time given by the Parent Guarantor or the
Borrower in writing pursuant hereto or thereto or in connection herewith or
therewith shall be false or incorrect in any material respect on the date as of
which made or deemed made; or
7.5 Other Defaults Under Agreement or Loan Documents
The Parent Guarantor or the Borrower shall default in the
performance of or compliance with any covenant, term or condition contained in
this Agreement or the other Loan Documents (other than those covered by Sections
7.1, 7.3, 7.4, 7.10 or 7.11) and such default shall not have been remedied or
waived in accordance with this Agreement within 30 days after the date of
written notice from the holder or holders of not less than 25% in aggregate
principal amount of the Loans then outstanding of such default; or
7.6 Involuntary Bankruptcy; Appointment
of Custodian, Etc.
A court of competent jurisdiction enters a Bankruptcy Order
under any Bankruptcy Law that:
(A) is for relief against the Parent Guarantor, the Borrower
or any other Material Subsidiary in an involuntary case or proceeding,
or
(B) appoints a Custodian of the Parent Guarantor, the
Borrower or any other Material Subsidiary for all or substantially all
of its properties, or
(C) orders the liquidation of the Parent Guarantor, the
Borrower or any other Material Subsidiary, and in each case the order
or decree remains unstayed and in effect for 60 days; or
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7.7 Voluntary Bankruptcy; Appointment
of Custodian, Etc.
The Parent Guarantor, the Borrower or any other Material
Subsidiary pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding, or
(B) consents to the entry of a Bankruptcy Order for relief
against it in an involuntary case or proceeding, or
(C) consents to the appointment of a Custodian of it or for
all or substantially all of its property, or
(D) makes a general assignment for the benefit of its
creditors or files a proposal or scheme of arrangement involving the
rescheduling or composition of its indebtedness, or
(E) consents to the filing of a petition in bankruptcy
against it, or
(F) shall generally not pay its debts when such debts become
due or shall admit in writing its inability to pay its debts generally;
or
7.8 Judgments and Attachments
Any money judgment, writ or warrant of attachment, or similar
process involving in any individual case or in the aggregate at any time an
amount in excess of $3 million (to the extent not covered by third-party
insurance as to which the insurance company has acknowledged coverage) shall be
entered or filed against the Parent Guarantor, the Borrower or any Subsidiaries
of the Parent Guarantor or any of their respective properties or assets and
shall remain undischarged, unvacated, unbonded or unstayed for a period of 60
days or in any event later than five days prior to the date of any proposed sale
thereunder; or
7.9 Dissolution
Any order, judgment or decree shall be entered against the
Parent Guarantor, the Borrower or any other Material Subsidiary decreeing the
dissolution or split-up of the Parent Guarantor, the Borrower or any Material
Subsidiary and such order shall remain undischarged or unstayed for a period in
excess of 30 days; or
7.10 Guarantee
(i) Any Guarantee or any material provision thereof shall
cease to be in full force or effect (other than in accordance with its express
terms), or (ii) any
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Guarantor or any Person acting by or on behalf of such Guarantor shall deny or
disaffirm such Guarantor's obligations under its Guarantee, or (iii) any
Guarantor shall default in the due performance or observance in any material
respect of any term, covenant or agreement on its part to be performed or
observed, after giving effect to any applicable grace periods, pursuant to its
Guarantee Agreement; or
7.11 Collateral Document Default
A. The Security Agreement (together with any other security
document delivered or to be delivered thereunder) after delivery thereof shall
for any reason fail to create or cease to maintain a valid and duly perfected
first priority security interest (to the extent that a security interest can be
created under the Uniform Commercial Code (as defined in the Security
Agreement)) except for Liens permitted by Section 6.2 in the Collateral (other
than the Non-Perfected Collateral subject to compliance with Section 5.15) until
such Collateral is released in accordance with the terms of this Agreement and
the Security Documents; or
B. The Collateral shall become subject to a pledge not
permitted under the Security Documents on the Collateral or any Person takes any
action to foreclose on such Collateral or takes any action inconsistent with the
security interest held by the Lenders that could have a material adverse effect
on the validity or requisite priority of such pledge; or
C. The enforceability of the Lender's security interest in
any Collateral shall be contested by the Parent Guarantor, the Borrower or any
Subsidiary of the Parent Guarantor; or
7.12 ERISA Matters
An ERISA Event shall occur or exist and, as a result of such
ERISA Event, together with all other such ERISA Events or conditions (which have
not been cured), the Parent Guarantor, the Borrower or any ERISA Affiliate shall
have incurred a liability to an Employee Benefit Plan, a Multiemployer Plan, the
PBGC or the Internal Revenue Service (or any combination of the foregoing) that
(individually or in the aggregate) has had a Material Adverse Effect; or
7.13 Environmental Matters
There shall have been asserted against the Parent Guarantor,
the Borrower or any Subsidiary of the Parent Guarantor, claims or liabilities,
whether accrued, absolute or contingent, based on or arising from the
generation, storage, transport, handling or disposal of Hazardous Materials by
the Parent Guarantor, the Borrower or any Subsidiary of the Parent Guarantor or
any Affiliate, or any predecessor in interest of the Parent Guarantor, the
Borrower or any Subsidiary of the Parent Guarantor or any Affiliate, or relating
to any site or facility owned, operated
<PAGE> 99
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or leased by the Parent Guarantor, the Borrower or any Subsidiary of the Parent
Guarantor or any Affiliate, which claims or liabilities, singly or in the
aggregate, have had a Material Adverse Effect; or
7.14 Non-Monetary Judgment
Any non-monetary judgment, order or decree is entered against
the Parent Guarantor, the Borrower or any Subsidiary of the Parent Guarantor
which has had a Material Adverse Effect, and there shall be any period of 60
consecutive days during which a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect; or
7.15 Injunction
The Parent Guarantor, the Borrower or any Subsidiary of the
Parent Guarantor is enjoined, restrained or in any way prevented by the order of
any Tribunal from conducting all or any material part of its business and such
order continues for more than 60 days; or
7.16 Damage, Strike, Casualty; Etc.
Any material damage to, or loss, theft or destruction of, any
Collateral, whether or not insured, or any strike, lockout, labor dispute,
embargo, condemnation, act of God or public enemy, or other casualty which
causes, for more than 60 consecutive days, the cessation or substantial
curtailment of revenue producing activities at any facility of the Parent
Guarantor, the Borrower or any Subsidiary of the Parent Guarantor if any such
event or circumstance, singly or in the aggregate, has had a Material Adverse
Effect; or
7.17 Licenses and Permits
The loss, suspension, forfeiture or revocation of, or failure
to renew, any license or permit now held or hereafter acquired by the Parent
Guarantor, the Borrower or any Subsidiary of the Parent Guarantor, if such loss,
suspension, revocation or failure to renew, singly or in the aggregate, has had
a Material Adverse Effect; or
7.18 Subordination Provisions
The subordination provisions relating to any Subordinated
Indebtedness (the "Subordination Provisions") shall fail in any material respect
to be enforceable by the Lenders (which have not effectively waived the benefits
thereof) in accordance with the terms thereof, or any Obligation (other than to
the extent the Parent Guarantor's Guaranty is pari passu with the Senior Notes)
shall fail to constitute Senior Debt (as defined in the Subordinated
Indebtedness); or the Parent Guarantor,
<PAGE> 100
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the Borrower or any Subsidiary of the Parent Guarantor shall, directly or
indirectly, disavow or contest in any manner any of the Subordination
Provisions; or
7.19 Debt Tender Offer
The failure of the Parent Guarantor to commence a tender offer
(subject to customary conditions including the receipt of financing) for the
Parent Guarantor's 13 3/4% Senior Notes due 2001 and 2002 within 15 Business
Days after the Closing Date; provided that no Potential Event of Default or
Event of Default shall result hereunder if the Parent Guarantor does not so
commence a tender offer based upon its reasonable and good faith belief that the
price to be paid in a tender offer that successfully acquires a majority of the
Senior Notes (together with the consent requested by the Parent Guarantor to
modify the related indenture) will exceed 116.50% of the aggregate principal
amount (plus accrued interest).
THEN (i) upon the occurrence of any Event of Default described
in the foregoing Sections 7.6 or 7.7, all of the unpaid principal amount of and
accrued interest on the Loans and all other outstanding Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by the Parent Guarantor, and the commitments of the Lenders hereunder
shall thereupon terminate, and (ii) upon the occurrence of any other Event of
Default, the Lenders shall, upon written notice of the Required Lenders, by
written notice to the Parent Guarantor, declare all of the unpaid principal
amount of and accrued interest on the Loans and all other outstanding
Obligations to be, and the same shall forthwith become, due and payable, and the
obligations of the Lenders hereunder shall thereupon terminate; provided,
however, that if any declaration of acceleration under this Agreement occurs
solely because an Event of Default set forth in Section 7.2 has occurred and is
continuing, such declaration of acceleration shall be automatically annulled if
the holders of the Indebtedness which is the subject of such Event of Default
have rescinded their declaration of acceleration in respect of such Indebtedness
within thirty days of such acceleration of such Indebtedness and the Lenders
have received written notice thereof within such time and if no other Event of
Default has occurred during such thirty-day period which has not been cured or
waived in accordance with this Agreement. Nevertheless, if at any time after
acceleration of the maturity of the Loans, the Borrower shall pay all arrears of
interest and all payments on account of the principal thereof which shall have
become due otherwise than by acceleration (with interest on principal and, to
the extent permitted by law, on overdue interest, at the rates specified in this
Agreement or the Notes) and all Events of Default and Potential Events of
Default (other than non-payment of principal of and accrued interest on the
Loans and the Notes due and payable solely by virtue of acceleration) shall be
remedied or waived pursuant to Section 10.6, then the Lenders shall, upon
written notice of the Required Lenders, by written notice to the Parent
Guarantor rescind and annul the acceleration and its consequences; but such
action shall not
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affect any subsequent Event of Default or Potential Event of Default or impair
any right consequent thereon.
SECTION 8 PROVISIONS RELATING TO THE COLLATERAL AGENT
AND CIBC/WG
8.1 Appointment
Each Lender hereby irrevocably designates and appoints CIBC/WG
as Collateral Agent of such Lender to act as specified herein and in the other
Loan Documents, and each Lender hereby irrevocably authorizes CIBC/WG as the
Collateral Agent to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Collateral Agent by the terms of
this Agreement and the other Loan Documents, together with such other powers as
are reasonably incidental thereto. The Collateral Agent agrees to act as such
upon the express conditions contained in this Section 8. Notwithstanding any
provision to the contrary elsewhere in this Agreement or in any other Loan
Document, the Collateral Agent shall not have any duties or responsibilities,
except those expressly set forth herein or in the other Loan Documents, or any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against the Collateral Agent. The provisions of
this Section 8 are solely for the benefit of the Collateral Agent and the
Lenders, and neither the Parent Guarantor, the Borrower nor any Subsidiaries of
the Parent Guarantor shall have any rights as a third party beneficiary of any
of the provisions hereof. In performing its functions and duties under this
Agreement, the Collateral Agent shall act solely as agent of the Lenders and the
Collateral Agent does not assume and shall not be deemed to have assumed any
obligation or relationship of agent or trust with or for the Parent Guarantor,
the Borrower or any Subsidiaries of the Parent Guarantor.
8.2 Delegation of Duties
The Collateral Agent may execute any of its duties under this
Agreement or any other Loan Document by or through agents or attorneys-in-fact
and shall be entitled to advice of counsel concerning all matters pertaining to
such duties. The Collateral Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys-in-fact selected by it with reasonable
care except to the extent otherwise required by Section 8.3.
8.3 Exculpatory Provisions
Neither the Collateral Agent, CIBC/WG nor any of their
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable
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95
for any action lawfully taken or omitted to be taken by it or such Person under
or in connection with this Agreement or the other Loan Documents (except for its
or such Person's own gross negligence or willful misconduct) or (ii) responsible
in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor or any of their respective officers
contained in this Agreement, any other Loan Documents, or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Collateral Agent or CIBC/WG under or in connection with, this Agreement
or any other Loan Document or for any failure of the Parent Guarantor, the
Borrower or any Subsidiaries of the Parent Guarantor or any of their respective
officers to perform its obligations hereunder or thereunder. Neither Collateral
Agent nor CIBC/WG shall be under any obligation to any Lender to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement or the other Loan Documents, or to inspect
the properties, books or records of the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor. Neither Collateral Agent nor CIBC/WG shall
be responsible to any Lender for the effectiveness, genuineness, validity,
enforceability, collectability or sufficiency of this Agreement or any other
Loan Document or for any representations, warranties, recitals or statements
made herein or therein or made in any written or oral statement or in any
financial or other statements, instruments, reports, certificates or any other
documents in connection herewith or therewith furnished or made by the
Collateral Agent or CIBC/WG, as the case may be, to the Lenders or by or on
behalf of the Parent Guarantor, the Borrower or any Subsidiaries of the Parent
Guarantor to the Collateral Agent or CIBC/WG, as the case may be, or any Lender
or be required to ascertain or inquire as to the performance or observance of
any of the terms, conditions, provisions, covenants or agreements contained
herein or therein or as to the use of the proceeds of the Loans or of the
existence or possible existence of any Default or Event of Default.
8.4 Reliance by Collateral Agent
The Collateral Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, facsimile, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons, and upon advice and statements of legal counsel (including,
without limitation, counsel to the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor), independent accountants and other experts
selected by the Collateral Agent. The Collateral Agent shall be fully justified
in failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Lenders as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action. As
between the Collateral Agent and the Lenders, the Collateral Agent shall in all
cases be fully
<PAGE> 103
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protected in acting, or in refraining from acting, under this Agreement and the
other Loan Documents in accordance with a request of the Required Lenders, and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Lenders.
8.5 Notice of Default
The Collateral Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless the
Collateral Agent has actually received notice from a Lender or the Parent
Guarantor or the Borrower referring to this Agreement, describing such Default
or Event of Default and stating that such notice is a "notice of default." In
the event that the Collateral Agent receives such a notice, the Collateral Agent
shall give prompt notice thereof to the Lenders. The Collateral Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders; provided, that, as between the
Collateral Agent and the Lenders unless and until the Collateral Agent shall
have received such directions, the Collateral Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
8.6 Non-Reliance on Collateral Agent
and Other Lenders
Each Lender expressly acknowledges that neither the Collateral
Agent nor any of its respective officers, directors, employees, agents,
attorneys-in-fact or affiliates have made any representations or warranties to
it and that no act by the Collateral Agent hereinafter taken, including any
review of the affairs of the Parent Guarantor, the Borrower or any Subsidiaries
of the Parent Guarantor, shall be deemed to constitute any representation or
warranty by the Collateral Agent to any Lender. Each Lender represents to the
Collateral Agent that it has, independently and without reliance upon the
Collateral Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, assets, operations, property, financial and
other condition, prospects and creditworthiness of the Parent Guarantor, the
Borrower or Subsidiaries of the Parent Guarantor and made its own decision to
make its Loans hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon the Collateral
Agent or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement,
and to make such investigation as it deems necessary to inform itself as to the
business, assets, operations, property, financial and other condition, prospects
and creditworthiness of the Parent Guarantor, the Borrower or Subsidiaries of
the Parent Guarantor. The Collateral Agent shall not have any duty or
responsibility to provide any Lender with any credit or other
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information concerning the business, operations, assets, property, financial and
other condition, prospects or creditworthiness of the Parent Guarantor, the
Borrower or any Subsidiaries of the Parent Guarantor which may come into the
possession of the Collateral Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates.
8.7 Indemnification
The Lenders agree to indemnify each of the Collateral Agent in
its capacity as such and CIBC/WG ratably according to their respective
"percentages" as used in determining the Required Lenders at such time, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, reasonable expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the Obligations) be imposed on, incurred by or
asserted against the Collateral Agent in its capacity as such or CIBC/WG in any
way relating to or arising out of this Agreement or any other Loan Document, or
any documents contemplated by or referred to herein or the transactions
contemplated hereby of any action taken or omitted to be taken by the Collateral
Agent or CIBC/WG under or in connection with any of the foregoing, but only to
the extent that any of the foregoing is not paid by the Parent Guarantor, the
Borrower or any Subsidiaries of the Parent Guarantor; provided, that no Lender
shall be liable to the Collateral Agent or CIBC/WG for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
gross negligence or willful misconduct of the Collateral Agent or CIBC/WG, as
the case may be. If any indemnity furnished to the Collateral Agent or CIBC/WG
for any purpose shall, in the opinion of the Collateral Agent or CIBC/WG, as the
case may be, be insufficient or become impaired, the Collateral Agent or CIBC/WG
may call for additional indemnity and cease, or not commence, to do the acts
indemnified against until such additional indemnity is furnished. The agreements
in this Section 8.7 shall survive the payment of all Obligations.
8.8 Collateral Agent or CIBC/WG in Its
Individual Capacity
The Collateral Agent and its affiliates may make loans to,
accept deposits from and generally engage in any kind of business with the
Parent Guarantor, the Borrower or Subsidiaries of the Parent Guarantor as though
the Collateral Agent were not the Collateral Agent hereunder. With respect to
the Loans made by it and all Obligations owing to it, the Collateral Agent shall
have the same rights and powers under this Agreement as any Lender and may
exercise the same as though it were not the Collateral Agent and the terms
"Lender" and "Lenders" shall include the Collateral Agent in its individual
capacity.
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8.9 Resignation of the Collateral Agent;
Successor Collateral Agent
The Collateral Agent may resign as the Collateral Agent upon
20 days' notice to the Lenders, the Parent Guarantor and the Borrower. Upon the
resignation of the Collateral Agent, the Required Lenders shall appoint from
among the Lenders a successor Collateral Agent which is a bank or a trust
company for the Lenders subject to prior approval by the Borrower (such approval
not to be unreasonably withheld or delayed), whereupon such successor agent
shall succeed to the rights, powers and duties of the Collateral Agent, and the
term "Collateral Agent" shall include such successor agent effective upon its
appointment, and the resigning Collateral Agent's rights, powers and duties as
the Collateral Agent shall be terminated, without any other or further act or
deed on the part of such former Collateral Agent or any of the parties to this
Agreement. After the resignation of the Collateral Agent hereunder, the
provisions of this Section 8 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Collateral Agent under this Agreement.
SECTION 9 GUARANTEE
9.1 Unconditional Guarantee
Each Guarantor hereby unconditionally, jointly and severally,
guarantees (such guarantee to be referred to herein as the "Guarantee") to each
of the Lenders and to the Collateral Agent and their respective successors and
assigns, that: (i) the principal of and interest on the Loans will be promptly
paid in full when due, subject to any applicable grace period, whether at
maturity, by acceleration or otherwise and interest on the overdue principal, if
any, and interest on any interest, to the extent lawful, of the Loans and all
other obligations of the Borrower to the Lenders or the Collateral Agent
hereunder or thereunder will be promptly paid in full or performed, all in
accordance with the terms hereof and thereof; and (ii) in case of any extension
of time of payment or renewal of any of the Loans or of any such other
obligations, the same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, subject to any applicable
grace period, whether at stated maturity, by acceleration or otherwise, subject,
however, in the case of clauses (i) and (ii) above, to the limitations set forth
in Section 9.5. Each Guarantor hereby agrees that its obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Loans or this Agreement, the absence of any action to
enforce the same, any waiver or consent by any of the Lenders with respect to
any provisions hereof or thereof, the recovery of any judgment against the
Borrower, any action to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of a Guarantor.
Each Guarantor hereby waives diligence, presentment, demand of payment, filing
of claims with a court in the event of insolvency or bankruptcy of the Borrower,
any right to require a proceeding first against the
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Borrower, protest, notice and all demands whatsoever and covenants that this
Guarantee will not be discharged except by complete performance of the
obligations contained in the Loans, this Agreement and in this Guarantee. If any
Lender or the Collateral Agent is required by any court or otherwise to return
to the Borrower, any Guarantor, or any custodian, trustee, liquidator or other
similar official acting in relation to the Borrower or any Guarantor, any amount
paid by the Borrower or any Guarantor to the Collateral Agent or such Lender,
this Guarantee, to the extent theretofore discharged, shall be reinstated in
full force and effect. Each Guarantor further agrees that, as between each
Guarantor, on the one hand, and the Lenders and the Collateral Agent, on the
other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Section 7 for the purposes of this Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any acceleration of such obligations as provided in Section 7, such
obligations (whether or not due and payable) shall forthwith become due and
payable by each Guarantor for the purpose of this Guarantee.
9.2 Ranking of Guarantee
The obligations of each Guarantor to the Lenders and to the
Collateral Agent pursuant to the Guarantee of such Guarantor and this Agreement
are expressly senior in right of payment to the Senior Notes and pari passu with
all other Indebtedness of such Guarantor (except that the Guarantee of the
Parent Guarantor is pari passu with its obligations under the Senior Notes).
9.3 Severability
In case any provision of this Guarantee shall be invalid,
illegal or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
9.4 Release of a Guarantor
Upon the sale or disposition (whether by merger, stock
purchase, asset sale or otherwise) of a Guarantor (or all or substantially all
its assets) to an entity which is not a Subsidiary of the Parent Guarantor and
which sale or disposition is otherwise in compliance with the terms of this
Agreement, such Guarantor shall be deemed released from all obligations under
this Section 9 without any further action required on the part of the Collateral
Agent or any Lender; provided, however, that any such termination shall occur
only to the extent that all obligations of such Guarantor under all of its
guarantees of, and under all of its pledges of assets or other security
interests which secure, such Indebtedness of the Borrower shall also terminate
upon such release, sale or transfer.
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The Collateral Agent shall deliver an appropriate instrument
evidencing such release upon receipt of a request by the Parent Guarantor
accompanied by an Officers' Certificate certifying as to the compliance with
this Section 9.4. Any Guarantor not so released remains liable for the full
amount of principal of and interest on the Loans as provided in this Section 9.
9.5 Limitation of Guarantor's Liability
Each Guarantor and by its acceptance hereof each of the
Lenders hereby confirms that it is the intention of all such parties that the
guarantee by such Guarantor pursuant to its Guarantee not constitute a
fraudulent transfer or conveyance for purposes of any Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar Federal or state law. To effectuate the foregoing intention, the Lenders
and such Guarantor hereby irrevocably agree that the obligations of such
Guarantor under the Guarantee shall be limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to Section 9.7, result in the
obligations of such Guarantor under the Guarantee not constituting such
fraudulent transfer or conveyance.
9.6 Guarantors May Consolidate, etc.,
on Certain Terms
(a) Nothing contained in this Agreement or in the Loans shall
prevent any consolidation or merger of a Guarantor with or into the Borrower or
another Guarantor or shall prevent any sale or conveyance of the property of a
Guarantor as an entirety or substantially as an entirety, to the Parent
Guarantor or another Guarantor. Upon any such consolidation, merger, sale or
conveyance, the Guarantee given by such Guarantor shall no longer have any force
or effect.
(b) Except as set forth in Section 6.7, nothing contained in
this Agreement or in the Loans shall prevent any consolidation or merger of a
Guarantor with or into a corporation or corporations other than the Borrower or
another Guarantor (whether or not affiliated with the Guarantor); provided,
however, that, subject to Sections 9.4 and 9.6(a), (i) immediately after such
transaction, and giving effect thereto, no Potential Event of Default or Event
of Default shall have occurred as a result of such transaction and be
continuing, and (ii) upon any such consolidation, merger, sale or conveyance,
the Guarantee of such Guarantor set forth in this Section 9, and the due and
punctual performance and observance of all of the covenants and conditions of
this Agreement to be performed by such Guarantor, shall be expressly assumed (in
the event that the Guarantor is not the surviving corporation in the merger), by
supplemental indenture satisfactory in form to the Collateral Agent, executed
and delivered to the Collateral Agent, by the corporation formed by such
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consolidation, or into which the Guarantor shall have merged, or by the
corporation that shall have acquired such property. In the case of any such
consolidation, merger, sale or conveyance and upon the assumption by the
successor corporation, by supplemental indenture executed and delivered to the
Collateral Agent and satisfactory in form to the Collateral Agent of the due and
punctual performance of all of the covenants and conditions of this Agreement to
be performed by the Guarantor, such successor corporation shall succeed to and
be substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor.
9.7 Contribution
In order to provide for just and equitable contribution among
the Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under its
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount based on the Adjusted Net Assets of each
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Parent
Guarantor's obligations with respect to the Obligations. "Adjusted Net Assets"
of such Guarantor at any date shall mean the lesser of (x) the amount by which
the fair value of the property of such Guarantor exceeds the total amount of
liabilities, including, without limitation, contingent liabilities (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date (other than liabilities of such Guarantor under Subordinated
Indebtedness)), but excluding liabilities under the Guarantee, of such Guarantor
at such date and (y) the amount by which the present fair salable value of the
assets of such Guarantor at such date exceeds the amount that will be required
to pay the probable liabilities of such Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date and after giving effect to any collection from any Subsidiary of such
Guarantor in respect of the obligations of such Subsidiary under the Guarantee),
excluding debt in respect of the Guarantee of such Guarantor, as they become
absolute and matured.
9.8 Waiver of Subrogation
Until the Loans are indefeasibly paid in full, each Guarantor
hereby irrevocably waives any claim or other rights which it may now or
hereafter acquire against the Borrower that arise from the existence, payment,
performance or enforcement of such Guarantor's obligations under its Guarantee
and this Agreement, including, without limitation, any right of subrogation,
reimbursement, exoneration, indemnification, and any right to participate in any
claim or remedy of any Lender against the Borrower, whether or not such claim,
remedy or right arises in equity, or under contract, statute or common law,
including, without limitation, the right to take or receive from the Borrower,
directly or indirectly, in cash or other property or by set-off or in any other
manner, payment or security on account of such claim or other rights. If any
amount shall be paid to any Guarantor in violation of the preceding
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sentence and the Loans shall not have been paid in full, such amount shall be
deemed to have been paid to such Guarantor for the benefit of, and held in trust
for the benefit of, the Lenders, and shall forthwith be paid to the Collateral
Agent for the benefit of such Lenders to be credited and applied upon the Loans,
whether matured or unmatured, in accordance with the terms of this Agreement.
Each Guarantor acknowledges that it will receive direct and indirect benefits
from the financing arrangements contemplated by this Agreement and that the
waiver set forth in this Section 10.8 is knowingly made in contemplation of such
benefits.
9.9 Evidence of Guarantee
To evidence their guarantees to the Lenders set forth in this
Section 9, each of the Guarantors hereby agrees to execute the notation of
Guarantee in substantially the form included in Exhibit VII. Each such notation
of Guarantee shall be signed on behalf of each Guarantor by two Officers, or an
Officer and an Assistant Secretary or one Officer shall sign and one Officer or
an Assistant Secretary (each of whom shall, in each case, have been duly
authorized by all requisite corporate actions) shall attest to such notation of
Guarantee.
9.10 Waiver of Stay, Extension or Usury Laws
Each Guarantor covenants (to the extent that it may lawfully
do so) that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
or any usury law or other law that would prohibit or forgive such Guarantor from
performing its Guarantee as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance of
this Agreement; and (to the extent that it may lawfully do so) each Guarantor
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Collateral Agent, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 10 MISCELLANEOUS
10.1 Representation of the Lenders
Each Lender hereby represents that (i) it is a "qualified
institutional buyer" as defined in Rule 144A under the Securities Act of 1933,
as amended, or an institutional "accredited investor" as defined in
subparagraphs (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act of
1933, as amended, (ii) it will purchase the Notes hereunder for its own account
or for one or more accounts as to each of which it exercises sole investment
discretion, (iii) it does not beneficially own 10% or more of the Parent
Guarantor Common Stock (as beneficial ownership is determined in accordance with
Rule 13d-3 under the Exchange Act), (iv) it has had opportunities to
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ask questions of, and receive answers from, officers and other representatives
of the Parent Guarantor and its Subsidiaries with respect to the business and
financial condition of the Parent Guarantor and its Subsidiaries, to obtain such
additional information concerning the Parent Guarantor and its Subsidiaries as
such Lender has deemed relevant in connection with its investment decision and
such information as such Lender has deemed necessary to verify such information,
(v) it has no intention to transfer the Notes; provided that the disposition of
its property shall at all times be and remain within its control, subject,
however, to compliance with federal and state securities laws, (vi) it
acknowledges that the Notes have not been registered under the Securities Act or
any other applicable securities laws, and unless so registered, may not be
offered, sold or otherwise transferred except in compliance with the
registration requirements of the Securities Act and any other applicable
securities laws, pursuant to an exemption therefrom or in a transaction not
subject thereto, and (vii) it acknowledges that each certificate representing
the Note will contain a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE
"RESALE REGISTRATION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF OR THE ISSUE DATE OF THE BRIDGE
NOTE WHICH WAS CONVERTED INTO THIS NOTE, AS THE CASE MAY BE, AND THE
LAST DATE ON WHICH THE BORROWER OR AN AFFILIATE OF THE BORROWER WAS THE
OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A)
TO THE BORROWER, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE
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MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF SUBPARAGRAPHS
(a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE HAVING AN AGGREGATE
PRINCIPAL AMOUNT OF NOT LESS THAN $250,000, FOR INVESTMENT PURPOSES AND
NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT; AND SUBJECT TO THE BORROWER'S RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE
THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION REASONABLY SATISFACTORY TO IT, AND IN THE CASE OF ANY OF
THE FOREGOING CLAUSES (A)-(F), A CERTIFICATE OF TRANSFER IN FORM
REASONABLY SATISFACTORY TO THE BORROWER IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE BORROWER AND, IN THE CASE OF CLAUSE (E), A
TRANSFEREE LETTER OF REPRESENTATION IN THE FORM ATTACHED TO THIS NOTE
IS COMPLETED AND DELIVERED BY THE TRANSFEREE TO THE BORROWER. THIS
LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.
10.2 Participations in and Assignments
of Loans and Notes
A. Subject to Section 10.1, each Lender shall have the
right at any time to sell, assign, transfer or negotiate all or any portion of
its Notes or its Loan Commitment to one or more commercial lenders or other
financial institutions that are "qualified institutional buyers" or
institutional "accredited investors"; provided that such Person does not
beneficially own (as determined in accordance with Rule 13d-3 under the Exchange
Act) 10% or more of the Parent Guarantor Common Stock and such Person agrees to
be bound by the covenants set forth in this Section 10.2. In the case of any
sale, transfer or negotiation of all or part of the Notes or any Loan Commitment
authorized under this Section 10.2A, the assignee, transferee or recipient shall
become a party to this Agreement as a Lender by execution of an Assignment and
Assumption Agreement; provided that (i) at such time Section 2.1A or 2.2A, as
the case may be, shall be deemed modified to reflect the Loan Commitment of such
new Lender and of the existing Lenders and (ii) upon surrender of the Notes, new
Notes will be issued, at the Borrower's expense, to such new Lender and to the
assigning Lender, such new Notes to be in conformity with the requirements of
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Section 2.1D or 2.2E as the case may be (with appropriate modifications) to the
extent needed to reflect the revised Loan Commitment; and provided, further,
that such transfer or assignment will not be effective until recorded by the
Borrower on the Register pursuant to Section 5.13. To the extent of any
assignment pursuant to this Section 10.2A, the assigning Lender shall be
relieved of its obligations hereunder with respect to its assigned Loan
Commitment, and the assignee, transferee or recipient shall have, to the extent
of such sale, assignment, transfer or negotiation, the same rights, benefits and
obligations as it would if it were a Lender with respect to such Notes or Loan
Commitment, including, without limitation, the right to approve or disapprove
actions which, in accordance with the terms hereof, require the approval of a
Lender. At the time of each assignment pursuant to this Section 10.2A to a
Person which is not already a Lender hereunder and which is not a United States
Person (as such term is defined in Section 7701(a)(30) of the Internal Revenue
Code) for Federal income tax purposes, such Person shall provide to the Parent
Guarantor and the Agent the appropriate Internal Revenue Service Forms described
in Section 10.2E.
B. Each Lender may grant participations in all or any part of
its Notes or its Loan Commitment to one or more commercial lenders or other
financial institutions that are "qualified institutional buyers" as defined in
Rule 144A under the Securities Act of 1933, as amended, or institutional
"accredited investors" as defined in subparagraphs (a)(1), (2), (3) or (7) of
Rule 501 under the Securities Act of 1933, as amended.
C. The Borrower shall, at its own cost and expense, provide
such certificates, acknowledgments and further assurances in respect of this
Agreement and the Loans as any Lender may reasonably require in connection with
any participation, transfer or assignment pursuant to this Section 10.2.
D. Nothing in this Agreement shall prevent or prohibit any
Lender from pledging its Loan and Notes hereunder to a Federal Reserve Bank in
support of borrowings made by such Lender from such Federal Reserve Bank.
E. Each Lender that is an assignee or transferee of an
interest under this Agreement pursuant to Section 10.2A (unless the respective
Lender was already a Lender hereunder immediately prior to such assignment or
transfer) and that is not a United States Person (as such term is defined in
Section 7701(a)(30) of the Internal Revenue Code) agrees to deliver to the
Borrower, on the date of such assignment or transfer to such Lender, (i) two
accurate and complete original signed copies of Internal Revenue Service Form
4224 or 1001 (or successor forms) certifying to such Lender's entitlement to a
complete exemption from United States withholding tax with respect to payments
to be made under this Agreement and under any Note, or (ii) if the Lender is not
a "bank" within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code
and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to
clause (i) above, two accurate and complete original signed copies
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of Internal Revenue Service Form W-8 (or successor form) certifying to such
Lender's entitlement to a complete exemption from United States withholding tax
with respect to payments of interest to be made under this Agreement and under
any Note. In addition, each Lender agrees that, when a lapse in time or change
in circumstances renders the previous certification obsolete or inaccurate in
any material respect, it will deliver to the Borrower two new accurate and
complete original signed copies of Internal Revenue Service Form 4224 or 1001,
or Form W-8, as the case may be, and such other forms as may be required in
order to confirm or establish the entitlement of such Lender to a continued
exemption from or reduction in United States withholding tax with respect to
payments under this Agreement and any Note, or it shall immediately notify the
Borrower of its inability to deliver any such Form or Certificate. Subject to
Section 10.2A and the immediately succeeding sentence, the Parent Guarantor
shall be entitled, to the extent it is required to do so by law, to deduct or
withhold income or similar taxes imposed by the United States (or any political
subdivision or taxing authority thereof or therein) from interest, fees or other
amounts payable hereunder or made on any other Loan Document for the account of
any Lender which is not a United States Person (as such term is defined in
Section 7701(a)(30) of the Internal Revenue Code) for U.S. Federal income tax
purposes to the extent that such Lender has not provided to the Borrower U.S.
Internal Revenue Service Forms that establish a complete exemption from such
deduction or withholding.
10.3 Expenses
Whether or not the transactions contemplated hereby shall be
consummated, the Borrower agrees to promptly pay (i) all the actual and
reasonable out-of-pocket costs and expenses of preparation of the Loan Documents
and all the costs of furnishing all opinions by counsel for the Borrower
(including without limitation any opinions requested by the Lender as to any
legal matters arising hereunder), and of the Borrower's performance of and
compliance with all agreements and conditions contained herein on its part to be
performed or complied with; (ii) the fees, expenses and disbursements of one
firm of outside counsel to the Lenders in connection with the negotiation,
preparation, execution and administration of the Loan Documents and the Loans
hereunder, and any amendments, modifications and waivers hereto or thereto and
consents to departures from the terms hereof and thereof; and (iii) after the
occurrence and during the continuance of an Event of Default, all costs and
expenses (including attorneys fees, including allocated costs of internal
counsel (unless represented by outside counsel), and costs of settlement)
incurred by the Lenders or the Collateral Agent in enforcing any Obligations of
or in collecting any payments due from the Borrower hereunder or under the Notes
by reason of such Event of Default or in connection with any refinancing or
restructuring of the credit arrangements provided under this Agreement in the
nature of a "work-out" or of any insolvency or bankruptcy proceedings.
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10.4 Indemnity
In addition to the payment of expenses pursuant to Section
10.3, whether or not the transactions contemplated hereby shall be consummated,
the Borrower agrees to indemnify, pay and hold each of the Lenders, any holder
of any of the Notes, CIBC/WG and the Collateral Agent, and each of their
officers, directors, employees, agents, and affiliates (collectively called the
"Indemnitees"), harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of one firm of counsel
(plus appropriate local counsel) for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated as a party thereto), which
may be suffered by, imposed on, incurred by, or asserted against that
Indemnitee, in any manner resulting from, connected with, in respect of,
relating to or arising out of this Agreement, the other Loan Documents, the
Lenders' agreements to make the Loans or the use or intended use of any of the
proceeds of the Loans hereunder, the issuance of the Exchange Notes or the
Take-Out Securities or the Transactions (the "indemnified liabilities");
provided, however, that the Borrower shall have no obligation to an Indemnitee
hereunder with respect to indemnified liabilities (i) to the extent such is
finally judicially determined to have resulted solely from (A) the gross
negligence or willful misconduct of that Indemnitee or (B) the failure of such
Indemnitee to perform its obligations under any Loan Document or (C) such
Indemnitee's violation of law or (ii) in connection with the obligations of any
Indemnitee under any Loan Document or for any transfer fees. Without limiting
the generality of the foregoing, the Borrower will (x) indemnify the Collateral
Agent for any payments that the Collateral Agent is required to make under any
indemnity issued to any Lender referred to in Section 4.01(c) of the Security
Agreement, or to any bank referred to in Section 4.02 of the Security Agreement
to which remittances in respect of Accounts, as defined therein, are to be made
and (y) indemnify each Creditor and each other Indemnitee from, and hold each
Creditor harmless against, any Losses described in the preceding sentence (but
excluding, as provided in the preceding sentence, any Loss to the extent
resulting from the gross negligence or bad faith of such Indemnitee) arising
under any Environmental Law as a result of (A) the past, present or future
operations of the Parent Guarantor, the Borrower or any Subsidiary of the Parent
Guarantor (or any predecessor in interest), (B) the past, present or future
condition of any site or facility owned, operated or leased at any time by the
Parent Guarantor, the Borrower or any Subsidiary of the Parent Guarantor (or any
predecessor in interest), or (C) any Release or threatened Release of any
Hazardous Materials at or from any such site or facility, including any such
Release or threatened Release that shall occur during any period when any
Creditor shall be in possession of any such site or facility following the
exercise by such Creditor of any of its rights and remedies hereunder or under
any of the Security Documents. To the extent that the undertaking to indemnify,
pay and hold harmless set forth in the preceding sentence may be unenforceable
because it is violative of any
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law or public policy, the Borrower shall contribute the maximum portion which it
is permitted to pay and satisfy under applicable law to the payment and
satisfaction of all indemnified liabilities incurred by the Indemnitees or any
of them.
10.5 Setoff
In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of any Event of Default, each Lender and
each subsequent holder of any Note is hereby authorized by the Borrower at any
time or from time to time, without notice to the Borrower, or to any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all deposits (general or special, including,
but not limited to, Indebtedness evidenced by certificates of deposit, whether
matured or unmatured but not including trust accounts or any other accounts held
for the benefit of another Person) and any other Indebtedness at any time held
or owing by such Person or that subsequent holder to or for the credit or the
account of the Borrower against and on account of the obligations and
liabilities of the Borrower to such Person or that subsequent holder under this
Agreement and the Notes, including, but not limited to, all claims of any nature
or description arising out of or connected with this Agreement or the Notes,
irrespective of whether or not (a) such Person or that subsequent holder shall
have made any demand hereunder or (b) such Person or that subsequent holder
shall have declared the principal of or the interest on its portion of the Loans
and its Notes and other amounts due hereunder to be due and payable as permitted
by Section 7 and although said obligations and liabilities, or any of them, may
be contingent or unmatured.
10.6 Amendments and Waivers
No amendment, modification, termination or waiver of any term
or provision of this Agreement, of the Notes, any Guarantee or, prior to the
execution and delivery thereof, of the form of the Registration Rights Agreement
or the form of the Senior Secured Indenture or consent to any departure by the
Borrower or any Guarantor therefrom, shall in any event be effective without the
prior written concurrence of the Borrower or such Guarantor, as the case may be,
and the Required Lenders, and, upon the request of any Lender, the receipt of a
written opinion of counsel of the Parent Guarantor (which may be its General
Counsel) addressed to the Lenders to the effect that such amendment,
modification, termination, waiver or consent does not violate or conflict with
any of the terms and provisions of any Contractual Obligation of the Borrower or
such Guarantor, as the case may be; provided, however, that, without the prior
written consent of each Lender affected, an amendment, modification, termination
or waiver of this Agreement, any Notes, any Guarantee, and, prior to the
execution and delivery thereof, of the form of Registration Rights Agreement and
the form of Senior Secured Indenture or consent to departure from a term or
provision hereof or thereof may not: (i) reduce the principal amount of Notes
whose holders must consent to any such amendment,
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modification, termination, waiver or consent; (ii) reduce the rate of or extend
the time for payment of principal or interest on any Note; (iii) reduce the
principal amount of any Note; (iv) make any Note payable in money other than
that stated in the Note; (v) make any change in Section 2.5A(iv) or in the
definition of Change of Control, in the last paragraph of Section 7 or in
Section 10.4, 10.5 or this Section 10.6; or (vi) reduce the rate or extend the
time of payment of fees or other compensation payable to the Lenders hereunder;
and provided, further, that without the consent of the Collateral Agent, no such
amendment, modification, termination or waiver may amend, modify, terminate or
waive any provision of Section 8 as the same applies to the Collateral Agent or
any other provision of this Agreement as it relates to the rights or obligations
of the Collateral Agent. Any waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given. No notice
to or demand on the Parent Guarantor in any case shall entitle the Parent
Guarantor to any further notice or demand in similar or other circumstances. Any
amendment, modification, termination, waiver or consent effected in accordance
with this Section 10.6 shall be binding upon each holder of the Notes at the
time outstanding, each further holder of the Notes, and, if signed by the
Borrower or a Guarantor, on the Borrower and such Guarantor.
10.7 Independence of Covenants
All covenants hereunder shall be given independent effect so
that if a particular action or condition is not permitted by any of such
covenants, the fact that it would be permitted by an exception to, or be
otherwise within the limitation of, another covenant shall not avoid the
occurrence of an Event of Default or Potential Event of Default if such action
is taken or condition exists.
10.8 Entirety
The Loan Documents embody the entire agreement of the parties
and supersede all prior agreements and understandings, if any, relating to the
subject matter hereof and thereof.
10.9 Notices
Unless otherwise provided herein, any notice or other
communications herein required or permitted to be given shall be in writing and
may be personally served, telecopied, telexed or sent by mail and shall be
deemed to have been given when delivered in person, upon receipt of telecopy or
telex against receipt of answer back or two Business Days after depositing it in
the mail, registered or certified, with postage prepaid and properly addressed.
For the purposes hereof, the addresses of the parties hereto (until notice of a
change thereof is delivered as provided in this Section 10.9) shall be set forth
under each party's name on the signature pages hereto and any additional
Guarantors shall (until notice of a change thereof is delivered as
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provided in this Section 10.9) have the address set forth under the Borrower's
name on the signature page hereto.
10.10 Survival of Warranties and Certain Agreements
A. All agreements, representations and warranties made herein
shall survive the execution and delivery of this Agreement, the making of the
Loans hereunder and the execution and delivery of the Notes and, notwithstanding
the making of the Loans, the execution and delivery of the Notes or any
investigation made by or on behalf of any party, shall continue in full force
and effect. The closing of the transactions herein contemplated shall not
prejudice any right of one party against any other party in respect of anything
done or omitted hereunder or in respect of any right to damages or other
remedies.
B. Notwithstanding anything in this Agreement or implied by
law to the contrary, the agreements of the Parent Guarantor set forth in
Sections 10.3, 10.4 and 10.22 shall survive the payment of the Loans and the
Notes and the termination of this Agreement.
10.11 Failure or Indulgence Not Waiver;
Remedies Cumulative
No failure or delay on the part of the Collateral Agent or any
Lender or any holder of any Note in the exercise of any power, right or
privilege hereunder, under a Guarantee, under the Notes or under the Security
Documents shall impair such power, right or privilege or be construed to be a
waiver of any default or acquiescence therein, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing under this Agreement, under a Guarantee or the Notes are
cumulative to and not exclusive of any rights or remedies otherwise available.
10.12 Severability
In case any provision in or obligation under this Agreement,
under a Guarantee or the Notes shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
10.13 Headings
Sections and Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
<PAGE> 118
111
10.14 Applicable Law
THIS AGREEMENT, EACH GUARANTEE AND THE NOTES SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW.
10.15 Successors and Assigns; Subsequent
Holders of Notes
This Agreement shall be binding upon the parties hereto and
their respective successors and assigns and shall inure to the benefit of the
parties hereto and the successors and assigns of the Lenders. The terms and
provisions of this Agreement and each Guarantee shall inure to the benefit of
any permitted assignee or transferee of the Notes pursuant to Section 10.2A, and
in the event of such transfer or assignment, the rights and privileges herein
conferred upon the Lenders shall automatically extend to and be vested in such
permitted transferee or assignee, all subject to the terms and conditions
hereof. Except as provided in Section 10.6, in determining whether the holders
of a sufficient aggregate principal amount of the Loans shall have consented to
any action under this Agreement, any amount of the Loans owned or held by the
Borrower, any Guarantor or any of their respective Affiliates shall be
disregarded. The Borrower's rights or any interest therein hereunder may not be
assigned without the prior express written consent of each of the Lenders.
10.16 Counterparts; Effectiveness
This Agreement and any amendments, waivers, consents or
supplements may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument. This Agreement shall become
effective upon the execution of a counterpart hereof by each of the parties
hereto, and delivery thereof to the Collateral Agent or, in the case of the
Lenders, written telex or facsimile notice or telephonic notification (confirmed
in writing) of such execution and delivery.
10.17 Consent to Jurisdiction; Venue;
Waiver of Jury Trial
A. Any legal action or proceeding with respect to this
Agreement, any Note or any Guarantee may be brought in the courts of the State
of New York or of the United States for the Southern District of New York, and,
by execution and delivery of this Agreement, each of the parties to this
Agreement hereby irrevocably accepts for itself and in respect of its respective
property, generally and
<PAGE> 119
112
unconditionally, the jurisdiction of the aforesaid courts. Each of the parties
to this Agreement hereby further irrevocably waives any claim that any such
courts lack jurisdiction over itself, and agrees not to plead or claim, in any
legal action or proceeding with respect to this Agreement, the Notes or the
Guarantees brought in any of the aforesaid courts, that any such court lacks
jurisdiction over such party. Each of the parties to this Agreement irrevocably
consents to the service of process in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
such party, at its respective address for notices pursuant to Section 10.9, such
service to become effective 30 days after such mailing. To the extent permitted
by law, each of the parties to this Agreement hereby irrevocably waives any
objection to such service of process and further irrevocably waives and agrees
not to plead or claim in any action or proceeding commenced hereunder or under
any Note or any Guarantee that service of process was in any way invalid or
ineffective. Nothing herein shall affect the right of any party to this
Agreement to serve process in any other manner permitted by law or to commence
legal proceedings or otherwise proceed against any party in any other
jurisdiction.
B. Each of the parties to this Agreement hereby irrevocably
waives any objection which it may now or hereafter have to the laying of venue
of any of the aforesaid actions or proceedings arising out of or in connection
with this Agreement, the Notes or the Guarantees brought in the courts referred
to in clause A above and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding brought in
any such court has been brought in an inconvenient forum.
C. Each of the parties to this Agreement hereby irrevocably
waives all right to a trial by jury in any action, proceeding or counterclaim
arising out of or relating to this Agreement, the Notes or the Guarantees or the
transactions contemplated hereby or thereby.
10.18 Sharing of Benefits
Each of the Lenders agrees that, if it should receive any
amount hereunder (whether by voluntary payment, by realization upon security, by
the exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Loan Documents, or otherwise)
which is applicable to the payment of the principal of, or interest on, the
Loans of a sum which with respect to the related sum or sums received by other
Lenders is in a greater proportion than the total of such Obligation then owed
and due to such Lender bears to the total of such Obligation then owed and due
to all of the Lenders immediately prior to such receipt, then such Lender
receiving such excess payment shall purchase for cash without recourse or
warranty from the other Lenders an interest in the Obligations of the Borrower
to such Lenders in such amount as shall result in a proportional participation
by all of the Lenders in such amount; provided that if all or any portion of
such excess amount is thereafter recovered from such
<PAGE> 120
113
Lender, such purchase shall be rescinded and the purchase price restored to the
extent of such recovery, but without interest.
10.19 Taxes and Other Taxes
A. Except as provided in this Section 10.19, any and all
payments by the Borrower hereunder or under any of the other Loan Documents
shall be made free and clear of and without deduction or withholding for any and
all present or future Taxes, excluding (i) in the case of each Lender and the
Collateral Agent, Taxes imposed on its net income and franchise taxes imposed on
it by the jurisdiction under the laws of which such Person is organized or any
political subdivision thereof, (ii) in the case of each such Lender, any Taxes
that are in effect and that would apply to a payment to such Person, as
applicable, as of the Closing Date, and (iii) if any Person acquires any
interest in this Agreement (a "Transferee"), any Taxes to the extent that they
are in effect and would apply to a payment to such Transferee as of the date of
the acquisition of such interest, as the case may be (all such nonexcluded Taxes
being hereinafter referred to as "Covered Taxes"). If the Borrower shall be
required by Law or the administration thereof to deduct or withhold any Covered
Taxes from or in respect of any sum payable hereunder or under any other Loan
Document, (a) unless such requirement results from the failure of the payee to
perform its obligations under Section 10.2E, the sum payable shall be increased
as may be necessary so that after making all required deductions or withholdings
(including deductions or withholdings applicable to additional amounts paid
under this paragraph), the Lender receives an amount equal to the sum it would
have received if no such deduction or withholding had been made; (b) the
Borrower shall make such deductions or withholdings; and (c) the Borrower
forthwith shall pay the full amount deducted or withheld to the relevant
taxation or other authority in accordance with applicable Law.
B. The Borrower agrees to pay forthwith any present or future
stamp documentary taxes or any other excise or property taxes, charges or
similar levies (all such taxes, charges and levies being herein referred to as
"Other Taxes") imposed by any jurisdiction (or any political subdivision or
taxing authority thereof or therein) which arise from any payment made by the
Borrower hereunder or under any of the other Loan Documents or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any of the other Loan Documents.
C. The Borrower agrees to indemnify the Agent and each of the
Lenders for the full amount of Covered Taxes or Other Taxes not deducted or
withheld and paid by the Borrower in accordance with Section 10.19(A) and (B) to
the relevant taxation or other authority and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto, whether or not
any such Covered Taxes or Other Taxes were correctly or legally asserted.
Payment under this indemnification shall be made within 30 days from the date
such Lender makes written demand therefor. A certificate as to the amount of
such Covered Taxes or
<PAGE> 121
114
Other Taxes and evidence of payment thereof submitted to the Borrower shall be
prima facie evidence, absent manifest error, of the amount due from the Borrower
to such Lender.
D. The Parent Guarantor shall furnish to each of the Lenders
the original or a certified copy of a receipt evidencing any payment of Taxes or
Other Taxes made by the Parent Guarantor as soon as such receipt becomes
available.
E. The provisions of this Section 10.19 shall survive the
termination of the Agreement and repayment of all Obligations.
10.20 Waiver of Stay, Extension or Usury Laws
The Borrower and the Guarantors covenant (to the extent that
they may lawfully do so) that they will not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive the
Borrower or the Guarantors from paying all or any portion of the principal of or
interest on the Loans as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance of
this Agreement; and (to the extent that they may lawfully do so) the Borrower
and the Guarantors hereby expressly waive all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Lenders, but will suffer and permit the execution of
every such power as though no such law had been enacted.
10.21 Requirements of Law
(a) In the event that any change in law occurring after the
date that any lender becomes a Lender party to this Agreement with respect to
such Lender shall, in the opinion of such Lender, require that any Bridge Loan
Commitment of such Lender be treated as an asset or otherwise be included for
purposes of calculating the appropriate amount of capital to be maintained by
such Lender or any corporation controlling such Lender, and such change in law
shall have the effect of reducing the rate of return on such Lender's or such
corporation's capital, as the case may be, as a consequence of such Lender's
obligations hereunder to a level below that which such Lender or such
corporation, as the case may be, could have achieved but for such change in law
(taking into account such Lender's or such corporation's policies, as the case
may be, with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time following notice by such Lender to the
Borrower of such change in law as provided in paragraph (b) of this Section
10.21, within 15 days after demand by such Lender, the Borrower shall pay to
such Lender such additional amount or amounts as will compensate such Lender or
such corporation, as the case may be, for such reduction.
<PAGE> 122
115
(b) The Borrower shall not be required to make any payments to
any Lender for any additional amounts pursuant to this Section 10.21 unless such
Lender has given written notice to the Borrower, of its intent to request such
payments prior to or within 60 days after the date on which such Lender became
entitled to claim such amounts. If any Lender requests compensation from the
Parent Guarantor under this Section 10.21, the Borrower may, by notice to such
Lender, suspend the obligation of such Lender thereafter to make or continue
Loans, until the requirement of law giving rise to such request ceases to be in
effect; provided that such suspension shall not affect the right of such Lender
to receive the compensation so requested.
10.22 Confidentiality
Each Lender shall hold all non-public information obtained
pursuant to the requirements of or in connection with this Agreement which has
been identified as confidential by the Borrower in accordance with such Lender's
customary procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices, it being understood and agreed
by the Borrower that in any event a Lender may make disclosures reasonably
required by any bona fide assignee, transferee or participant in connection with
the contemplated assignment or transfer by such Lender of any Loans or any
participation therein or as required or requested by any governmental agency or
representative thereof or pursuant to legal process; provided that unless
specifically prohibited by applicable law or court order, each Lender shall
notify the Borrower of any request by any governmental agency or representative
thereof (other than any such request in connection with any examination of the
financial condition of such Lender by such governmental agency) for disclosure
of any such non-public information prior to disclosure of such information; and
provided, further, that in no event shall any Lender be obligated or required to
return any materials furnished by the Parent Guarantor, the Borrower or any
Subsidiaries of the Parent Guarantor. Each Lender acknowledges that it may from
time to time receive information that would be considered material, non-public
information within the meaning of the federal securities laws and that its use
of such information, if received, will be restricted by such laws as in effect
from time to time. In connection with any sales, assignments or transfers
referred to in Section 10.2A, a Lender shall obtain agreements from the
purchasers, assignees or transferees, as the case may be, reasonably
satisfactory to the Borrower, that such parties will comply with this Section
10.22.
10.23 Role of Special Counsel
The role of Cahill Gordon & Reindel, special counsel to the
Lenders, has been limited to functioning on the Loan Documents and such firm has
not performed a due diligence investigation with respect to the Parent
Guarantor, the Borrower, any Subsidiaries of the Parent Guarantor, the Acquired
Business or their respective affairs.
<PAGE> 123
116
10.24 Joint and Several Liability
Except as otherwise expressly provided herein, the Parent
Guarantor, the Borrower or any Subsidiary of the Parent Guarantor shall be
jointly and severally liable for the performance of all Obligations and
covenants under this Agreement and the Notes.
10.25 Collateral Agent Third Party Beneficiary
Notwithstanding any provision herein to the contrary, the
Collateral Agent is an express third party beneficiary hereof of all provisions
herein relating to the Collateral Agent.
[Signature Pages Follow]
<PAGE> 124
117
WITNESS the due execution hereof by the respective duly
authorized officers of the undersigned as of the date first written above.
BORROWER:
COSMAR CORPORATION
By: /s/ Thomas T.S. Kaung
--------------------------
Name: Thomas T.S. Kaung
Title: Vice President
Notice Address:
c/o Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, NY 10022
Attention: President
Telephone: (212) 751-3700
Telecopy: (212) 371-7868
PARENT GUARANTOR:
RENAISSANCE COSMETICS, INC.
By: /s/ Thomas T.S. Kaung
--------------------------
Name: Thomas T.S. Kaung
Title: Group Vice President
Notice Address:
c/o Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, NY 10022
Attention: President
Telephone: (212) 751-3700
Telecopy: (212) 371-7868
<PAGE> 125
118
SUBSIDIARY GUARANTORS:
DANA PERFUMES CORP.
By: /s/ Thomas T.S. Kaung
----------------------------------
Name: Thomas T.S. Kaung
Title: Group Vice President
Notice Address:
c/o Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, NY 10022
Attention: President
Telephone: (212) 751-3700
Telecopy: (212) 371-7868
GREAT AMERICAN COSMETICS, INC.
By: /s/ Thomas T.S. Kaung
----------------------------------
Name: Thomas T.S. Kaung
Title: Group Vice President
Notice Address:
c/o Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, NY 10022
Attention: President
Telephone: (212) 751-3700
Telecopy: (212) 371-7868
<PAGE> 126
119
HOUBIGANT (1995) LIMITED/
HOUBIGANT (1995) LIMITEE
By: /s/ Thomas T.S. Kaung
---------------------------------
Name: Thomas T.S. Kaung
Title: Group Vice President
Notice Address:
c/o Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, NY 10022
Attention: President
Telephone: (212) 751-3700
Telecopy: (212) 371-7868
MEM COMPANY, INC.
By: /s/ Thomas T.S. Kaung
---------------------------------
Name: Thomas T.S. Kaung
Title: Group Vice President
Notice Address:
c/o Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, NY 10022
Telephone: (212) 751-3700
Telecopy: (212) 371-7868
<PAGE> 127
120
LENDERS:
Commitment: 19,500,000 CIBC WOOD GUNDY SECURITIES CORP.
By: /s/ Illegible
--------------------------
Name:
Title:
Notice Address:
425 Lexington Avenue
New York, New York 10017
Attention:
Telephone: (212) 885-4400
Telecopy: (212) 885-4998
<PAGE> 128
121
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $1,000,000 BT Holdings (New York) Inc.
---------------------------
[NAME OF ENTITY]
By: /s/ Manual J. Schnaidman
---------------------------
Name: Manuel J. Schnaidman
Title: VP
Notice Address:
Telephone:
Telecopy:
<PAGE> 129
122
[Signature Page of Cosmar Corporation Credit Agreement]
STONEHILL INVESTMENT CORP* AND
Commitment: $4,000,000.00 STONEHILL ADVISERS LLC, AS AGENTS
---------------------------------
[NAME OF ENTITY]
By: /s/ John Motulsky
-----------------------------
Name: John Motulsky
Title: VP and Member
Notice Address:
110 East 59th Street - 30th FL.
New York, New York 10022
Telephone: 212-355-5200
Telecopy: 212-644-4264
* For and on behalf of the following managed accounts:
<TABLE>
<CAPTION>
Percentage: Amount:
<S> <C> <C>
Stonehill Partners, L.P. 50% $ 2,000,000.00
GRS Partners III 15% $ 600,000.00
Aurora Limited Partnership 10% $ 400,000.00
Stonehill Offshore Partners Ltd. 25% $ 1,000,000.00
==== ==============
TOTAL 100% $ 4,000,000.00
=====
</TABLE>
<PAGE> 130
123
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $3,500,000 MASSMUTUAL HIGH YIELD
PARTNERS LLC
By: HYP MANAGEMENT, INC.
Its Managing Member
By: /s/ Richard C. Morrison
------------------------------
Name: Richard C. Morrison
Title: Vice President
Notice Address:
Massachusetts Mutual Life
Insurance Company
1295 State Street
Springfield, MA 01111
Attn: Richard Spencer, II
Telephone: (413) 744-6223
Telecopy: (413) 744-6127
<PAGE> 131
124
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $5,000,000 MADELINE, LLC
----------------------------
[NAME OF ENTITY]
By: /s/ Stephen Feinberg
------------------------
Name: Stephen Feinberg
Title: Managing Member
Notice Address:
Michael Hisler
Madeline, LLC
950 Third Avenue, 20th Fl.
New York, NY 10022
Telephone: 212-421-2606
Telecopy: 212-421-2947
<PAGE> 132
125
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $ BEA ASSOCIATES (*AS AGENT*)
------------------------------
[NAME OF ENTITY]
By: /s/ Richard D. Lindquist
------------------------------
Name:
Title:
Notice Address:
Telephone:
Telecopy:
* For And on Behalf of the Following Accounts*
<TABLE>
<CAPTION>
$ Amount
---------
<S> <C>
BEA High Yield Portfolio 250,000
General Retirement System of the City of Detroit 500,000
Northwestern University 250,000
Omaha Public School Employee Retirement System 250,000
RJR Nabisco Domestic High Yield 250,000
Vail 250,000
The Common Fund 500,000
Texaco Inc. 250,000
SEI Institutional Managed Trust 500,000
</TABLE>
<PAGE> 133
126
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $1,800,000.00 MAINSTAY UP SERIES FUND, INC.
on behalf of its HIGH YIELD
CORPORATE BOND FUND PORTFOLIO
By: MacKay-Shields Financial
Corporation
Its: Investment Advisor
By: /s/ Jeffrey B. Platt
-------------------------
Jeffrey B. Platt
Director
Notice Address:
MacKay-Shields Financial
Corporation
9 West 57th Street, 37th Floor
New York, New York 10019
Telephone: (212) 230-3035
Telecopy: (212) 758-4737
<PAGE> 134
127
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $16,700,000.00 THE MAINSTAY FUNDS, on behalf
of its HIGH YIELD CORPORATE
BOND FUND SERIES
By: MacKay-Shields Financial
Corporation
Its: Investment Advisor
By: /s/ Jeffrey B. Platt
-------------------------------
Jeffrey B. Platt
Director
Notice Address:
MacKay-Shields Financial
Corporation
9 West 57th Street, 37th Floor
New York, New York 10019
Telephone: (212) 230-3835
Telecopy: (212) 758-4737
<PAGE> 135
128
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $500,000 BROWN & WILLIAMSON MASTER
RETIREMENT TRUST
By: MacKay-Shields Financial
Corporation
Its: Investment Advisor
By: /s/ Jeffrey B. Platt
------------------------------
Jeffrey B. Platt
Director
Notice Address:
MacKay-Shields Financial
Corporation
9 West 57th Street, 37th Floor
New York, New York 10019
Telephone: (212) 230-3835
Telecopy: (212) 758-4737
<PAGE> 136
129
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $6,000,000 United States Fidelity and Guarantee Co.
----------------------------------------
[NAME OF ENTITY]
By: /s/ Simon A. [Illegible]
------------------------------------
Name: Simon A. [Illegible]
Title: Vice President
Notice Address:
100 Light Street
Baltimore, MD 21202
Telephone: (410) 547-3770
Telecopy: (410) 625-5106
<PAGE> 137
130
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $10,000,000 THE EQUITABLE LIFE ASSURANCE
SOCIETY OF US - NUTMEG
[NAME OF ENTITY]
By: /s/ Nelson Jantzen
--------------------------------
Name: Nelson Jantzen
Title: Investment Officer
Notice Address:
c/o Alliance Capital
1345 Ave. of Americas
38th Floor
New York, NY 10105
Telephone: 212-969-2267
Telecopy: 212-969-1554
<PAGE> 138
131
[Signature Page of Cosmar Corporation Credit Agreement]
THE EQUITABLE LIFE ASSURANCE
Commitment: $5,000,000 SOCIETY OF US - LIFE NON PAR
[NAME OF ENTITY]
By: /s/ Nelson Jantzen
-----------------------------------
Name: Nelson Jantzen
Title: Investment Officer
Notice Address:
c/o Alliance Capital
1345 Ave. of Americas
38th Floor
New York, NY 10105
Telephone: 212-969-2267
Telecopy: 212-969-1554
<PAGE> 139
132
[Signature Page of Cosmar Corporation Credit Agreement]
Dickstein & Co. L.P.
By Dickstein Partner L.P.
Commitment: $1,000,000 By Dickstein Partners Inc.
--------------------------------------
[NAME OF ENTITY]
By: /s/ Mark Kaufman
----------------------------------
Name: Mark Kaufman
Title: Vice President
Notice Address:
Telephone:
Telecopy:
<PAGE> 140
133
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $2,000,000 The Provident Bank
------------------------------------
[NAME OF ENTITY]
By: /s/ Thomas W. Doe
--------------------------------
Name: Thomas W. Doe
Title: VP
Notice Address: One East Fourth Street
MS#216A
Cincinnati, OH 45202
Telephone: (513) 639-4376
Telecopy: (513) 579-2858
<PAGE> 141
134
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $11,000,000 Sun America Inc.
----------------------------------
[NAME OF ENTITY]
By: /s/ Kevin J. Buckle
-------------------------------
Name:
Title: Authorized Agent
Notice Address:
1 Sun America Center
Los Angeles, CA 90067
Attn: Kevin J. Buckle
Telephone: (310) 772-6113
Telecopy: (310) 772-6150
<PAGE> 142
135
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $5,000,000 Anchor National Life Ins. Co.
-----------------------------
[NAME OF ENTITY]
By: /s/ Kevin J. Buckle
-----------------------
Name:
Title: Authorized Agent
Notice Address:
1 Sun America Center
Los Angeles, CA 90067
Attn: Kevin Buckle
Telephone: (310) 772-6116
Telecopy: (310) 772-6150
<PAGE> 143
136
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $5,000,000 Sun America Life Ins. Co.
-------------------------
[NAME OF ENTITY]
By: /s/ Kevin J. Buckle
------------------
Name:
Title: Authorized Agent
Notice Address:
1 Sun America Center
Los Angeles, Ca 90067
Attn: Kevin J. Buckle
Telephone: (310) 772-6113
Telecopy: (310) 772-6150
<PAGE> 144
137
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $4,000,000 Delta Asset Management Corporation
-------------------------------------
[NAME OF ENTITY]
By: /s/ Stephen Zoppello
---------------------------------
Name: Stephen Zoppello
Title: Managing Director
Notice Address:
535 Madison Avenue
New York, NY 10022
Telephone: 212-230-2983
Telecopy: 212-230-1412
<PAGE> 145
138
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $102,596.30 TCW/Crescent Mezzanine Investment Partners, L.P.
[NAME OF ENTITY]
By: /s/ Jean-Marc Chapus
---------------------------------------
Name: Jean-Marc Chapus
Title: President
Notice Address:
John Rocchio
TCW
11100 Santa Monica Boulevard, Suite 2000
Los Angeles, CA 90025
Telephone: (310) 235-5905
Telecopy: (310) 235-5967
<PAGE> 146
139
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $1,142,832.35 TCW/Crescent Mezzanine Trust
-----------------------------------
[NAME OF ENTITY]
By: /s/ Jean-Marc Chapus
-------------------------------
Name: Jean-Marc Chapus
Title: President
Notice Address:
John Rocchio
TCW
11100 Santa Monica Boulevard, Suite 2000
Los Angeles, Ca 90025
Telephone: (310) 235-5905
Telecopy: (310) 235-5967
<PAGE> 147
140
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $3,754,571.35 TCW/Crescent Mezzanine Partners, L.P.
-------------------------------------
[NAME OF ENTITY]
By: /s/ Jean-Marc Chapus
----------------------------------
Name: Jean-Marc Chapus
Title: President
Notice Address:
John Rocchio
TCW
11100 Santa Monica Boulevard, Suite 2000
Los Angeles, Ca 90025
Telephone: (310) 235-5905
Telecopy: (310) 235-5967
<PAGE> 148
141
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $4,500,000.00 TCW shared Opportunity Fund II, L.P.
------------------------------------
[NAME OF ENTITY]
By: TCW Asset Management Group, its
investment advisor
By: /s/ Mark L. Attanasio
---------------------------------
Name: Mark L. Attanasio
Title: Group Managing Director
Notice Address:
John Rocchio
TCW
11100 Santa Monica Boulevard, Suite 2000
Los Angeles, Ca 90025
Telephone: (310) 235-5905
Telecopy: (310) 235-5967
<PAGE> 149
142
[Signature Page of Cosmar Corporation Credit Agreement]
Commitment: $500,000.00 Brown University Third Century Fund
-----------------------------------
[NAME OF ENTITY]
By: /s/ Mark L. Attanasio
-------------------------------
Name: Mark L. Attanasio
Title: Investment Counsel
Notice Address:
John Rocchio
TCW
11100 Santa Monica Boulevard, Suite 2000
Los Angeles, Ca 90025
Telephone: (310) 235-5905
Telecopy: (310) 235-5967
<PAGE> 1
1
EXHIBIT 10.132
BRIDGE NOTE
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE REGISTRATION
TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE
DATE HEREOF OR THE ISSUE DATE OF THE BRIDGE NOTE WHICH WAS CONVERTED INTO THIS
NOTE, AS THE CASE MAY BE, AND THE LAST DATE ON WHICH THE BORROWER OR AN
AFFILIATE OF THE BORROWER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE BORROWER, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE
MEANING OF SUBPARAGRAPHS (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE HAVING AN
AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $250,000, FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION
IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND SUBJECT
TO THE BORROWER'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION REASONABLY SATISFACTORY TO IT, AND IN THE
CASE OF ANY OF THE FOREGOING
<PAGE> 2
2
CLAUSES (A)-(F), A CERTIFICATE OF TRANSFER IN FORM REASONABLY SATISFACTORY TO
THE BORROWER IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE BORROWER AND,
IN THE CASE OF CLAUSE (E), A TRANSFEREE LETTER OF REPRESENTATION IN THE FORM
ATTACHED TO THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEREE TO THE
BORROWER. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.
COSMAR CORPORATION
SENIOR SECURED PROMISSORY NOTE
New York, New York
$ December 4, 1996
----------
FOR VALUE RECEIVED, Cosmar Corporation, a Delaware corporation
(the "Borrower") promises to pay to the order of ("Payee"), on December
4, 1997, the principal amount of Dollars ($ ).
The Borrower also promises to pay interest on the unpaid
principal amount hereof from the date hereof until paid in full at the rates and
at the times which shall be determined in accordance with the provisions of the
Senior Secured Credit Agreement, dated as of December 4, 1996, among the
Borrower, the Guarantors named therein and the Lenders named therein (as the
same may at any time be amended, modified or supplemented and in effect, the
"Credit Agreement") applicable to the Bridge Notes.
This Bridge Note is issued pursuant to and entitled to the
benefits of the Credit Agreement, to which reference is hereby made for a more
complete statement of the terms and conditions under which the Bridge Loan
evidenced hereby was made and is to be repaid. This Bridge Note is also entitled
to the benefits of the Security Documents and the Guarantees. Capitalized terms
used herein without definition shall have the meanings set forth in the Credit
Agreement.
All payments of principal and interest in respect of this
Bridge Note shall be made in lawful money of the United States of America in
same day funds to Payee at its Principal Office, or at such other place as shall
be designated in writing for such purpose in accordance with the terms of the
Credit Agreement. Each of
<PAGE> 3
3
Payee and any subsequent holder of this Bridge Note agrees, by its acceptance
hereof, that before disposing of this Bridge Note or any part hereof it will
make a notation hereon of all principal payments previously made hereunder and
of the date to which interest hereon has been paid; provided, however, that the
failure to make a notation of any payment made on this Bridge Note shall not
limit or otherwise affect the obligation of the Borrower hereunder with respect
to payments of principal or interest on this Bridge Note.
Whenever any payment on this Bridge Note shall be stated to be
due on a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of the payment of interest on this Bridge Note.
This Bridge Note is subject to mandatory prepayment and
redemption as provided in subsection 2.5A(ii) of the Credit Agreement and
prepayment at the option of the Borrower as provided in subsection 2.5A(i) of
the Credit Agreement.
The obligations of the Borrower under this Bridge Note are
guaranteed by the Guarantors as provided in Section 9 of the Credit Agreement.
Attached hereto are endorsements of the Guarantors evidencing the Guarantees.
THE CREDIT AGREEMENT AND THIS BRIDGE NOTE SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW.
Upon the occurrence of an Event of Default, the unpaid balance
of the principal amount of this Bridge Note, together with all accrued but
unpaid interest thereon, may become, or may be declared to be, due and payable
in the manner, upon the conditions and with the effect provided in the Credit
Agreement.
The terms of this Bridge Note are subject to amendment only in
the manner provided in the Credit Agreement.
No reference herein to the Credit Agreement and no provision
of this Bridge Note or the Credit Agreement shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of and
interest on this Bridge Note at the place, at the respective times, and in the
currency herein prescribed.
The Borrower promises to pay all reasonable out-of-pocket
costs and expenses, including all attorneys' fees, all as provided in Section
10.3 of the Credit Agreement, actually incurred in the collection and
enforcement of this Bridge Note. The Borrower and endorsers of this Bridge Note
hereby consent to renewals and extensions of time at or after the maturity
hereof, without notice, and hereby waive
<PAGE> 4
4
diligence, presentment, protest, demand and notice of every kind and, to the
full extent permitted by law, the right to plead any statute of limitations as a
defense to any demand hereunder.
IN WITNESS WHEREOF, the Borrower has caused this Bridge Note
to be executed and delivered by its duly authorized officers, as of the day and
year and at the place first above written.
COSMAR CORPORATION
By:______________________________
Name:
Title:
<PAGE> 5
TRANSACTIONS ON BRIDGE NOTE
Amount of Outstanding
Principal Principal
Paid Balance Notation
Date This Date This Date Made By
- ---- --------- --------- -------
<PAGE> 6
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to elect to have this Bridge Note purchased by the
Borrower pursuant to Section 2.5A(iv) of the Credit Agreement (which relates to
a Change of Control), check the box: [____]
If you wish to elect to have only part of this Bridge Note
purchased by the Borrower pursuant to Section 2.5A(iv) of the Credit Agreement,
state the amount:
$[ ]
Date:__________________ Your Signature:________________________________________
(Sign exactly as
your name appears
on the other side
of this Note)
Signature Guarantee:____________________________________________________________
<PAGE> 7
-1-
TRANSFEREE LETTER OF REPRESENTATION
COSMAR CORPORATION
Ladies and Gentlemen:
In connection with our proposed purchase of $ aggregate
principal amount of Senior Secured Notes (the "Notes") of Cosmar Corporation, a
Delaware corporation (the "Company"):
1. We understand that the Notes have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and may not be
sold except as permitted in the following sentence. We agree on our own behalf
and on behalf of any investor account for which we are purchasing Notes to
offer, sell or otherwise transfer such Notes prior to the date which is three
years after the later of the date of original issue of the Notes or of the
Bridge Notes which were converted into the Notes, as the case may be, and the
last date on which the Company or any affiliate of the Company was the owner of
such Notes (or any predecessor thereto) (the "Resale Restriction Termination
Date") only (a) to the Company, (b) pursuant to a registration statement which
has been declared effective under the Securities Act, (c) for so long as the
Notes are eligible for resale pursuant to Rule 144A under the Securities Act, to
a person we reasonably believe is a qualified institutional buyer under Rule
144A (a "QIB") that purchases for its own account or for the account of a QIB
and to whom notice is given that the transfer is being made in reliance on Rule
144A, (d) pursuant to offers and sales to non-U.S. persons that occur outside
the United States within the meaning of Regulation S under the Securities Act,
(e) to an institutional "accredited investor" within the meaning of
subparagraphs (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act that
is acquiring the Notes for its own account or for the account of such an
institutional "accredited investor" for investment purposes and not with a view
to, or for offer or sale in connection with, any distribution in violation of
the Securities Act and that, if acquiring the Notes from such an institutional
"accredited investor," is acquiring Notes having an aggregate principal amount
of not less than $250,000 or (f) pursuant to any other available exemption from
the registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of our property
or the property of such investor account or accounts be at all times within our
or their control and to compliance with any applicable state securities laws.
The foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Notes is
proposed to be made pursuant to clause (e) above prior to the Resale Restriction
termination Date, the transferor shall deliver a letter from the transferee
substantially in the form of this letter to the Company, which shall provide,
among other things, that the transferee is an institutional "accredited
investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of
<PAGE> 8
-2-
Rule 501 under the Securities Act and that it is acquiring such Notes for
investment purposes and not for distribution in violation of the Securities Act.
Each purchaser acknowledges that the Company reserves the right prior to any
offer, sale or other transfer prior to the Resale Restriction Termination Date
of the Notes pursuant to clauses (d), (e) and (f) above to require the delivery
of any opinion of counsel, certifications and/or other information reasonably
satisfactory to the Company.
2. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
that is acquiring the Notes for our own account or for the account of such an
institutional "accredited investor" (and, if acquiring the Notes from such an
institutional "accredited investor" are acquiring Notes having an aggregate
principal amount of not less than $250,000), and we are acquiring the Notes for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act and have such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of our investment in the Notes, and we and any
accounts for which we are acting are each able to bear the economic risk of our
or its investment.
3. We are acquiring the Notes purchased by us for our own
account or for one or more accounts as to each of which we exercise sole
investment discretion.
4. You are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
By: (NAME OF PURCHASER)
---------------------------
Date:
----------------
Upon transfer the Notes would be registered in the name of the new
beneficial owner as follows:
Name:
------------------------------------
Address:
---------------------------------
Taxpayer ID Number:
----------------------
<PAGE> 1
1
EXHIBIT 10.133
[FORM OF TERM NOTE]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE REGISTRATION
TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE
DATE HEREOF OR THE ISSUE DATE OF THE BRIDGE NOTE WHICH WAS CONVERTED INTO THIS
NOTE, AS THE CASE MAY BE, AND THE LAST DATE ON WHICH THE BORROWER OR AN
AFFILIATE OF THE BORROWER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE BORROWER, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE
MEANING OF SUBPARAGRAPHS (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE HAVING AN
AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $250,000, FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION
IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND SUBJECT
TO THE BORROWER'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION REASONABLY SATISFACTORY TO IT, AND IN THE
CASE OF ANY OF THE FOREGOING
<PAGE> 2
2
CLAUSES (A)-(F), A CERTIFICATE OF TRANSFER IN FORM REASONABLY SATISFACTORY TO
THE BORROWER IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE BORROWER AND,
IN THE CASE OF CLAUSE (E), A TRANSFEREE LETTER OF REPRESENTATION IN THE FORM
ATTACHED TO THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEREE TO THE
BORROWER. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.
COSMAR CORPORATION
SENIOR SECURED PROMISSORY NOTE
New York, New York
$__________ December [ ], 1997
FOR VALUE RECEIVED, Cosmar Corporation, a Delaware corporation
(the "Borrower") promises to pay to the order of ("Payee"), on December
[ ], 2003, the principal amount of Dollars ($ ).
The Borrower also promises to pay interest on the unpaid
principal amount hereof from the date hereof until paid in full at the rates and
at the times which shall be determined in accordance with the provisions of the
Senior Secured Credit Agreement, dated as of December [ ], 1996, among the
Borrower, the Guarantors named therein and the Lenders named therein (as the
same may at any time be amended, modified or supplemented and in effect the
"Credit Agreement") applicable to the Term Notes.
The Borrower may, other than upon any prepayment, repayment,
redemption, repurchase pursuant to Section 2.5A(iv) of the Credit Agreement or
maturity of the Term Loan, pay all or any portion of the interest payable on any
interest payment date in excess of the Maximum Cash Interest Rate by issuance of
Subsequent Term Notes (valued at 100% of the face amount thereof) in an
aggregate principal amount equal to the amount of such excess. Accrued interest
payable on prepayment, repayment, redemption, repurchase pursuant to Section
2.5A(iv) of the Credit Agreement or maturity of the Senior Loan shall be paid
solely in cash.
This Term Note is issued pursuant to and entitled to the
benefits of the Credit Agreement, to which reference is hereby made for a more
complete statement of the terms and conditions under which the Term Loan
evidenced hereby was made
<PAGE> 3
3
and is to be repaid. This Term Note is also entitled to the benefits of the
Security Documents and the Guarantees. Capitalized terms used herein without
definition shall have the meanings set forth in the Credit Agreement.
All payments of principal and interest in respect of this Term
Note shall be made in lawful money of the United States of America in same day
funds to Payee at its Principal Office, or at such other place as shall be
designated in writing for such purpose in accordance with the terms of the
Credit Agreement. Each of Payee and any subsequent holder of this Term Note
agrees, by its acceptance hereof, that before disposing of this Term Note or any
part hereof it will make a notation hereon of all principal payments previously
made hereunder and of the date to which interest hereon has been paid; provided,
however, that the failure to make a notation of any payment made on this Term
Note shall not limit or otherwise affect the obligation of the Borrower
hereunder with respect to payments of principal or interest on this Term Note.
Whenever any payment on this Term Note shall be stated to be
due on a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of the payment of interest on this Term Note.
This Term Note is subject to mandatory prepayment and
redemption as provided in subsection 2.5A(ii) of the Credit Agreement and
prepayment at the option of the Borrower as provided in subsection 2.5A(i) of
the Credit Agreement.
The obligations of the Borrower under this Term Note are
guaranteed by the Guarantors as provided in Section 9 of the Credit Agreement.
Attached hereto are endorsements of the Guarantors evidencing the Guarantees.
THE CREDIT AGREEMENT AND THIS TERM NOTE SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW.
Upon the occurrence of an Event of Default, the unpaid balance
of the principal amount of this Term Note, together with all accrued but unpaid
interest thereon, may become, or may be declared to be, due and payable in the
manner, upon the conditions and with the effect provided in the Credit
Agreement.
The terms of this Term Note are subject to amendment only in
the manner provided in the Credit Agreement.
No reference herein to the Credit Agreement and no provision
of this Term Note or the Credit Agreement shall alter or impair the obligation
of the Borrower, which is absolute and unconditional, to pay the principal of
and interest on
<PAGE> 4
4
this Term Note at the place, at the respective times, and in the currency herein
prescribed.
The Borrower promises to pay all reasonable out-of-pocket
costs and expenses, including all attorneys' fees, all as provided in Section
10.3 of the Credit Agreement, actually incurred in the collection and
enforcement of this Term Note. The Borrower and endorsers of this Term Note
hereby consent to renewals and extensions of time at or after the maturity
hereof, without notice, and hereby waive diligence, presentment, protest, demand
and notice of every kind and, to the full extent permitted by law, the right to
plead any statute of limitations as a defense to any demand hereunder.
IN WITNESS WHEREOF, the Borrower has caused this Term Note to
be executed and delivered by its duly authorized officers, as of the day and
year and at the place first above written.
COSMAR CORPORATION
By:____________________________
Name:
Title:
<PAGE> 5
TRANSACTIONS ON TERM NOTE
Amount of Outstanding
Principal Principal
Paid Balance Notation
Date This Date This Date Made By
- ---- --------- --------- -------
<PAGE> 6
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to elect to have this Term Note purchased by the
Borrower pursuant to Section 2.5A(iv) of the Credit Agreement (which relates to
a Change of Control), check the box: [ ]
If you wish to elect to have only part of this Term Note
purchased by the Borrower pursuant to Section 2.5A(iv) of the Credit Agreement,
state the amount: $[ ]
Date:_____________________ Your Signature:_____________________________________
(Sign exactly as
your name appears
on the other side
of this Term Note)
Signature Guarantee:____________________________________________________________
<PAGE> 7
1
TRANSFEREE LETTER OF REPRESENTATION
COSMAR CORPORATION
Ladies and Gentlemen:
In connection with our proposed purchase of $ aggregate
principal amount of Senior Secured Notes (the "Notes") of Cosmar Corporation, a
Delaware corporation (the "Company"):
1. We understand that the Notes have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and may not be
sold except as permitted in the following sentence. We agree on our own behalf
and on behalf of any investor account for which we are purchasing Notes to
offer, sell or otherwise transfer such Notes prior to the date which is three
years after the later of the date of original issue of the Notes or of the
Bridge Notes which were converted into the Notes, as the case may be, and the
last date on which the Company or any affiliate of the Company was the owner of
such Notes (or any predecessor thereto) (the "Resale Restriction Termination
Date") only (a) to the Company, (b) pursuant to a registration statement which
has been declared effective under the Securities Act, (c) for so long as the
Notes are eligible for resale pursuant to Rule 144A under the Securities Act, to
a person we reasonably believe is a qualified institutional buyer under Rule
144A (a "QIB") that purchases for its own account or for the account of a QIB
and to whom notice is given that the transfer is being made in reliance on Rule
144A, (d) pursuant to offers and sales to non-U.S. persons that occur outside
the United States within the meaning of Regulation S under the Securities Act,
(e) to an institutional "accredited investor" within the meaning of
subparagraphs (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act that
is acquiring the Notes for its own account or for the account of such an
institutional "accredited investor" for investment purposes and not with a view
to, or for offer or sale in connection with, any distribution in violation of
the Securities Act and that, if acquiring the Notes from such an institutional
"accredited investor," is acquiring Notes having an aggregate principal amount
of not less than $250,000 or (f) pursuant to any other available exemption from
the registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of our property
or the property of such investor account or accounts be at all times within our
or their control and to compliance with any applicable state securities laws.
The foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Notes is
proposed to be made pursuant to clause (e) above prior to the Resale Restriction
termination Date, the transferor shall deliver a letter from the transferee
substantially in the form of this letter to the Company, which shall provide,
among other things, that the transferee is an institutional "accredited
investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of
<PAGE> 8
2
Rule 501 under the Securities Act and that it is acquiring such Notes for
investment purposes and not for distribution in violation of the Securities Act.
Each purchaser acknowledges that the Company reserves the right prior to any
offer, sale or other transfer prior to the Resale Restriction Termination Date
of the Notes pursuant to clauses (d), (e) and (f) above to require the delivery
of any opinion of counsel, certifications and/or other information reasonably
satisfactory to the Company.
2. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
that is acquiring the Notes for our own account or for the account of such an
institutional "accredited investor" (and, if acquiring the Notes from such an
institutional "accredited investor" are acquiring Notes having an aggregate
principal amount of not less than $250,000), and we are acquiring the Notes for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act and have such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of our investment in the Notes, and we and any
accounts for which we are acting are each able to bear the economic risk of our
or its investment.
3. We are acquiring the Notes purchased by us for our own
account or for one or more accounts as to each of which we exercise sole
investment discretion.
4. You are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
By: (NAME OF PURCHASER)
-----------------------------
Date:
-------------------
<PAGE> 9
3
Upon transfer the Notes would be registered in the name of the
new beneficial owner as follows:
Name:______________________________________
Address:___________________________________
Taxpayer ID Number:_____________________________
<PAGE> 10
-1-
[GUARANTEE ENDORSEMENTS TO BE ATTACHED]
<PAGE> 1
EXHIBIT 10.134
NOTATION OF GUARANTEE
The undersigned Guarantor (as defined in the Senior Secured
Credit Agreement (the "Credit Agreement") referred to in the Note upon which
this notation is endorsed and hereinafter referred to as the "Guarantor") has
unconditionally guaranteed (such guarantee by the Guarantor being referred to
herein as the "Guarantee") (i) the due and punctual payment of the principal of
and the interest on the Notes, subject to any applicable grace period, whether
at maturity, by acceleration or otherwise, the due and punctual payment of
interest on the overdue principal and interest, if any, on the Notes, to the
extent lawful, and the due and punctual performance of all other obligations of
the Borrower to the Lenders or the Collateral Agent all in accordance with the
terms set forth in the Credit Agreement and (ii) in case of any extension of
time of payment or renewal of any Notes or any of such other obligations, that
the same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, subject to any applicable grace period,
whether at stated maturity, by acceleration or otherwise, subject to the
limitations set forth in the Credit Agreement.
The obligations of the Guarantor to the Lenders and the
Collateral Agent pursuant to the Guarantee and the Credit Agreement are
expressly set forth, in Section 9 of the Credit Agreement, and reference is
hereby made to such Credit Agreement for the precise terms of the Guarantee
therein made.
No past, present or future stockholder, director, officer,
employee or incorporator, as such, of any of the Guarantors shall have any
liability for any obligation of the Guarantors under the Guarantee or the Credit
Agreement or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Lender, by accepting a Note, and the
Collateral Agent, by signing the Security Agreement, waives and releases all
such liability. Such waiver and release are part of the consideration for the
issuance of the Guarantee.
GUARANTOR:
RENAISSANCE COSMETICS, INC.
By: __________________________
Name: Thomas T. S. Kaung
Title: Group Vice President
<PAGE> 1
EXHIBIT 10.135
NOTATION OF GUARANTEE
The undersigned Guarantor (as defined in the Senior Secured
Credit Agreement (the "Credit Agreement") referred to in the Note upon which
this notation is endorsed and hereinafter referred to as the "Guarantor") has
unconditionally guaranteed (such guarantee by the Guarantor being referred to
herein as the "Guarantee") (i) the due and punctual payment of the principal of
and the interest on the Notes, subject to any applicable grace period, whether
at maturity, by acceleration or otherwise, the due and punctual payment of
interest on the overdue principal and interest, if any, on the Notes, to the
extent lawful, and the due and punctual performance of all other obligations of
the Borrower to the Lenders or the Collateral Agent all in accordance with the
terms set forth in the Credit Agreement and (ii) in case of any extension of
time of payment or renewal of any Notes or any of such other obligations, that
the same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, subject to any applicable grace period,
whether at stated maturity, by acceleration or otherwise, subject to the
limitations set forth in the Credit Agreement.
The obligations of the Guarantor to the Lenders and the
Collateral Agent pursuant to the Guarantee and the Credit Agreement are
expressly set forth, in Section 9 of the Credit Agreement, and reference is
hereby made to such Credit Agreement for the precise terms of the Guarantee
therein made.
No past, present or future stockholder, director, officer,
employee or incorporator, as such, of any of the Guarantors shall have any
liability for any obligation of the Guarantors under the Guarantee or the Credit
Agreement or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Lender, by accepting a Note, and the
Collateral Agent, by signing the Security Agreement, waives and releases all
such liability. Such waiver and release are part of the consideration for the
issuance of the Guarantee.
GUARANTOR:
HOUBIGANT (1995) LIMITED/
HOUBIGANT (1995) LIMITEE
By: _________________________
Name: Thomas T. S. Kaung
Title: Vice President
<PAGE> 1
EXHIBIT 10.136
NOTATION OF GUARANTEE
The undersigned Guarantor (as defined in the Senior Secured
Credit Agreement (the "Credit Agreement") referred to in the Note upon which
this notation is endorsed and hereinafter referred to as the "Guarantor") has
unconditionally guaranteed (such guarantee by the Guarantor being referred to
herein as the "Guarantee") (i) the due and punctual payment of the principal of
and the interest on the Notes, subject to any applicable grace period, whether
at maturity, by acceleration or otherwise, the due and punctual payment of
interest on the overdue principal and interest, if any, on the Notes, to the
extent lawful, and the due and punctual performance of all other obligations of
the Borrower to the Lenders or the Collateral Agent all in accordance with the
terms set forth in the Credit Agreement and (ii) in case of any extension of
time of payment or renewal of any Notes or any of such other obligations, that
the same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, subject to any applicable grace period,
whether at stated maturity, by acceleration or otherwise, subject to the
limitations set forth in the Credit Agreement.
The obligations of the Guarantor to the Lenders and the
Collateral Agent pursuant to the Guarantee and the Credit Agreement are
expressly set forth, in Section 9 of the Credit Agreement, and reference is
hereby made to such Credit Agreement for the precise terms of the Guarantee
therein made.
No past, present or future stockholder, director, officer,
employee or incorporator, as such, of any of the Guarantors shall have any
liability for any obligation of the Guarantors under the Guarantee or the Credit
Agreement or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Lender, by accepting a Note, and the
Collateral Agent, by signing the Security Agreement, waives and releases all
such liability. Such waiver and release are part of the consideration for the
issuance of the Guarantee.
GUARANTOR:
DANA PERFUMES CORP.
By: ____________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.137
NOTATION OF GUARANTEE
The undersigned Guarantor (as defined in the Senior Secured
Credit Agreement (the "Credit Agreement") referred to in the Note upon which
this notation is endorsed and hereinafter referred to as the "Guarantor") has
unconditionally guaranteed (such guarantee by the Guarantor being referred to
herein as the "Guarantee") (i) the due and punctual payment of the principal of
and the interest on the Notes, subject to any applicable grace period, whether
at maturity, by acceleration or otherwise, the due and punctual payment of
interest on the overdue principal and interest, if any, on the Notes, to the
extent lawful, and the due and punctual performance of all other obligations of
the Borrower to the Lenders or the Collateral Agent all in accordance with the
terms set forth in the Credit Agreement and (ii) in case of any extension of
time of payment or renewal of any Notes or any of such other obligations, that
the same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, subject to any applicable grace period,
whether at stated maturity, by acceleration or otherwise, subject to the
limitations set forth in the Credit Agreement.
The obligations of the Guarantor to the Lenders and the
Collateral Agent pursuant to the Guarantee and the Credit Agreement are
expressly set forth, in Section 9 of the Credit Agreement, and reference is
hereby made to such Credit Agreement for the precise terms of the Guarantee
therein made.
No past, present or future stockholder, director, officer,
employee or incorporator, as such, of any of the Guarantors shall have any
liability for any obligation of the Guarantors under the Guarantee or the Credit
Agreement or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Lender, by accepting a Note, and the
Collateral Agent, by signing the Security Agreement, waives and releases all
such liability. Such waiver and release are part of the consideration for the
issuance of the Guarantee.
GUARANTOR:
MEM COMPANY, INC.
By: _________________________
Name: Thomas T. S. Kaung
Title: Vice President
<PAGE> 1
EXHIBIT 10.138
NOTATION OF GUARANTEE
The undersigned Guarantor (as defined in the Senior Secured
Credit Agreement (the "Credit Agreement") referred to in the Note upon which
this notation is endorsed and hereinafter referred to as the "Guarantor") has
unconditionally guaranteed (such guarantee by the Guarantor being referred to
herein as the "Guarantee") (i) the due and punctual payment of the principal of
and the interest on the Notes, subject to any applicable grace period, whether
at maturity, by acceleration or otherwise, the due and punctual payment of
interest on the overdue principal and interest, if any, on the Notes, to the
extent lawful, and the due and punctual performance of all other obligations of
the Borrower to the Lenders or the Collateral Agent all in accordance with the
terms set forth in the Credit Agreement and (ii) in case of any extension of
time of payment or renewal of any Notes or any of such other obligations, that
the same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, subject to any applicable grace period,
whether at stated maturity, by acceleration or otherwise, subject to the
limitations set forth in the Credit Agreement.
The obligations of the Guarantor to the Lenders and the
Collateral Agent pursuant to the Guarantee and the Credit Agreement are
expressly set forth, in Section 9 of the Credit Agreement, and reference is
hereby made to such Credit Agreement for the precise terms of the Guarantee
therein made.
No past, present or future stockholder, director, officer,
employee or incorporator, as such, of any of the Guarantors shall have any
liability for any obligation of the Guarantors under the Guarantee or the Credit
Agreement or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Lender, by accepting a Note, and the
Collateral Agent, by signing the Security Agreement, waives and releases all
such liability. Such waiver and release are part of the consideration for the
issuance of the Guarantee.
GUARANTOR:
GREAT AMERICAN COSMETICS, INC.
By: _________________________
Name: Thomas T. S. Kaung
Title: Vice President
<PAGE> 1
1
EXHIBIT 10.139
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of December 4, 1996 among Cosmar
Corporation, a Delaware corporation (the "Borrower"), Renaissance Cosmetics,
Inc., a Delaware corporation (the "Parent Guarantor"), Dana Perfumes Corp.,
Great American Cosmetics, Inc., Houbigant (1995) Limited/Houbigant (1995)
Limitee and MEM Company, Inc. (together with the Parent Guarantor, the
"Guarantors") and CIBC Wood Gundy Securities Corp., as collateral agent for the
lenders or other financial institutions or entities party, as lenders, to the
Credit Agreement referred to below (in such capacity, together with its
successors in such capacity, the "Agent").
The Borrower, the Guarantors and certain lenders are parties
to a Credit Agreement dated as of December [ ], 1996 (as modified and
supplemented and in effect from time to time, the "Credit Agreement"),
providing, subject to the terms and conditions thereof, for extensions of credit
to be made by said lenders to the Borrower.
To induce said lenders to enter into the Credit Agreement and
to extend credit thereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, each Debtor (as
hereinafter defined) has agreed to pledge, mortgage and grant a security
interest in the Pledged Collateral (as hereinafter defined) as security for the
Secured Obligations (as hereinafter defined). Accordingly, the parties hereto
agree as follows:
Section 1. Definitions. Terms defined in the Credit Agreement
are used herein as defined therein. In addition, as used herein:
"Accounts" shall have the meaning ascribed thereto in Section
3(e) hereof.
"Collateral Account" shall have the meaning ascribed thereto
in Section 4.1(a) hereof.
"Contracts" shall mean all contracts, undertakings, or other
agreements, as the same may be amended from time to time, and (a) all rights of
any Debtor to receive moneys due and to become due thereunder or in connection
therewith, (b) all rights of any Debtor to damages arising out of or for breach
or default in respect thereof and (c) all rights of any Debtor to exercise
remedies thereunder, except for any Contract that cannot be assigned by the
Debtor which is a party thereto without the consent of the other party or
parties thereto or which would be breached or violated by the grant of a
security interest therein, provided that the Borrower and each of the Guarantors
shall use their reasonable best efforts to obtain a consent to, or a waiver or
amendment to allow, such assignment promptly after the Closing Date, whereupon
such Contract, as so modified or amended, shall be deemed Pledged Collateral
hereunder.
<PAGE> 2
2
"Copyright Collateral" shall mean all Copyrights, whether now
owned or hereafter acquired by any Debtor, that are material to the condition
(financial or otherwise), business or operations of the Parent Guarantor, the
Borrower and Subsidiaries of Parent Guarantor, taken as a whole, including each
Copyright identified in Annex 2 hereto.
"Copyrights" shall mean all copyrights, copyright
registrations and applications for copyright registrations, including, without
limitation, all renewals and extensions thereof, the right to recover for all
past, present and future infringements thereof, and all other rights of any kind
whatsoever accruing thereunder or pertaining thereto.
"Debtor" shall mean the Borrower and each of the Guarantors.
"Documents" shall have the meaning ascribed thereto in Section
3(k) hereof.
"Equipment" shall have the meaning ascribed thereto in Section
3(i) hereof.
"Instruments" shall have the meaning ascribed thereto in
Section 3(f) hereof.
"Intellectual Property" shall mean, collectively, all
Copyright Collateral, all Patent Collateral and all Trademark Collateral,
together with (a) all inventions, processes, production methods, proprietary
information, know-how and trade secrets; (b) all licenses or user or other
agreements granted to any Debtor with respect to any of the foregoing, in each
case whether now or hereafter owned or used including, without limitation, the
licenses or other agreements with respect to the Copyright Collateral, the
Patent Collateral or the Trademark Collateral, listed in Annex 5 hereto, except
for any license that cannot be assigned by the Debtor which is a party thereto
without the consent of the other party or parties thereto or which would be
breached or violated by the grant of a security interest therein, provided that
the Borrower and each of the Guarantors shall use their reasonable best efforts
to obtain a consent to, or a waiver or amendment to allow, such assignment
promptly after the Closing Date, whereupon such license, as so modified or
amended, shall be deemed Pledged Collateral hereunder; (c) all information,
customer lists, identification of suppliers, data, plans, blueprints,
specifications, designs, drawings, recorded knowledge, surveys, engineering
reports, test reports, manuals, materials standards, processing standards,
performance standards, catalogs, computer and automatic machinery software and
programs; (d) all field repair data, sales data and other information relating
to sales or service of products now or hereafter manufactured; (e) all
accounting information and all media in which or on which any information or
knowledge or data or records may be recorded or stored and all computer programs
used for the compilation or printout of such information,
<PAGE> 3
3
knowledge, records or data; (f) all licenses, consents, permits, variances,
certifications and approvals of governmental agencies now or hereafter held by
any Debtor; and (g) all causes of action, claims and warranties now or hereafter
owned or acquired by the Debtors in respect of any of the items listed above
that in the case of (a) through (g) are material to the condition (financial or
otherwise), business or operations of the Parent Guarantor, the Borrower and the
Subsidiaries of the Parent Guarantor, taken as a whole.
"Inventory" shall have the meaning ascribed thereto in Section
3(g) hereof.
"Issuers" shall mean, collectively, the respective Material
Subsidiaries identified beneath the names of the Debtors on Annex 1 hereto under
the caption "Issuer," together with any corporation created or acquired after
the date hereof that is a Material Subsidiary, the capital stock of which is
required to be pledged hereunder pursuant to the Credit Agreement.
"Motor Vehicles" shall mean motor vehicles, tractors, trailers
and other like property, whether or not the title thereto is governed by a
certificate of title or ownership.
"Patent Collateral" shall mean all Patents, whether now owned
or hereafter acquired by any Debtor that are material to the condition
(financial or otherwise), business or operations of the Parent Guarantor, the
Borrower and the Subsidiaries of the Parent Guarantor, taken as a whole,
including each Patent identified in Annex 3 hereto, excluding, however, the
Patents identified as "Excluded Patents" on said Annex 3.
"Patents" shall mean all patents and patent applications,
including, without limitation, the inventions and improvements described and
claimed therein together with the reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof, all income, royalties, damages and
payments now or hereafter due and/or payable under and with respect thereto,
including, without limitation, damages and payments for past or future
infringements thereof, the right to sue for past, present and future
infringements thereof, and all rights corresponding thereto throughout the
world.
"Pledged Collateral" shall have the meaning ascribed thereto
in Section 3 hereof.
"Pledged Stock" shall have the meaning ascribed thereto in
Section 3(a) hereof; provided that, Pledged Stock shall not include any shares
of capital stock of MEM Company, Inc. so long as it constitutes Margin Stock.
<PAGE> 4
4
"Secured Obligations" shall mean, collectively, (a) the
principal of and interest on the Loans made by the Lenders to, and the Notes
held by each Lender of, the Borrower and all other amounts from time to time
owing to the Creditors by the Borrower under the Loan Documents, (b) all
obligations of any Debtor arising under any Interest Rate Agreement between any
Debtor and any Lender, (c) all obligations of the Guarantors under the Credit
Agreement and the other Loan Documents (including, without limitation, in
respect of their Guarantees under Section 9 of the Credit Agreement) and (d) all
obligations of the Debtors to the Creditors hereunder.
"Special Event of Default" shall mean any Event of Default
that arises pursuant to Section 7.1, 7.3, 7.6 or 7.7 of the Credit Agreement.
"Stock Collateral" shall mean, collectively, the Pledged
Collateral described in clauses (a) through (c) of Section 3 hereof and the
proceeds of and to any such property and, to the extent related to any such
property or such proceeds, all books, correspondence, credit files, records,
invoices and other papers.
"Trademark Collateral" shall mean all Trademarks, whether now
owned or hereafter acquired by any Debtor, that are material to the condition
(financial or otherwise), business or operations of the Parent Guarantor, the
Borrower and Subsidiaries of Parent Guarantor, taken as a whole, including each
Trademark identified in Annex 4 hereto. Notwithstanding the foregoing, the
Trademark Collateral does not and shall not include any Trademark that would be
rendered invalid, abandoned, void or unenforceable by reason of its being
included as part of the Trademark Collateral.
"Trademarks" shall mean all trade names, trademarks and
service marks, logos, trademark and service mark registrations, and applications
for trademark and service mark registrations, including, without limitation, all
renewals of trademark and service mark registrations, all rights corresponding
thereto throughout the world, the right to recover for all past, present and
future infringements thereof, all other rights of any kind whatsoever accruing
thereunder or pertaining thereto, together, in each case, with the product lines
and goodwill of the business connected with the use of, and symbolized by, each
such trade name, trademark and service mark.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect from time to time in the State of New York.
Section 2. Representations and Warranties. Each Debtor
represents and warrants to the Creditors that:
(a) Such Debtor is the sole beneficial owner of the
Pledged Collateral in which it purports to grant a security interest pursuant to
Section 3 hereof and no Lien exists or will exist upon such Pledged Collateral
at any time (and no
<PAGE> 5
5
right or option to acquire the same exists in favor of any other Person) except
for (i) Liens which would not, individually or in the aggregate, have a Material
Adverse Effect, (ii) Liens expressly permitted under Section 6.2 of the Credit
Agreement, and (iii) the pledge and security interest in favor of the Agent for
the benefit of the Lenders created or provided for herein, which pledge and
security interest shall (upon the filing of the financing statements and other
filings delivered by the Borrower pursuant to the Credit Agreement in locations
specified by the Debtors to the Agent or possession of Collateral which is
required for perfection) constitute a first priority perfected pledge and
security interest (except for Liens expressly permitted by Section 6.2 of the
Credit Agreement) in and to all of such Pledged Collateral (other than the
Non-Perfected Collateral subject to compliance with Section 5.15 of the Credit
Agreement).
(b) The Pledged Stock represented by the certificates
identified under the name of such Debtor in Annex 1 hereto is, and all other
Pledged Stock in which such Debtor shall hereafter grant a security interest
pursuant to Section 3 hereof will be, duly authorized, validly existing, fully
paid and non-assessable and none of such Pledged Stock is or will be subject to
any contractual restriction, or any restriction under the charter or by-laws of
the respective Issuer of such Pledged Stock, upon the transfer of such Pledged
Stock (except for any such restriction contained herein or in the Credit
Agreement or as permitted by the Credit Agreement).
(c) The Pledged Stock represented by the certificates
identified under the name of such Debtor in Annex 1 hereto constitutes all of
the issued and outstanding shares of capital stock of any class of the Issuers
beneficially owned by such Debtor on the date hereof or such percentage of the
capital stock of any Issuer created or acquired after the date hereof that is
required to be pledged hereunder pursuant to the Credit Agreement (whether or
not registered in the name of such Debtor) and said Annex 1 correctly
identifies, as at the date hereof, or, with respect to any Issuer created or
acquired after the date hereof, as of the date of pledge hereunder, the
respective Issuers of such Pledged Stock, the respective class and par value of
the shares comprising such Pledged Stock and the respective number of shares
(and registered owners thereof) represented by each such certificate.
(d) As of the date hereof, (x) the Intercompany Notes
delivered to the Collateral Agent on the date hereof constitute all of the
Intercompany Notes of such corporations; and (y) other than the Intercompany
Notes, no Debtor owns, directly or indirectly, any other Intercompany Notes of
any Debtor.
(e) Annexes 2, 3 and 4 hereto, respectively, set
forth under the name of such Debtor a complete and correct list of all
Copyrights, Patents and Trademarks owned by such Debtor on the date hereof, that
are material to the condition (financial or otherwise), business or operations
of the Parent Guarantor, the Borrower and Subsidiaries of Parent Guarantor,
taken as a whole, which have been
<PAGE> 6
6
registered or for which an application for registration has been made; except
pursuant to licenses and other user agreements entered into by such Debtor in
the ordinary course of business, all of which are listed in Annex 5 hereto, on
and as of the date hereof (i) such Debtor owns and possesses the right to use,
and has done nothing to authorize or enable any other Person to use, any
Copyright, Patent or Trademark listed in said Annexes 2, 3 and 4, and (ii) all
registrations listed in said Annexes 2, 3 and 4 are valid and in full force and
effect; and except as may be set forth in said Annex 5, such Debtor owns and
possesses the right to use all such Copyrights, Patents and Trademarks on and as
of the date hereof.
(f) Annex 5 hereto sets forth a complete and correct
list of all licenses and other user agreements included in the Intellectual
Property on the date hereof, that are material to the condition (financial or
otherwise), business or operations of the Parent Guarantor, the Borrower and
Subsidiaries of Parent Guarantor, taken as a whole.
(g) To the best of such Debtor's knowledge, on and as
of the date hereof: (i) except as set forth in Annex 5 hereto, there is no
violation by others of any right of such Debtor with respect to any Copyright,
Patent or Trademark listed in Annexes 2, 3 and 4 hereto, respectively, under the
name of such Debtor and (ii) such Debtor is not infringing in any respect upon
any Copyright, Patent or Trademark of any other Person; and no proceedings have
been instituted or are pending against such Debtor or, to the best of such
Debtor's knowledge, threatened, and no claim against such Debtor has been
received by such Debtor, alleging any such violation, except as may be set forth
in said Annex 5, except with respect to clauses (i) and (ii) where any of the
foregoing could not reasonably be expected to have a Material Adverse Effect.
(h) Any goods now or hereafter produced by such
Debtor or any of its Subsidiaries included in the Pledged Collateral have been
and will be produced in compliance with the requirements of the Fair Labor
Standards Act of 1938, as amended, except where the failure to comply could not
reasonably be expected to have a Material Adverse Effect.
Section 2. Collateral. As collateral security for the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Secured Obligations owing by such Debtor, each Debtor hereby
pledges and mortgages to the Agent, for the benefit of the Creditors as
hereinafter provided, and grants to the Agent, for the benefit of the Creditors
as hereinafter provided, a security interest in, all of such Debtor's right,
title and interest in the following property, whether now owned by such Debtor
or hereafter acquired and whether now existing or hereafter coming into
existence (all being collectively referred to herein as "Pledged Collateral"):
<PAGE> 7
7
(a) the shares of common and/or preferred stock of
the Issuers represented by the certificates identified in Annex 1 hereto under
the name of such Debtor and all other shares of capital stock of whatever class
of the Issuers, now or hereafter owned by such Debtor, in each case together
with the certificates evidencing the same (collectively, the "Pledged Stock");
(b) all shares, securities, moneys or property
representing a dividend on any of the Pledged Stock, or representing a
distribution or return of capital upon or in respect of the Pledged Stock, or
resulting from a split-up, revision, reclassification or other like change of
the Pledged Stock or otherwise received in exchange therefor, and any
subscription warrants, rights or options issued to the holders of, or otherwise
in respect of, the Pledged Stock;
(c) all Intercompany Notes;
(d) without affecting the obligations of such Debtor
under any provision prohibiting such action hereunder or under the Credit
Agreement, in the event of any consolidation or merger in which an Issuer is not
the surviving corporation, all shares of each class of the capital stock of the
successor corporation owned by the Debtors (unless such successor corporation is
such Debtor itself) formed by or resulting from such consolidation or merger;
(e) all accounts and general intangibles (each as
defined in the Uniform Commercial Code) of such Debtor constituting any right to
the payment of money, including (but not limited to) all moneys due and to
become due to such Debtor in respect of any loans or advances or for Inventory
or Equipment or other goods sold or leased or for services rendered, all moneys
due and to become due to such Debtor under any guarantee (including a letter of
credit) of the purchase price of Inventory or Equipment sold by such Debtor and
all tax refunds (such accounts, general intangibles and moneys due and to become
due being herein called collectively "Accounts");
(f) all instruments, chattel paper or letters of
credit (each as defined in the Uniform Commercial Code) of such Debtor
evidencing, representing, arising from or existing in respect of, relating to,
or securing or otherwise supporting the payment of, any of the Accounts,
including (but not limited to) promissory notes, drafts, bills of exchange and
trade acceptances (herein collectively called "Instruments");
(g) all inventory (as defined in the Uniform
Commercial Code) of such Debtor, all goods obtained by such Debtor in exchange
for such inventory, any products made or processed from such inventory including
all substances, if any, commingled therewith or added thereto, and any such
inventory as is temporarily out of such Debtor's custody or possession,
including inventory held by
<PAGE> 8
8
others on consignment, inventory on the premises of others and items in transit
(herein collectively called "Inventory");
(h) all Intellectual Property and all other accounts
(as defined in the Uniform Commercial Code) not constituting Accounts;
(i) all equipment (as defined in the Uniform
Commercial Code) of such Debtor, including all Motor Vehicles (herein
collectively called "Equipment");
(j) all Contracts;
(k) all documents of title (as defined in the Uniform
Commercial Code) or other receipts of such Debtor covering, evidencing or
representing Inventory or Equipment (herein collectively called "Documents");
(l) all rights, claims and benefits of such Debtor
against any Person arising out of, relating to or in connection with Inventory
or Equipment purchased by such Debtor, including, without limitation, any such
rights, claims or benefits against any Person storing or transporting such
Inventory or Equipment;
(m) the balance from time to time in the Collateral
Account; and
(n) all other tangible and intangible personal
property of such Debtor, including, without limitation, all proceeds, products,
offspring, accessions, rents, profits, income, benefits, substitutions and
replacements of and to any of the property of such Debtor described in the
preceding clauses of this Section 3 (including, without limitation, any proceeds
of insurance thereon and all causes of action, claims and warranties now or
hereafter held by any Debtor in respect of any of the items listed above) and,
to the extent related to any property described in said clauses or such
proceeds, products and accessions, all books, correspondence, credit files,
records, invoices and other papers, including without limitation all tapes,
cards, computer runs and other papers and documents in the possession or under
the control of such Debtor or any computer bureau or service company from time
to time acting for such Debtor.
Section 4. Cash Proceeds of Collateral.
4.1 Collateral Account.
(a) There is hereby established with the Agent a cash
collateral account (the "Collateral Account") in the name and under the sole
dominion and control of the Agent into which there shall be deposited from time
to time certain cash proceeds of any of the Pledged Collateral as provided in
Section 4.2 below
<PAGE> 9
9
(including proceeds of insurance covering the Pledged Collateral) and into which
the Debtors may from time to time deposit any additional amounts that any of
them wishes to pledge to the Agent for the benefit of the Lenders as additional
collateral security hereunder.
(b) The balance from time to time in the Collateral
Account shall constitute part of the Pledged Collateral hereunder and shall not
constitute payment of the Secured Obligations until applied as hereinafter
provided. So long as no Special Event of Default has occurred and is continuing,
the Agent shall remit the collected balance outstanding to the credit of the
Collateral Account to or upon the order of the respective Debtor as such Debtor
shall from time to time instruct; provided, however, that any amounts deposited
in the Collateral Account in respect of Casualty Events, Recovery Events,
takings, destructions or loss of title with respect to Mortgaged Real Property
shall be disbursed to the relevant Debtor in periodic installments consistent
with the provisions of Section 2.5A(ii) of the Credit Agreement. However, at any
time following the occurrence and during the continuance of a Special Event of
Default, the Agent may (and, if instructed by the Required Lenders, shall) in
its (or their) discretion apply or cause to be applied (subject to collection)
the balance from time to time outstanding to the credit of the Collateral
Account to the payment of the Secured Obligations in the manner specified in
Section 5.9 hereof. The balance from time to time in the Collateral Account
shall be subject to withdrawal only as provided herein.
(c) If requested by the Borrower and agreed to by any
Lender that is an original Lender, and subject to documentation reasonably
satisfactory to the Agent and such Lender, the Agent shall designate such Lender
as a collateral sub-agent for the Agent in respect of all or any portion of the
Collateral Account and provide written notice to the Borrower of such
designation.
4.2 Proceeds of Accounts. At any time after the
occurrence and during the continuance of an Event of Default, each Debtor shall,
upon the request of the Agent, instruct all account debtors and other Persons
obligated in respect of all Accounts to make all payments in respect of the
Accounts either (a) directly to the Agent (by instructing that such payments be
remitted to a post office box which shall be in the name and under the control
of the Agent) or (b) to one or more other banks in the United States of America
(by instructing that such payments be remitted to a post office box which shall
be in the name and under the control of the Agent) under arrangements, in form
and substance satisfactory to the Agent, pursuant to which such Debtor shall
have irrevocably instructed such other bank (and such other bank shall have
agreed) to remit all proceeds of such payments directly to the Agent for deposit
into the Collateral Account. All payments made to the Agent, as provided in the
preceding sentence, shall be immediately deposited in the Collateral Account. In
addition to the foregoing, each Debtor agrees that, if the proceeds of any
Pledged Collateral hereunder (including the payments made in respect of
Accounts) shall be received by it, such Debtor shall as promptly as possible
deposit such
<PAGE> 10
10
proceeds into the Collateral Account. Until so deposited, all such proceeds
shall be held in trust by such Debtor for and as the property of the Agent and
the Lenders and shall not be commingled with any other funds or property of such
Debtor.
4.3 Investment of Balance in Collateral Account.
Amounts on deposit in the Collateral Account shall be invested from time to time
in such Permitted Investments as the respective Debtor (or, after the occurrence
and during the continuance of an Event of Default, the Agent) shall determine,
which Permitted Investments shall be held in the name and be under the control
of the Agent; provided, however, that at any time after the occurrence and
during the continuance of an Event of Default, the Agent may (and, if instructed
by the Required Lenders, shall) in its (or their) discretion at any time and
from time to time elect to liquidate any such Permitted Investments and to apply
or cause to be applied the proceeds thereof to the payment of the Secured
Obligations in the manner specified in Section 5.9 hereof.
Section 5. Further Assurances; Remedies. In furtherance of
the grant of the pledge and security interest pursuant to Section 3 hereof, the
Debtors hereby jointly and severally agree with each Lender and the Agent as
follows:
5.1 Delivery and Other Perfection. Each Debtor shall:
(a) if any of the above-described shares or
securities (or only if an Event of Default has occurred and is continuing,
moneys or property) required to be pledged by such Debtor under clauses (a),
(b), (c) and (d) of Section 3 hereof are received by such Debtor, forthwith
either (x) transfer and deliver to the Agent such shares or securities so
received by such Debtor (together with the certificates for any such shares and
securities duly endorsed in blank or accompanied by undated stock powers duly
executed in blank), all of which thereafter shall be held by the Agent, pursuant
to the terms of this Agreement, as part of the Pledged Collateral or (y) take
such other action as the Agent shall deem necessary or appropriate to duly
record the Lien created hereunder in such shares, securities, moneys or property
in said clauses (a), (b), (c) and (d);
(b) deliver and pledge to the Agent any and all
Instruments, endorsed and/or accompanied by such instruments of assignment and
transfer in such form and substance as the Agent may request; provided, however,
that so long as no Event of Default shall have occurred and be continuing, such
Debtor may retain for collection in the ordinary course any Instruments received
by such Debtor in the ordinary course of business and the Agent shall, promptly
upon request of such Debtor, make appropriate arrangements for making any other
Instrument pledged by such Debtor available to such Debtor for purposes of
presentation, collection or renewal (any such arrangement to be effected, to the
extent deemed appropriate by the Agent, against trust receipt or like document);
<PAGE> 11
11
(c) give, execute, deliver, file and/or record any
financing statement, notice, instrument, document, agreement or other papers
that may be necessary or desirable (in the judgment of the Agent) to create,
preserve, perfect or validate the security interest granted pursuant hereto or
to enable the Agent to exercise and enforce its rights hereunder with respect to
such pledge and security interest, including, without limitation, after the
occurrence and during the continuance of an Event of Default, causing any or all
of the Stock Collateral to be transferred of record into the name of the Agent
or its nominee; provided, however, that notices to account debtors in respect of
any Accounts or Instruments shall be subject to the provisions of clause (i)
below;
(d) keep full and accurate books and records relating
to the Pledged Collateral, and stamp or otherwise mark all such material books
and records in such manner as the Agent may reasonably require in order to
reflect the security interests granted by this Agreement;
(e) furnish to the Agent upon its request statements
and schedules further identifying and describing the Copyright Collateral, the
Patent Collateral and the Trademark Collateral, respectively, and such other
reports in connection with the Copyright Collateral, the Patent Collateral and
the Trademark Collateral, as the Agent may reasonably request, all in reasonable
detail;
(f) promptly upon request of the Agent, following
receipt by the Agent of any statements, schedules or reports pursuant to clause
(e) above, modify this Agreement by amending Annexes 2, 3 and/or 4 hereto, as
the case may be, to include any Copyright, Patent or Trademark that becomes part
of the Pledged Collateral under this Agreement;
(g) permit representatives of the Agent, upon
reasonable notice, at any time during normal business hours to inspect and make
abstracts from its books and records pertaining to the Pledged Collateral;
(h) upon the occurrence and during the continuance of
any Event of Default, permit representatives of the Agent to be present at such
Debtor's place of business to receive copies of all communications and
remittances relating to the Pledged Collateral, and forward copies of any
notices or communications received by such Debtor with respect to the Pledged
Collateral, all in such manner as the Agent may require; and
(i) upon the occurrence and during the continuance of
any Event of Default, upon request of the Agent, except as otherwise expressly
provided herein, promptly notify (and such Debtor hereby authorizes the Agent so
to notify) each account debtor in respect of any Accounts or Instruments that
such Pledged Collateral has been assigned to the Agent for the benefit of the
Lenders hereunder,
<PAGE> 12
12
and that any payments due or to become due in respect of such Pledged Collateral
are to be made directly to the Agent.
5.2 Other Financing Statements and Liens. Except as
otherwise expressly permitted under Section 6.2 of the Credit Agreement, without
the prior written consent of the Agent (granted with the authorization of the
Required Lenders), no Debtor shall file or suffer to be on file, or authorize or
permit to be filed or to be on file, in any jurisdiction, any financing
statement or like instrument with respect to the Pledged Collateral in which the
Agent is not named as the sole secured party for the benefit of the Lenders.
5.3 Preservation of Rights. The Agent shall not be
required to take steps necessary to preserve any rights against prior parties to
any of the Pledged Collateral.
5.4 Special Provisions Relating to Certain
Collateral.
(a) Stock Collateral.
(1) The Debtors will cause the Pledged Stock to
constitute at all times, with respect to any Issuer existing on the
date hereof, 100% or, with respect to any Issuer created or acquired
after the date hereof, the percentage required by the Credit Agreement
to be pledged hereunder, of the total number of shares of each class of
capital stock of each Issuer then outstanding.
(2) So long as no Event of Default shall have
occurred and be continuing, the Debtors shall have the right to
exercise all voting, consensual and other powers of ownership
pertaining to the Stock Collateral for all purposes not inconsistent
with the terms of this Agreement, the Credit Agreement, the Notes or
any other instrument or agreement referred to herein or therein;
provided, however, that the Debtors jointly and severally agree that
they will not vote the Stock Collateral in any manner that is
inconsistent with the terms of this Agreement, the Credit Agreement,
the Notes or any such other instrument or agreement; and the Agent
shall execute and deliver to the Debtors or cause to be executed and
delivered to the Debtors all such proxies, powers of attorney, dividend
and other orders, and all such instruments, without recourse, as the
Debtors may reasonably request for the purpose of enabling the Debtors
to exercise the rights and powers that they are entitled to exercise
pursuant to this Section 5.4(a).
(3) The Debtors shall be entitled to receive and
retain any dividends on the Stock Collateral to the extent that the
payment of such dividends is permitted by the Credit Agreement.
<PAGE> 13
13
(4) If any Event of Default shall have occurred, then so long
as such Event of Default shall continue, and whether or not the Agent
or any Lender exercises any available right to declare any Secured
Obligation due and payable or seeks or pursues any other relief or
remedy available to it under applicable law or under this Agreement,
the Credit Agreement, the Notes or any other agreement relating to such
Secured Obligation, all dividends and other distributions on the Stock
Collateral shall be paid directly to the Agent and retained by it as
part of the Pledged Collateral, subject to the terms of this Agreement,
and, if the Agent shall so request in writing, the Debtors jointly and
severally agree to execute and deliver to the Agent appropriate
additional dividend, distribution and other orders and documents to
that end; provided, however, that if such Event of Default is cured,
unless the Secured Obligations have been declared or have by their
terms become due and payable, any such dividend or distribution
theretofore paid to the Agent shall, upon request of the Debtors
(except to the extent theretofore applied to the Secured Obligations),
be returned by the Agent to the Debtors.
(b) Intellectual Property.
(1) For the purpose of enabling the Agent, during the
continuance of an Event of Default, to exercise rights and remedies
under Section 5.5 hereof at such time as the Agent shall be lawfully
entitled to exercise such rights and remedies, and for no other
purpose, each Debtor upon the occurrence and during the continuation of
an Event of Default grants to the Agent, to the extent assignable, an
irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to such Debtor) to use, assign, license
or sublicense any of the Intellectual Property now owned or hereafter
acquired by such Debtor, wherever the same may be located, including in
such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer programs
used for the compilation or printout thereof. Any use or license of the
Trademarks will conform to the quality standards previously maintained
by the relevant Debtor.
(2) Notwithstanding anything contained herein to the contrary,
but subject to the provisions of Section 6.6 of the Credit Agreement
that limit the right of the Debtors to dispose of their respective
property, so long as no Event of Default shall have occurred and be
continuing, the Debtors will be permitted to exploit, use, enjoy,
protect, license, sublicense, assign, sell, dispose of or take other
actions with respect to the Intellectual Property in the ordinary
course of the business of the Debtors. In furtherance of the foregoing,
unless an Event of Default shall have occurred and be continuing the
Agent shall from time to time, upon the request of the respective
Debtor, execute and deliver any instruments, certificates or other
documents, in the form so requested, that such Debtor shall have
certified are
<PAGE> 14
14
appropriate (in its judgment) to allow it to take any action permitted
above. Further, upon the payment in full of all of the Secured
Obligations and cancellation or termination of the Commitments or
earlier expiration of this Agreement or release of the Pledged
Collateral, the Agent shall grant back to the Debtors the license
granted pursuant to clause (1) immediately above. The exercise of
rights and remedies under Section 5.5 hereof by the Agent shall not
terminate the rights of the holders of any licenses or sublicenses
theretofore granted by the Debtors in accordance with the first
sentence of this clause (2).
(3) The Agent agrees that it will not exercise any of its
rights and remedies pursuant to Section 5.5 hereof prior to having
received the required consents, if any, under any licensing agreements
to which any Debtor is a party to the exercise of such rights and
remedies.
(c) Motor Vehicles. At any time after the occurrence and
during the continuance of an Event of Default, each Debtor shall, upon the
request of the Agent, deliver to the Agent originals of the certificates of
title or ownership for the Motor Vehicles, and any other Equipment covered by
certificates of title or ownership, owned by it with the Agent listed as
lienholder.
5.5 Events of Default, Etc. During the period during which
an Event of Default shall have occurred and be continuing:
(a) each Debtor shall, at the request of the Agent,
assemble the Pledged Collateral owned by it at such place or places, reasonably
convenient to both the Agent and such Debtor, designated in its request;
(b) the Agent may make any reasonable compromise or
settlement deemed desirable with respect to any of the Pledged Collateral and
may extend the time of payment, arrange for payment in installments, or
otherwise modify the terms, of any of the Pledged Collateral;
(c) the Agent shall have all of the rights and remedies
with respect to the Pledged Collateral of a secured party under the Uniform
Commercial Code (whether or not the Uniform Commercial Code is in effect in the
jurisdiction where the rights and remedies are asserted) and such additional
rights and remedies to which a secured party is entitled under the laws in
effect in any jurisdiction where any rights and remedies hereunder may be
asserted, including, without limitation, the right, to the maximum extent
permitted by law, to exercise all voting, consensual and other powers of
ownership pertaining to the Pledged Collateral as if the Agent were the sole and
absolute owner thereof (and each Debtor agrees to take all such action as may be
appropriate to give effect to such right);
<PAGE> 15
15
(d) the Agent in its discretion may, in its name or in the
name of the Debtors or otherwise, demand, sue for, collect or receive any money
or property at any time payable or receivable on account of or in exchange for
any of the Pledged Collateral, but shall be under no obligation to do so; and
(e) the Agent may, upon ten business days' prior written
notice to the Debtors of the time and place, with respect to the Pledged
Collateral or any part thereof that shall then be or shall thereafter come into
the possession, custody or control of the Agent, the Lenders or any of their
respective agents, sell, lease, assign or otherwise dispose of all or any part
of such Pledged Collateral, at such place or places as the Agent deems best, and
for cash or for credit or for future delivery (without thereby assuming any
credit risk), at public or private sale, without demand of performance or notice
of intention to effect any such disposition or of the time or place thereof
(except such notice as is required above or by applicable statute and cannot be
waived), and the Agent or any Lender or anyone else may be the purchaser,
lessee, assignee or recipient of any or all of the Pledged Collateral so
disposed of at any public sale (or, to the extent permitted by law, at any
private sale) and thereafter hold the same absolutely, free from any claim or
right of whatsoever kind, including any right or equity of redemption (statutory
or otherwise), of the Debtors, any such demand, notice and right or equity being
hereby expressly waived and released. In the event of any sale, assignment, or
other disposition of any of the Trademark Collateral, the goodwill connected
with and symbolized by the Trademark Collateral subject to such disposition
shall be included, and the Debtors shall supply to the Agent or its designee,
for inclusion in such sale, assignment or other disposition, all Intellectual
Property relating to such Trademark Collateral. The Agent may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the sale may be so
adjourned.
The proceeds of each collection, sale or other disposition under this Section
5.5, including by virtue of the exercise of the license granted to the Agent in
Section 5.4(b) hereof, shall be applied in accordance with Section 5.9 hereof.
The Debtors recognize that, by reason of certain prohibitions contained
in the Securities Act of 1933, as amended, and applicable state securities laws,
the Agent may be compelled, with respect to any sale of all or any part of the
Pledged Collateral, to limit purchasers to those who will agree, among other
things, to acquire the Pledged Collateral for their own account, for investment
and not with a view to the distribution or resale thereof. The Debtors
acknowledge that any such private sales may be at prices and on terms less
favorable to the Agent than those obtainable through a public sale without such
restrictions, and, notwithstanding such circumstances, agree that any such
private sale shall be deemed to have been made in a commercially reasonable
manner and that the Agent shall have no obligation to engage in public sales and
no obligation to delay the sale of any Pledged Collateral
<PAGE> 16
16
for the period of time necessary to permit the respective Issuer or issuer
thereof to register it for public sale.
The Agent agrees that any public or private sale of the
Pledged Collateral will be held in a commercially reasonable manner.
5.6 Deficiency. If the proceeds of sale, collection or
other realization of or upon the Pledged Collateral pursuant to Section 5.5
hereof are insufficient to cover the costs and expenses of such realization and
the payment in full of the Secured Obligations, the Debtors shall remain liable
for any deficiency.
5.7 Removals, Name Change, Etc. Without at least 30 days'
prior written notice to the Agent, no Debtor shall (i) maintain any of its books
and records with respect to the Pledged Collateral at any office or maintain its
principal place of business at any place, or permit any Inventory or Equipment
located in the United States to be located anywhere, other than (A) at the
address indicated beneath the signature of the Borrower to the Credit Agreement
or at one of the locations identified in Annex 6 hereto or (B) at the premises
of a Person processing or storing such Inventory or Equipment, unless by the
later of April 30, 1997 or the date upon which such Person first comes into
possession of such Inventory or Equipment, the Debtor shall have taken such
steps as are reasonably requested by the Collateral Agent to perfect the
security interest of the lenders on such Inventory and Equipment (to the extent
it may be perfected) or (C) in transit from one of such locations to another or
(ii) change its corporate name, or the name under which it does business, from
the name shown on the signature pages hereto.
5.8 Private Sale. No Creditors shall incur liability as a
result of the sale of the Pledged Collateral, or any part thereof, at any
private sale pursuant to Section 5.5 hereof conducted in a commercially
reasonable manner. Each Debtor hereby waives any claims against any Creditor
arising by reason of the fact that the price at which the Pledged Collateral may
have been sold at any such private sale held in a commercially reasonable manner
was less than the price that might have been obtained at a public sale or was
less than the aggregate amount of the Secured Obligations, even if the Agent
accepts the first offer received and does not offer the Pledged Collateral to
more than one offeree.
5.9 Application of Proceeds. Except as otherwise herein
expressly provided and except as provided below in this Section 5.9, the
proceeds of any collection, sale or other realization of all or any part of the
Pledged Collateral pursuant hereto, and any other cash at the time held by the
Agent under Section 4 hereof or this Section 5, shall be applied by the Agent:
First, to the payment of the reasonable costs and expenses of
such collection, sale or other realization, including reasonable
out-of-pocket costs and expenses of the Agent and the fees and expenses
of its agents and counsel,
<PAGE> 17
17
and all expenses incurred and advances made by the Agent in connection
therewith;
Next, to the payment in full of the Secured Obligations, in
each case equally and ratably in accordance with the respective amounts
thereof then due and owing or as the Lenders holding the same may
otherwise agree; and
Finally, to the payment to the respective Debtor, or its
successors or assigns, or as a court of competent jurisdiction may
direct, of any surplus then remaining.
As used in this Section 5, "proceeds" of Pledged Collateral shall mean cash,
securities and other property realized in respect of, and distributions in kind
of, Pledged Collateral, including any thereof received under any reorganization,
liquidation or adjustment of debt of the Debtors or any issuer of or obligor on
any of the Pledged Collateral.
5.10 Attorney-in-Fact. Without limiting any rights or
powers granted by this Agreement to the Agent while no Event of Default has
occurred and is continuing, upon the occurrence and during the continuance of
any Event of Default the Agent is hereby appointed the attorney-in-fact of each
Debtor for the purpose of carrying out the provisions of this Section 5 and
taking any action and executing any instruments that the Agent may deem
reasonably necessary or advisable to accomplish the purposes hereof, which
appointment as attorney-in-fact is irrevocable and coupled with an interest.
Without limiting the generality of the foregoing, upon and during the
continuance of any Event of Default, so long as the Agent shall be entitled
under this Section 5 to make collections in respect of the Pledged Collateral,
the Agent shall have the right and power to receive, endorse and collect all
checks made payable to the order of any Debtor representing any dividend,
payment or other distribution in respect of the Pledged Collateral or any part
thereof and to give full discharge for the same.
5.11 Perfection. Prior to or concurrently with the
execution and delivery of this Agreement, each Debtor shall (i) initiate the
filing of such financing statements and other documents in such offices as the
Agent may reasonably request to perfect the security interests granted by
Section 3 of this Agreement with respect to the Collateral other than the
Non-Perfected Collateral, (ii) deliver to the Agent all certificates identified
in Annex 1 hereto, accompanied by undated stock powers duly executed in blank
and (iii) deliver to the Agent all Intercompany Notes required to be delivered
pursuant to the Credit Agreement. With respect to the Non-Perfected Collateral,
each Debtor will comply with Section 5.15 of the Credit Agreement.
5.12 Termination. When all Secured Obligations shall have
been paid in full and the Commitments of the Lenders under the Credit Agreement
<PAGE> 18
18
shall have expired or been terminated, this Agreement shall terminate, and the
Agent shall forthwith cause to be assigned, transferred and delivered, against
receipt but without any recourse, warranty or representation whatsoever, any
remaining Pledged Collateral and money received in respect thereof, to or on the
order of the respective Debtor and to be released and canceled all licenses and
rights referred to in Section 5.4(b) hereof. The Agent shall also execute and
deliver to the respective Debtor upon such termination or upon the sale or other
disposition of Property permitted by Section 6.5, 6.6 or 6.14 of the Credit
Agreement such Uniform Commercial Code termination statements, certificates for
terminating the Liens on the Motor Vehicles and such other documentation as
shall be reasonably requested by the respective Debtor to effect the termination
and release of the Liens on the Pledged Collateral.
5.13 Expenses. The Debtors jointly and severally agree to
pay to the Agent all reasonable out-of-pocket expenses (including expenses for
legal services of every kind) of, or incident to, the enforcement of any of the
provisions of this Section 5, or performance by the Agent of any obligations of
the Debtors in respect of the Pledged Collateral which the Debtors have failed
or refused to perform, or any actual or attempted sale, or any exchange,
enforcement, collection, compromise or settlement in respect of any of the
Pledged Collateral, and for the care of the Pledged Collateral and defending or
asserting rights and claims of the Agent in respect thereof, by litigation or
otherwise, including expenses of insurance, and all such expenses shall be
Secured Obligations to the Agent secured under Section 3 hereof.
5.14 Further Assurances. Each Debtor agrees that, from
time to time upon the written request of the Agent, such Debtor will execute and
deliver such further documents and do such other acts and things as the Agent
may reasonably request in order fully to effect the purposes of this Agreement.
Section 6. Miscellaneous.
6.1 No Waiver. No failure on the part of the Agent or any
of its agents to exercise, and no course of dealing with respect to, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by the Agent or any of
its agents of any right, power or remedy hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies herein are cumulative and are not exclusive of any remedies provided by
law.
6.2 Governing Law. This Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the State of New York
without regard to the principles of conflicts of law.
<PAGE> 19
19
6.3 Notices. All notices, requests, consents and demands
hereunder shall be in writing and telecopied or delivered to the intended
recipient at as specified pursuant to the Credit Agreement and shall be deemed
to have been given at the times specified in the Credit Agreement.
6.4 Waivers, Etc. The terms of this Agreement may be
waived, altered or amended only by an instrument in writing duly executed by
each Debtor and the Agent (with the consent of the Required Lenders). Any such
amendment or waiver shall be binding upon each Creditor, each holder of any of
the Secured Obligations and each Debtor.
6.5 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the respective successors and assigns
of each Debtor, the Creditors and each holder of any of the Secured Obligations
(provided, however, that no Debtor shall assign or transfer its rights or
obligations hereunder without the prior written consent of the Creditors).
6.6 Captions. The captions and section headings appearing
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
6.7 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
6.8 Agents. The Agent may employ agents and attorneys-in-
fact in connection herewith and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it in good faith.
6.9 Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Creditors in order
to carry out the intentions of the parties hereto as nearly as may be possible
and (ii) the invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
<PAGE> 20
20
[Signature Page Follows]
<PAGE> 21
21
IN WITNESS WHEREOF, the parties hereto have caused this
Security Agreement to be duly executed and delivered as of the day and year
first above written.
COSMAR CORPORATION
By:________________________________
Name:
Title:
RENAISSANCE COSMETICS, INC.
By:________________________________
Name:
Title:
DANA PERFUMES CORP.
By:________________________________
Name:
Title:
GREAT AMERICAN COSMETICS, INC.
By:________________________________
Name:
Title:
HOUBIGANT (1995) LIMITED/
HOUBIGANT (1995) LIMITEE
By:________________________________
Name:
Title:
<PAGE> 22
22
MEM COMPANY, INC.
By:________________________________
Name:
Title:
CIBC WOOD GUNDY SECURITIES
CORP.,
as Agent
By:________________________________
Name:
Title:
<PAGE> 23
ANNEX 1
PLEDGED STOCK
[See Section 2(b)]
BORROWER
- --------
Certificate Registered
Issuer No. Owner Number of Shares
------ ----------- ---------- -----------------
GUARANTORS
- ----------
Certificate Registered
Issuer No. Owner Number of Shares
------ ----------- ---------- ----------------
<PAGE> 1
1
EXHIBIT 10.141
LICENSE AND CONSULTANT AGREEMENT
THIS LICENSE AND CONSULTANT AGREEMENT ("Agreement") is made
and entered into as of the 25th day of January 1991, by and between THE NAIL
CONSULTANTS, LTD., an Arizona corporation ("Licensor"), and COSMAR CORPORATION,
a California corporation ("Cosmar").
RECITALS
A. Renee Resler (formerly known as Renee Weisberg), together
with Lawrence J. Krebaum, are the inventors of certain compositions and a
process for applying a protective covering and extensions to fingernails, which
inventions are the subject of United States Patent Numbers 4,626,428 and
4,669,491 ("Patents"). Mr. Krebaum assigned all of his right, title and interest
in and to the Patents to Ms. Resler by an Assignment dated February 15, 1985, a
true and complete copy of which has previously been delivered to Cosmar. Resler
has granted an exclusive license with respect to the Patents to Licensor
pursuant to a License Agreement dated June 26, 1957, a true and complete copy of
which has previously been delivered to Cosmar. Said license agreement grants
Licensor the right to grant sublicenses under the Patents.
B. Cosmar is engaged in the design, development, manufacture
and sale worldwide of artificial fingernail products under various registered
trademarks, including "Press & Go", "Sculpture Quick", and "Quick Fit", as well
as under numerous private label brands. Cosmar presently markets and sells its
own proprietary acrylic nail kit under the registered trademark "Sculpture
Quick", and would like to incorporate and use certain procedures and
compositions claimed in the Patents, without further mixing or other
modification by Cosmar, in a new product kit to be packaged and marketed by
Cosmar under its own name.
C. Subject to the terms and conditions of this Agreement,
Cosmar desires to acquire the exclusive, worldwide right and license to use and
package, and to sell and have sold to the Licensed Markets (as hereinafter
defined), the compositions and process claimed in the Patents, referred to
separately as the "Licensed Products" and "Patented Process" respectively, and
collectively as "Licensed Property," and to obtain Licensor's know-how and
assistance with respect to packaging, storing and marketing same.
<PAGE> 2
2
AGREEMENT
In consideration of the foregoing and of the mutual covenants,
conditions and agreements hereinafter contained, the parities hereto agree as
follows:
1. Certain Definitions.
Except as otherwise expressly provided or unless the context
otherwise requires, the definitions of the terms set forth below shall be
applicable when any such term is used in this Agreement.
1.1 "Licensed Markets" shall mean mass merchandisers
(including, without limitation, K-Mart, Walmart and Target Stores); grocery and
discount-grocery stores and chains; drug and discount-drug stores and chains;
perfumery stores in Europe; subject to the reservation of rights in Licensor set
forth in Section 2.3, department and discount-department stores and chains;
government "PX" stores, any combination of the foregoing; and any rack jobbers
or distributors who sell to the foregoing.
1.2 "Net Sale Price" shall mean the greater of (a)
Cosmar's total charges billed to a customer for Licensed Product defined in
Section 4.1 or product incorporating Licensed Product, as invoiced consistent
with Cosmar's standard pricing and billing practices; or (b) 45% of Cosmar's and
its affiliates' suggested retail price for Licensed Product sold domestically
and 35% of Cosmar's and its affiliates' suggested retail price for Licensed
Product sold internationally, as the case may be. In no event shall the "Net
Sales Price" be less than $3.96 on domestic sales and $2.45 on international
sales. Licensed Product or product incorporating Licensed Product returned by
and credited by Cosmar to the account of a customer shall reduce "Net Sale
Price" by the same amount of the "Net Sale Price" of such Licensed Product
determined in accordance with the preceding sentence.
1.3 "Product Royalty" shall have the meaning set
forth in Section 5.1.
1.4 "Royalty Year" shall mean a twelve (12) month
period starting on June 1 and ending on May 31 of the following year, with the
first Royalty Year commencing on June 1, 1991.
2. Grant of Exclusive License.
2.1 Subject to the terms and conditions set forth
herein, Licensor hereby grants to Licensee the exclusive, worldwide right and
license to use and package and have packaged, and to sell and have sold to the
Licensed Markets, the Licensed Products, and to use them in accordance with the
Patented Process. The right and license granted herein, subject to the terms and
conditions expressed herein, are
<PAGE> 3
3
understood to extend not only to Cosmar, but to any or all of its related
corporations, or organizations, including without limitation, Precision Molded
Plastics, Inc., and with respect to Cosmar's customers who, directly or
indirectly, purchase Licensed Product from it, the aforesaid right and license
to use and sell the same shall extend to such customers, including Cosmar's
distributors; provided, however, that fulfillment of all obligations hereunder,
including requirements for reports and the payment of royalties, shall be by or
through Cosmar. Cosmar will use reasonable efforts to distribute and market its
new product kit containing the Licensed Property.
2.2 The exclusive right and license herein granted
shall include all inventions, improvements, enhancements and modifications to
the Licensed Products and the Patented Process whether any such inventions,
improvements, enhancements or modifications are patented or kept as trade
secrets, made or conceived during the term of this Agreement, which Licensor
owns or controls or hereafter owns or controls, and all patent applications and
patents based on or claiming the same which Licensor now owns or controls or
hereafter owns or controls ("Improvements"), all of which shall automatically be
included within the meaning and scope of the terms "Licensed Property" and
"Patents", as used herein.
2.3 The exclusive right and license granted hereby is
subject to this express reservation of right in favor of Licensor to make, use,
package and sell, directly or indirectly, by licensing or otherwise authorizing
a third party to do any of the foregoing, Licensed Property to any department or
discount-department store and chain.
3. General Assistance and Consulting.
From and after the date hereof, Licensor, at Cosmar's written
request from time-to-time, shall, at no cost or expense to itself, use its
reasonable best efforts on a timely basis to do reasonable things known or
available to it and reasonably necessary or desirable to assist Cosmar in
preparing to introduce the Licensed Product and entering into quantity marketing
and sale of same, for which services Cosmar agrees to pay monthly at the rate of
$80.00 per hour for Resler's time. Without any hourly charge as aforesaid,
however, Licensor shall furnish Cosmar with all of Licensor's knowledge
concerning shelf-life and storage regarding the Licensed Products, and shall
review the consumer instructions for use of the Licensed Property to be
developed, written and owned by Cosmar.
4. Supply of Licensed Products.
4.1 The Licensed Products comprise the following
three proprietary compositions: 1. an acrylic liquid or brush-on plastic
("Liquid"); 2. an acrylic powder ("Powder"); and 3. a liquid primer or bonder
("Primer"). The Liquid, Powder and Primer are sometimes hereinafter individually
or collectively called the "Licensed Product" or the "Licensed Products", as the
context may require.
<PAGE> 4
4
4.2 From and after the date hereof, and upon the
terms and subject to the conditions hereof, any and all of Cosmar's requirements
for the Licensed Products shall be supplied solely by Licensor, and Cosmar
shall, subject to Section 11.4 hereof, purchase all of its requirements for the
Licensed Products from Licensor. Licensor agrees to supply all of Cosmar's
requirements with respect to the Licensed Products. Neither Licensor nor any
affiliate or associate of Licensor, shall supply, directly or indirectly, the
Licensed Products to any person or company other than Cosmar for sale in or to
the Licensed Markets. Neither Cosmar nor any affiliate or associate of Cosmar
shall sell, directly or indirectly, any other product if such other product
infringes upon the Patents. Commencing with its first purchase order, Cosmar
shall furnish to Licensor a 90-day forecast of Cosmar's anticipated requirements
for Licensed Product, which forecast shall be updated monthly thereafter by
Cosmar.
4.3 Unless and until increased as provided below, the
purchase prices for the Licensed Products shall be as follows:
<TABLE>
<CAPTION>
Product Price
------- -----
<S> <C>
Powder $11.00 per pound
Liquid $95.00 per gallon
Primer $80.00 per gallon
</TABLE>
The purchase price set forth above are based upon, and all Licensed Products
shall be ordered in five (5) gallon container quantities. Commencing on the
first anniversary of the first Royalty Year and on each anniversary thereafter,
the above purchase prices may be increased upon 90 days' advance written notice
from Licensor to Cosmar. The amount of the increase, if any, shall be equal to
and based on the greater of (i) Licensor's increased bulk quantity raw material
costs, over such costs on the date hereof, for any of the Licensed Products, and
(ii) any increase in the national consumer price index ("CPI") published by the
United States Government (or any successor or comparable index), using December
31, 1990 as the reference or base index. Licensor shall furnish to Cosmar,
together with any notice of price increases evidence reasonably satisfactory to
Cosmar regarding the basis for any price increase and the computation thereof.
For any Royalty Year, for example, a price increase for one of the Licensed
Products may be based on an increase in raw material costs, whereas a price
increase for the second and third Licensed Products may be based on an increase
in the CPI.
4.4 From time to time during the term of this
Agreement, as Cosmar may require, Cosmar shall place orders for the Licensed
Products. Any order placed by telephone shall be confirmed in writing within 48
hours. Upon placement of each effective written order for the Licensed Products,
Cosmar shall pay fifty percent (50%) of the total purchase price. Payment shall
be made either by bank check or by wire transfer, payable to Licensor. The
balance of the purchase price shall be paid within 10 days after Licensor
invoices the shipment of Licensed Products ordered.
<PAGE> 5
5
4.5 The Licensed Products shall be delivered to
Cosmar F.O.B. shipping point, which shipping point shall be at Licensor's place
of business, which is currently in Phoenix, Arizona, or Illinois, in the case of
the Powder. Title to the Licensed Products shall pass to Cosmar upon delivery to
the carrier, and Licensor shall have no liability for any damage to or loss of
the Licensed Products after the Licensed Products are delivered to the carrier
with which the Licensed Products are shipped. If Cosmar so desires, Cosmar shall
be responsible for obtaining insurance to cover the risk of loss or damage to
the Licensed Products from and after the time Licensor delivers the goods to the
carrier.
4.6 The anticipated date of shipment of all Licensed
Products ordered hereunder is within 30 days following the date Licensor
receives an order for such goods. Licensor shall use its best efforts to meet
this schedule. In any event, Licensor shall ship all Licensed Products ordered
hereunder within 60 days following the date Licensor receives the order, the
specific shipment date to be confirmed by Licensor to Cosmar within 10 days
after the order is placed. Subject to Section 4.9, if at any time during the
term hereof Licensed Products are not delivered within 60 days following receipt
of any order, Licensor shall have ninety more days within which to either
deliver all then delinquent Licensed Products or enter into an agreement with a
third party reasonably acceptable to Cosmar (which may be Resler, who is
acceptable to Cosmar), which third party shall by written agreement of
assignment and assumption agree to perform all of Licensor's obligations
hereunder ("New Supplier"). If within the aforementioned ninety day period
Licensor has not delivered all then delinquent Licensed Product orders or
appointed a New Supplier who has delivered all the Licensed Product within said
90 days as aforesaid, then Cosmar shall immediately thereupon have the right to
manufacture or cause to have manufactured for its account the Licensed Products
(or equivalents). Licensor shall use its best efforts, on an urgent basis, (i)
to deliver to Cosmar true and complete copies of all formulas and the names and
addresses of all suppliers and all other commercially useful information
regarding the Licensed Products, and (ii) to do all other things necessary or
desirable to facilitate Cosmar's immediate entry into and continued production
of Licensed Products for its own account. In addition, from and after such time
any and all obligations of Cosmar under Sections 4.2, 4.3, 4.4, 4.5 and 4.10
shall be suspended, and any and all obligations of Licensor under Sections 4.2,
4.3, 4.4, 4.5 and the first four sentences of this Section 4.6 shall be
suspended, all subject to reinstatement as hereinafter provided. If at any time
after Cosmar has commenced the manufacture of Licensed Products pursuant to
Section 4.6, Resler or Licensor desire to reinstate the obligations of Cosmar
under Section 4 hereof, then Resler or Licensor shall have the right to do so
upon ninety days' written notice to Cosmar. In lieu of furnishing this 90-day
notice, Resler or Licensor may reinstate Cosmar's obligations immediately upon
(a) delivery to Cosmar of written assurances reasonably satisfactory to Cosmar
of Resler or Licensor, as the case may be, as to the assumption of and
performance by the assuring party of all of Cosmar's obligations with respect to
the delivery of Licensed Products, including unfilled purchase orders, and (b)
the cash purchase and payment by the assuring party of all equipment and the
like purchased by Cosmar for the purpose of or used by Cosmar in the manufacture
of
<PAGE> 6
6
Licensed Products. The purchase price for all of said property shall be Cosmar's
depreciated cost. Reinstatement of Cosmar's obligations hereunder shall be
subject to the concurrent reinstatement of Licensor's obligations hereunder.
Trade secret and other confidential information disclosed hereunder to Cosmar
will be maintained in strictest confidence and will be used only as contemplated
hereby.
4.7 Except as hereinafter provided, Licensor
represents, covenants and agrees that all quantities of Licensed Products shall
be free from defects in material, manufacturing and packaging at the point of
delivery and shall indemnify Cosmar from and against any and all claims,
demands, actions or causes of action of any kind or nature whatsoever concerning
personal injury and/or property damages arising from any such defect. Should
Cosmar be named as a party in any such action then Licensor shall also indemnify
Cosmar for all of its reasonable costs and expenses in defending any such
action. The foregoing representations, warranties and indemnifications shall not
apply if or with respect to, as appropriate: (i) the Licensed Products have been
subjected to misuse, negligence or accident as a result of any act or omission
of Cosmar; (ii) the Licensed Products shall not be used in accordance with
Licensor's written instructions; (iii) the Licensed Products shall have been
altered or modified by Cosmar without the written approval of Licensor; or (iv)
any other cause not within the control of Licensor shall result in any of the
Licensed Products becoming defective or subjected to any of the foregoing.
Except as set forth in this Section 4.7 and Section 8, Licensor makes no other
representations or warranties, express or implied, with respect to the Licensed
Products, and all such other representations and warranties are hereby expressly
disclaimed and denied. The indemnifications contained in this Section 4.7 shall
also not apply unless: (i) Cosmar notifies Licensor promptly in writing of the
claim, (ii) Cosmar allows Licensor, at its sole cost and expense, to fully
participate in the defense of such claim and (iii) Cosmar does not agree to any
settlement of such claim without Licensor's written consent. At any time within
thirty (30) days after Licensor is notified by Cosmar of a claim pursuant to
clause (i) in the preceding sentence, and provided that Cosmar does not notify
Licensor that Cosmar has determined, in the exercise of its reasonable
discretion, that a conflict of interest makes separate representation by
Cosmar's own counsel advisable, and provided further that Licensor is not in
default under this Agreement and continues to perform its obligations under this
Agreement, Licensor may elect to assume the defense of any such claim by notice
to Cosmar, which notice shall confirm that Licensor is obligated to indemnify
Cosmar with respect to such claim. Failure by Licensor to notify Cosmar of the
Licensor's election to defend any such claim within thirty (30) days after
notice thereof shall have been given to Licensor shall be deemed a waiver by
Licensor of its right to defend such claim. If a responsive pleading is due
before Licensor makes the election to defend, Cosmar shall take all action which
is reasonably necessary to preserve the Licensor's right to defend the action
(including but not limited to employing attorneys to, among other things, obtain
an extension to reply or to reply to the responsive pleading). All reasonable
expenses of Cosmar in taking such action shall be indemnified by Licensor. If
Licensor assumes the defense of any claim, the obligations of Licensor hereunder
as to such claim shall be limited to taking all steps necessary in the defense
<PAGE> 7
7
or settlement of such claim and to holding Cosmar harmless from and against any
and all losses, damages and liabilities caused by or arising out of any
settlement or any judgment in connection with such claim or litigation resulting
therefrom. Cosmar shall retain the right to employ its own counsel and to
participate in the defense of any claim, the defense of which has been assumed
by Licensor pursuant hereto, but Cosmar shall bear its own costs and expenses in
connection with such participation. For purposes of this Section 4.7, "Cosmar"
shall mean Cosmar and each of its directors, officers, shareholders, employees,
representatives, successors and assigns. Notwithstanding the foregoing, Licensor
shall have no responsibility whatsoever for any damage to the Licensed Products
in transit resulting from any act or omission occurring after delivery of the
Licensed Products to the carrier with which the Licensed Products are shipped.
4.8 Licensor and Cosmar covenant and agree that each
will keep in force during the entire term of this Agreement product liability
insurance, each policy for which shall name the other party as an additional
insured thereunder. In the case of Licensor the amount of the combined single
limit of liability shall be not less than $1,000,000 and in the case of Cosmar
the minimum amount shall be $2,000,000. Licensor and Cosmar shall each provide
to the other a certificate evidencing said insurance which prohibits
cancellation, termination or modification without thirty (30) days's written
notice to the named additional insured.
4.9 In the event only of war declared by the United
States Congress, strike, national or Phoenix, Arizona labor shortage, declared
national state of emergency or state of emergency in the city or county of the
place of business of Licensor any of its suppliers, fire, flood, famine, and
failure of interstate transportation systems, or any order, direction, law or
equivalent of the United States Government, or of any state or subdivision
thereof or any other country or subdivision, which renders impossible the
performance by Licensor of its obligations hereunder ("force majeure"), the
obligations of Licensor's performance, except as set forth in the next sentence,
shall be suspended during the continuance of such event of force majeure, and no
liability for failure to perform during such suspension shall accrue.
Notwithstanding the occurrence of an event of force majeure, Licensor shall use
its reasonable best efforts to seek alternative means of performance on an
interim basis and to resume performance of its obligations hereunder in
accordance with their terms at the earliest time practicable; provided, however,
that Licensor shall not be required by the foregoing to take any action
requiring any material expenditure of funds or any exposure to liability so long
as it presents to Cosmar the expenditure or exposure and Cosmar does not
forthwith agree to pay or indemnify Licensor as to same. If Cosmar forthwith
agrees to pay or indemnify Licensor as to same, then Licensor shall be required
to take the subject action.
4.10 For the purpose of developing the market for and
promoting sales of Licensed Product, Cosmar covenants and agrees during each
Royalty Year to expend or commit to expend on advertising (including cooperative
advertising) and promotion an amount equal to at least the total Product Royalty
payments made by Cosmar for such Royalty Year.
<PAGE> 8
8
5. Royalty Payments.
5.1 Cosmar shall pay to Licensor in addition to the
consideration referred to in Section 4.3 hereof, royalties in the amounts and at
the times hereinafter set forth. Commencing on July 15, 1991, and on the 15th
day of each month thereafter until the expiration or earlier termination of this
Agreement, Cosmar shall pay to Licensor a royalty of five percent (5%) of the
Net Sale Price of all Licensed Product sold by Cosmar and any packaged products
or kits sold by Cosmar in which Licensed Product is included ("Product Royalty")
during the immediately preceding month (except for the first payment on July 15,
1991 which shall include Product Royalty accrued from the date hereof). Licensor
specifically acknowledges Cosmar's right to include Licensed Product together
with Cosmar's own products, such as nail tips, nail glue and nail file, in
Cosmar's own acrylic sculpture kit to be marketed and sold in Cosmar's packaging
and under its trademarks.
5.2 Licensed Product shall be considered as "sold"
when Licensed Product or products incorporating same are shipped to customers.
Any Product Royalty paid on Licensed Product not accepted or returned by
customers of Cosmar shall be credited against future Product Royalty payments
accruing from Cosmar. The parties acknowledge that Licensed Product may be sold
by Cosmar either incorporated with or without one or more Cosmar products not
subject to this Agreement, that precise sales configurations are impossible to
predict and may vary over the term of this Agreement, and that in any package or
kit incorporating Licensed Product together with non-Licensed Product items, the
Licensed Product is likely to represent the most valuable component thereof. In
view of the foregoing, the parties have determined to adopt a single blended
royalty rate. Licensor shall therefore be entitled to Product Royalty based on
the Net Sale Price of each complete package or kit incorporating any Licensed
Product, and no allocation shall be made as between the relative values of
Licensed Product and any Cosmar product contained therein. All payments of
Product Royalty shall be accompanied by a statement showing in reasonable detail
the computation thereof. No Product Royalty payments shall be triggered solely
by any bulk sale of the Licensed Product by Cosmar in connection with the
cessation of sale of Licensed Product by Cosmar or the sale of Cosmar's business
or the Licensed Product component of such business, so long as the purchaser
under any such bulk sale has agreed to and does, in fact, accept assignment to
it of, and assume, Cosmar's obligations under this Agreement; and, provided,
that subsequent sales of unit(s) of such bulk-sold Licensed Product shall
occasion payment of the Product Royalty. No Product Royalty payment shall be due
Licensor on account of any Licensed Product given away (that is, without receipt
by Cosmar of any payment for such Licensed Product) by Cosmar for promotional
purposes.
5.3 Cosmar shall make Product Royalty payments due on
the 15th day after the end of each month, or the next business day if such 15th
day is a Saturday, Sunday or a legal holiday, commencing with the month ending
June 30, 1991. Unless and until otherwise notified in writing by Licensor, all
payments to Licensor hereunder shall be made in person or by deposit on the date
due in the United States
<PAGE> 9
9
mails, first-class postage prepaid, of Cosmar's check in the amount due, payable
and addressed as follows: The Nail Consultants, Ltd., 1741 W. Rose Garden Lane,
Suite 6, Phoenix, Arizona 85027 or to such other address as Licensor may from
time-to-time specify in writing.
5.4 Notwithstanding payment of all Product Royalty,
the continued maintenance of the exclusivity of the license granted hereby shall
be subject to payment by Cosmar of minimum annual royalties, payable pro rata on
a quarterly basis, commencing September, 1991, according to the following
schedule ("Minimum Royalty"):
<TABLE>
<CAPTION>
Royalty Year Minimum Annual Royalty
------------ ----------------------
<S> <C>
1 $ 25,000
2 37,000
3 50,000
4 55,000
5 60,500
6 66,550
7 73,205
8 80,526
9 88,578
10 97,436
11 and thereafter 100,000
</TABLE>
If the Product Royalty payment due for the last month of any quarter of any
Royalty Year would not, when added to the sum of all Product Royalty payments
made for all of the preceding months of the same Royalty Year, equal or exceed
the pro rata Minimum Royalty then due at that point for that Royalty Year (the
difference being hereinafter called the "Deficiency Amount"), then Cosmar, if it
desires to maintain this Agreement in full force and effect, including the
exclusivity of the license granted hereby, shall instead of paying only the
Product Royalty amount then due, pay the entire Deficiency Amount.
5.5 If for any Royalty Year Licensor does not receive
royalty payments from Cosmar at least equal to the applicable Minimum Royalty,
this Agreement shall be subject to termination by Licensor as provided in
Section 12 hereof; provided, however, that if Licensor receives from Cosmar
royalty payments at least equal to $60,000 for any Royalty Year, then Licensor
shall have no right to terminate this Agreement but only to notify Cosmar in
writing within sixty (60) days after the last payment for any Royalty Year for
which Licensor has not received from Cosmar at least $60,000 in total royalty
payments, that its license thereunder shall be converted from an
<PAGE> 10
10
exclusive to a nonexclusive license. The proviso in the preceding sentence is
intended solely for the benefit of Cosmar, and shall not apply in favor of any
transferee of Cosmar's rights or obligations hereunder. This Agreement shall
otherwise continue in full force and effect, except that if Licensor should
grant a nonexclusive license to any other licensee to make, use and sell the
Licensed Products, and any Improvements thereof, and to practice the Patented
Process, and any Improvements thereof (which Improvements shall automatically
become part of and be included in the Licensed Property), Cosmar shall have the
option of having a similar nonexclusive license under the same terms and
conditions granted to said other licensee under the Licensed Property, if it so
desires. Licensor agrees to submit to Cosmar a copy of each such license
hereinafter granted by Licensor to any other licensee.
6. Audit of Product Royalty.
6.1 Licensor shall have the right to perform from
time to time in Licensor's sole reasonable discretion, an audit of the books and
records of Cosmar by notifying Cosmar in writing of its desire to perform an
audit thereof ("Payment Audit"). Licensor, or its authorized agent shall then
have the right to examine, during Cosmar's regular business hours, all relevant
books and records of Cosmar for the purpose of verifying the accuracy of the
Product Royalty payment(s) or nonpayment(s). Cosmar agrees that it will at all
times keep true and complete books of account containing a current record of all
sales and other data in sufficient detail to enable the royalties payable under
this Agreement to be computed and verified. If after any Payment Audit Licensor
should conclude that Product Royalty paid to Licensor is less than the amount
which should have been paid to Licensor for the period covered by the Payment
Audit, then Licensor shall make a claim in writing upon Cosmar stating the
aggregate amount of Product Royalty which should have been paid to Licensor for
such period, the deficient amount due, and the date(s) upon which each such
deficient amount was initially due. Cosmar shall within ten (10) business days
after receipt of written notice of such claim either pay the aggregate amount of
said deficiency, plus interest at the rate of ten percent (10%) per annum on the
amount of the deficiency from the date(s) payment was initially due, or name an
independent certified public accounting firm satisfactory to Licensor not
previously retained by Licensor or Cosmar or any of their respective affiliates
or affiliated persons to perform a new audit for the same period as was the
subject of the Payment Audit (the "Independent Audit"). If Cosmar and Licensor
cannot agree upon such a firm, then Cosmar may name such a firm from among the
50 largest national accounting firms or the 15 largest Los Angeles accounting
firms (as shown in the latest Los Angeles Business Journal listing or other
published source).
6.2 Within sixty (60) days after the naming of a firm
to perform the Independent Audit (the "Independent Firm"), the Independent Firm
shall set the proper royalty payment for the audited period, including any
interest due as hereinafter prescribed, and shall notify Licensor and Cosmar in
writing of the amount. During the course of the Independent Audit, Licensor and
Cosmar shall be entitled to make whatever timely submissions they reasonably
desire to the Independent Firm. The determination
<PAGE> 11
11
of the Independent Firm shall be final and binding on the parties; provided,
however, that in the event the determination depends upon an interpretation of
this Agreement, such Independent Firm shall seek advice of counsel acceptable to
the parties hereto, or the parties shall resolve any such disagreement about
interpretation by submission to arbitration as provided hereunder.
6.3 After the royalty payment due as aforesaid has
been set, Cosmar shall immediately make payment of the amount due, plus interest
at the rate of ten (10%) per annum from the date payment was initially due, all
as determined by the Independent Firm.
6.4 All fees and expenses of any Payment Audit or
Independent Audit shall be paid by Licensor; provided, however, that if any
additional amount claimed by Licensor, after any Payment Audit, is paid or
payable by Cosmar and the additional amount paid or payable exceeds by more than
three (3%) percent the amount previously paid by Cosmar with respect to the
period audited, or is not paid and Cosmar does not name an Independent Firm as
required above, or if the royalty which should have been paid during the audited
period, as determined by the Independent Audit, is greater than the actual
royalty payments made by Cosmar during the period audited, and the incremental
amount exceeds by more than three percent (3%) the actual amount paid by Cosmar,
then the reasonable fees and expenses of the Payment Audit and any Independent
Audit shall be paid by Cosmar. Licensor shall be entitled to a maximum of one
(1) Payment Audit in any one Royalty Year; provided, however, that any Payment
Audit the costs of which are required to be borne by Cosmar shall not count for
purposes of the foregoing limitation.
6.5 During the Payment Audit, all periods covered by
this Agreement not previously the subject of a Payment Audit may be examined and
no more. Notwithstanding any contrary provision herein, no firm which has
previously performed an Independent Audit shall by virtue of that fact alone be
disqualified from performing an Independent Audit.
7. Improvements.
If during the term of this Agreement, Licensor makes any
Improvement of the Licensed Products and/or the Patented Process, or becomes the
owner of any new Improvements with respect thereto, then it shall communicate
such Improvements to Cosmar and the same shall automatically become part of the
Licensed Property and be within the scope of this Agreement without additional
compensation.
8. Representations and Warranties of Licensor.
Licensor represents and warrants that as of the date
of the execution of this Agreement:
<PAGE> 12
12
8.1 Licensor has the exclusive right to use and
practice the inventions disclosed in the Patents, free and clear of any liens,
encumbrances, licenses (other than Licensor's agreement with Ms. Resler and this
Agreement) or, to the best of Licensor's knowledge, claims of any nature
relating to or affecting Licensor's right to use and practice such inventions,
and has made no agreement with respect to the Patents or Licensor's related
know-how disclosed to Cosmar by Licensor hereunder (relating to the storage,
shelf-life, packaging and marketing of Licensed Products) which is in conflict
with this Agreement;
8.2 Except as previously disclosed to Cosmar in
writing, Licensor has received no notice, written or oral, of any action or
claim with respect to the product safety or efficacy of any of the Licensed
Product, either as a whole or as to any component thereof, nor has Licensor
received any report relating to the same;
8.3 Licensor has not at any time filed, or caused to
be filed, applications for patents, or obtained in its name, or caused to be
obtained in the name of others, any patents in the United States other than the
Patents, or filed in any foreign country any patent or similar applications or
registrations with respect to the Licensed Products, the Patented Process, or
any Improvements thereof.
9. Representations and Warranties of Cosmar.
Cosmar represents and warrants to Licensor as follows:
9.1 Cosmar is a corporation duly organized, validly
existing and in good standing under the laws of the State of California.
9.2 The execution, delivery and performance of this
Agreement by Cosmar have been duly authorized by all necessary corporate action.
This Agreement has been duly executed by Cosmar and constitutes a valid and
legally binding obligation of Cosmar enforceable against Cosmar in accordance
with its terms, except to the extent that that enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws relating to or
affecting generally the enforcement of creditors' rights, and subject to the
effect of general principles of equity. Cosmar has obtained all necessary
authorizations, consents, licenses and approvals, governmental and otherwise,
presently required for the execution and delivery of this Agreement and
performance of its obligations hereunder and is in compliance therewith in all
material respects.
9.3 The execution, delivery and performance of this
Agreement by Cosmar in accordance with its terms will not, with or without the
giving of notice of the passage of time, or both, conflict with, result in a
default, right to accelerate or loss of rights under, or result in the creation
of any lien, claim or encumbrance on the assets of Cosmar or require the consent
of any third party or governmental authority, pursuant to (i) any provision of
the certificate of incorporation or by-laws of Seller or (ii) any franchise,
mortgage, indenture or deed of trust or any lease, license or other agreement
<PAGE> 13
13
or any law, rule, regulation, order, judgment or decree to which Cosmar is a
party or by which Cosmar (or any of its assets, properties, operations or
businesses) may be bound, subject to or affected.
9.4 There are no material claims, legal actions,
arbitrations, governmental investigations or other legal or administrative or
other proceedings, decrees or judgments in progress, pending or in effect, or to
the knowledge of Cosmar threatened, against or relating to Cosmar, its
properties, assets or business or the transactions contemplated by this
Agreement, except for two product liability claims which have been tendered to
Cosmar's insurance company, and which, even if resolved adversely to Cosmar,
will not, individually, or together, have a material adverse effect on Cosmar's
financial condition or its ability to perform its obligations under this
Agreement.
10. Marking.
Cosmar agrees that it will mark all Licensed Products made
and/or sold by it with property patent notice as specified by applicable patent
laws, namely, "Pat No. 4,626,428" and "Pat No. 4,669,491".
11. Patent Litigation Involving Third Parties.
11.1 Provided that Cosmar has made substantially all
payments required to be made by it hereunder and is otherwise not in material
default under this Agreement, Licensor shall defend solely at its own expense,
and hold Cosmar harmless from and against any actions and claims brought by
third parties against Licensor and/or Cosmar concerning Licensor's rights with
respect to the Patents and its related know-how, or the right of Licensor to
enter into this Agreement. The provisions of Section 4.7 of this Agreement
relating to indemnification procedures, including, without limitation, Cosmar's
obligation to give notice regarding claims and Licensor's right to defend, are
hereby incorporated in full in this section as if fully set forth herein.
11.2 Provided that Cosmar has made substantially all
payments required to be made by it hereunder and is otherwise not in material
default under this Agreement, Licensor shall defend solely at its own expense,
and hold Cosmar harmless from and by third parties in the United States against
Cosmar relating to Cosmar's exercise of any rights or licenses granted to it
pursuant to this Agreement. The provisions of Section 4.7 of this Agreement
relating to indemnification procedures, including, without limitation, Cosmar's
obligation to give notice regarding claims and Licensor's right to defend, are
hereby incorporated in full in this section as if fully set forth herein.
11.3 In the event either Licensor or Cosmar discovers
any infringement of the Patents or related know-how by a third party in the
Licensed Markets, the other party shall be promptly notified of such
infringement. Except as
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hereinafter provided, Licensor shall not create any controversy with an alleged
infringer without Cosmar's prior written consent. Cosmar may, at its option and
at its sole expense, through attorneys of its own selection, take appropriate
action to terminate or prevent the infringement. In the event of any legal
action initiated by or with the prior written consent of Cosmar and relating to
an infringement by a third party of the Patents or related know-how in any of
the Licensed Markets, all costs and expenses of such legal action shall be paid
by Cosmar and all recoveries shall be retained by Cosmar. If Cosmar takes no
action within one hundred twenty (120) days of the discovery of the
infringement, then Licensor may, at its option and at its sole expense, take
such action as it deems appropriate to protect its rights without interfering
with or adversely affecting the benefits enjoyed by Cosmar hereunder. Each
party, without cost or expense to itself, shall render all reasonable
cooperation and assistance to the other in connection with any leal action
brought by either party, including, without limitation, consenting to be named
or joined as a party therein to the extent that either party may be deemed a
necessary or indispensable party to a legal proceeding brought or proposed to be
brought by the other party. The parties may jointly initiate any legal action
upon such terms as they shall mutually agree.
11.4 In light of the fact that no foreign patent
applications or registrations were made by the inventor of the Licensed Products
and the Patented Process, it is possible that Cosmar's foreign sale of Licensed
Product may infringe upon the rights of one or more third parties in one or more
foreign countries ("Foreign Infringement"). In the event of any claim or dispute
between Cosmar and a third party regarding a Foreign Infringement, as a result
of which Cosmar becomes obligated pursuant to a written instrument, a copy of
which shall be furnished to Licensor, to make any payment, in the nature of a
royalty, license fee or otherwise, then as to, but only to the extent of, sales
of Licensed Product or similar product in the foreign country or countries
affected, Cosmar shall be relieved of any obligation to Licensor under Sections
4.2 and 5 of this Agreement, notwithstanding the provisions thereof to the
contrary; provided, however, that to the extent any such payments(s) in respect
of a Foreign Infringement is less than the Product Royalty payment(s) that would
otherwise be due, Cosmar shall make payment of the difference to Licensor when
the same would otherwise be due, to the greatest extent reasonably practicable.
The foregoing provisions shall not affect Licensor's obligations to defend
Cosmar against a claim of Foreign Infringement pursuant to Section 11.2 above.
12. Duration and Termination.
12.1 Unless otherwise terminated as hereinafter set
forth, this Agreement and the license granted hereby shall continue in full
force and effect until the expiration date of the last of the Patents.
12.2 If Cosmar shall at any time default in rendering
any of the statements required hereunder, in the payment of any monies due
hereunder, or in fulfilling any of the other material obligations hereof, and
such default shall not be cured
<PAGE> 15
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within 10 days, in the case of a monetary default, or 45 days in the case of a
non-monetary default, after written notice thereof is giving by Licensor to
Cosmar, Licensor shall have the right to terminate this Agreement by giving
written notice of termination to Cosmar. Cosmar shall have the right to cure any
such default up to the effective date of termination.
12.3 Licensor shall have the right to terminate this
Agreement by giving written notice of termination to Cosmar in the event of any
one of the following, such termination being effective within 60 days of receipt
of such notice, unless such event is cured within such 60 day period:
(a) Insolvency or bankruptcy of Cosmar,
whether voluntary or involuntary;
(b) Appointment of a trustee or receiver for
Cosmar; or
(c) Any assignment by Cosmar for the benefit
of creditors.
12.4 In the event that substantially all claims of
the Patents are held invalid in an unappealed or unappealable decision of a
court of competent jurisdiction, then Cosmar's obligation to make any payment of
Product Royalty shall thereupon immediately cease and expire. This Agreement
shall otherwise continue in full force and effect, with only Sections 5 and 6
hereof being excised herefrom; provided, however, that either party may at any
time thereafter, at its sole discretion, elect to terminate this Agreement in
its entirety upon ten (10) days' written notice to the other party.
12.5 The expiration or early termination of this
Agreement for any cause whatsoever shall in no manner interfere with, affect or
prevent the collection by Licensor of any and all sums of money due to it under
this Agreement. Upon the expiration or termination of this Agreement or any
reason, Cosmar's payments required by Section 5, but not yet due, shall become
due and payable as if such Agreement had not been terminated, including, but not
limited to, payments on the sale of Cosmar's inventory of Licensed Product which
Cosmar shall be entitled to continue to sell in the ordinary course of its
business. Moreover, Cosmar shall have a limited, non-exclusive license (i) to
complete work-in-process subsequent to the date of expiration or termination
hereof, provided such work-in-process was undertaken prior to such date of
expiration or termination, subject to payment of the Product Royalty which
accrues on the sale of the Licensed Product resulting from the completion of
said work-in-process; and (ii) to produce Licensed Product subsequent to the
date of expiration or termination hereof if and as required to fulfill purchase
orders or other commitments, provided that such purchase orders were accepted or
such commitments made prior to such date of expiration or termination, subject
to payment of the Product Royalty on the sale thereof. The foregoing does not
confer upon Cosmar any right to manufacture Licensed Product.
<PAGE> 16
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13. Miscellaneous.
13.1 Further Action. Each of the parties hereto
agrees that it will, at any time, and from time to time, after the date hereof,
upon the request of the other party, do, execute, acknowledge and deliver, or
will cause to be done, executed acknowledged and delivered, all such further
acts, deeds, assignments, transfers, conveyances, powers of attorney and
assurances as may be required to effectuate the provisions and intent of this
Agreement.
13.2 Notices. All notices, consents, requests,
demands, and other communications hereunder shall be in writing and shall be
deemed to have been duly given or delivered if delivered personally or mailed by
registered or certified mail, return receipt requested, with first class postage
prepaid as follows:
(a) If to Cosmar, to:
Cosmar Corporation
16552 Burke Lane
Huntington Beach, California 92647
Attention: Mr. Aldran H. LaJoie
with a copy to:
Reinstein, Pantell, Calkins & Rice
11150 Santa Monica Boulevard
Suite 400
Los Angeles, California 90025
Attention: Jeffrey M. Weiner, Esq.
(b) If to Licensor, to:
The Nail Consultants, Ltd.
1741 W. Rose Garden Lane
Suite 6
Phoenix, Arizona 85027
Attention: Ms. Renee Resler
with a copy to:
Robinson Silverman Pearce Aronsohn & Berman
1290 Avenue of the Americas
New York, New York 10104
Attention: Alan S. Pearce, Esq.
<PAGE> 17
17
or to such other address as Cosmar or Licensor shall have last designated by
notice to the other party. All notices mailed shall be deemed to have been given
or received when actually received or when acceptance of such notice has been
declined.
13.3 Modification. This Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
herein and shall not be modified or amended except by an instrument in writing
signed by or on behalf of the parties hereto. No course of prior dealings
between the parties and no usage of the trade shall be relevant or admissible to
supplement, explain or vary any of the terms of this Agreement. Acceptance of,
or acquiescence in, a course of performance rendered under this or any prior
agreement shall not be relevant or admissible to determine the meaning of this
Agreement even though the accepting or acquiescing party has knowledge of the
nature of the performance and an opportunity to make objection. No other
representations, understandings or agreements have been made or relied upon in
the making of this Agreement other than those specifically set forth herein.
13.4 California Law to Govern. This Agreement shall
be governed by and construed and enforced in accordance with the laws of the
State of California applied to agreements to be fully performed within the State
of California.
13.5 Attorneys' Fees. In the event of any
controversy, dispute or claim arising out of, or relating to this Agreement, the
prevailing party in any litigation or arbitration shall be entitled to receive
reimbursement for all of its reasonably incurred attorneys' fees, costs and
expenses of such litigation or arbitration. In the event of litigation or
arbitration which results in a final judgment or award, the prevailing party
shall be that party who obtains such judgment or award in its favor. A judgment
or award shall be deemed final after all rights of appeal have been exhausted.
13.6 Arbitration. Any controversy, dispute or claim
arising out of, or relating to, this Agreement shall, unless resolved by
agreement of the parties, be settled by arbitration in Los Angeles, California
in accordance with the Rules of the American Arbitration Association then
existing. This agreement to arbitrate shall be specifically enforceable under
the prevailing arbitration law of the State of California. For the purpose of
enforcing an arbitration award granted herein or enforcing any other provisions
or rights hereunder or connected hereto, the parties hereby agree and consent to
in personam jurisdiction of the courts of the State of California, United States
of America. The award rendered by the arbitrator(s) shall be final and judgment
may be entered upon the award in any court of the State of California having
jurisdiction of the matter.
13.7 Waiver. No waiver by either party hereto,
whether express or implied, of any of its rights under any provision of this
Agreement at any particular time shall constitute a waiver of such party's
rights under such provision at any other time or a waiver of such party's rights
under any other provision of this Agreement. No failure by either party hereto
to take any action against any breach of this Agreement or
<PAGE> 18
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default by the other party hereto shall constitute a waiver of the former
party's right to enforce any provision of this Agreement or to take action
against such breach or default or any subsequent breach or default by such other
party.
13.8 Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and upon their respective
successors and assigns. Each party shall have the right freely to assign,
transfer or subcontract this Agreement or any of its rights or obligations
hereunder without the consent of the other party.
13.9 Severability. Any provisions of this Agreement
which may be prohibited by law or otherwise held invalid shall be ineffective
only to the extent of such prohibition or invalidity and shall not invalidate or
otherwise render ineffective the remaining provisions of this Agreement.
13.10 Relationship of the Parties. The parties hereto
are independent contractors and nothing contained in this Agreement shall be
deemed or construed to create the relationship of partnership or joint venture
or principal and agent or of any association or relationship between the parties
other than that of independent licensor and licensee, and vendor and vendee of
the Licensed Products.
13.11 Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
13.12 Expenses. Licensor and Cosmar shall each bear
their respective expenses in connection with the transactions herein
contemplated.
13.13 Section Headings. Section headings shall not be
of any force or effect whatsoever in the interpretation of this Agreement and
shall be deemed inserted and used solely for the convenience of the parties.
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13.14 Counsel. The undersigned have carefully read
the foregoing and understand the provisions thereof, and, having consulted or
had the opportunity to consult with their separate counsel, acknowledge that
they have signed the same of their own free act and deed.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first herein written.
COSMAR CORPORATION
By /s/ Aldran H. LaJoie
------------------------------
Aldran H. LaJoie
President
THE NAIL CONSULTANTS, LTD.
By /s/ Renee Resler
------------------------------
Renee Resler
President
<PAGE> 1
Exhibit 10.142
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is made and entered into
as of the 10th day of October, 1995, by and between THE NAIL CONSULTANTS, LTD.,
an Arizona corporation ("Licensor"), and COSMAR CORPORATION, a California
corporation ("Cosmar" or "Licensee").
RECITALS
A. Renee Resler is the inventor of an activator, which may be
colored, to be used in connection with a process for applying a protective
covering to fingernails, which activator is the subject of pending United States
Patent Application Number 08/404,374 ("Patent").
B. Cosmar is engaged in the design, development, manufacture
and sale worldwide of artificial fingernail products. Cosmar would like to
incorporate and use certain procedures and compositions claimed in the Patent,
without further mixing or other modification by Cosmar, in a new product kit to
be packaged and marketed by Cosmar under its own name.
C. Subject to the terms and conditions of this Agreement,
Cosmar desires to acquire the exclusive, worldwide right and license to use and
package, and to sell and have sold to the Licensed Markets (as hereinafter
defined), the compositions and process claimed in the Patent, referred to
separately as the "Licensed Products" and "Patented Process" respectively, and
collectively as "Licensed Property," and to obtain Licensor's know-how and
assistance with respect to packaging, storing and marketing same.
AGREEMENT
In consideration of the foregoing and of the mutual covenants,
conditions and agreements hereinafter contained, the parties hereto agree as
follows:
1. Certain Definitions.
Except as otherwise expressly provided or unless the context
otherwise requires, the definitions of the terms set forth below shall be
applicable when any such term is used in this Agreement.
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1.1 "Licensed Markets" shall mean mass merchandisers
(including, without limitation, K-Mart, Walmart and Target Stores); food stores
and chains; chain and independent drug and discount-drug stores; department and
discount-department stores and chains; all direct (e.g., television,
infomercials, telemarketing, etc.) and indirect (e.g., catalogs and other mail
order, etc.) distribution channels; any combination of the foregoing; and any
rack jobbers or distributors who sell to the foregoing; provided, however, that
direct and indirect distribution channels shall only be included within the
Licensed Markets if by March 1, 1997 Licensee has in the case of direct
distribution channels commenced marketing of the Licensed Product through at
least two separate direct distribution channels and in the case of indirect
distribution channels has commenced marketing the Licensed Product through at
least one separate indirect distribution channels.
1.2 "Net Sales Price" shall mean the greater of (a)
the Gross Wholesale Price stated on Cosmar's Price List less Cosmar's expenses
and customer credits related to free and promotional goods, returns, off-invoice
allowances and discounts from the Gross Wholesale Price, as invoiced and
consistent with Cosmar's standard pricing and billing practices, and (b) 85% of
the Gross Wholesale Price which for the purposes of this subsection (b) shall
always be at least $4.95 for each gel kit and $2.95 for each kit containing nail
tips or glue or any other product using or sold under the same name or system as
the gel kit.
1.3 "Product Royalty" shall have the meaning set
forth in Section 4.1.
1.4 "Royalty Year" shall mean a twelve (12) month
period starting on January 1 and ending on December 31 of the applicable year,
with the first Royalty Year commencing on January 1, 1996.
2. Grant of Exclusive License.
2.1 Subject to the terms and conditions set forth
herein, Licensor hereby grants to Licensee the exclusive, worldwide right and
license to use and package and have packaged, and to sell and have sold to the
Licensed Markets, the Licensed Products, and to use them in accordance with the
Patented Process. The right and license granted herein, subject to the terms and
conditions expressed herein, are understood to extend not only to Cosmar, but to
any or all of its related corporations, or organizations, and with respect to
Cosmar's customers who, directly or indirectly, purchase Licensed Product from
it, the aforesaid right and license to use and sell the same shall extend to
such customers, including Cosmar's distributors; provided, however, that
fulfillment of all obligations hereunder, including requirements for reports and
the payment of royalties, shall be by or through Cosmar.
2.2 The exclusive right and license herein granted
shall include all inventions, improvements, enhancements and modifications to
the Licensed
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<PAGE> 3
Products and the Patented Process, whether any such inventions, improvements,
enhancements or modifications are patented or kept as trade secrets, made or
conceived during the term of this Agreement, which Licensor owns or controls or
hereafter owns or controls ("Improvements"), all of which shall automatically be
included within the meaning and scope of the terms "Licensed Property" and
"Patent," as used herein. Licensee agrees that if it does not notify Licensor in
writing within 60 days after receipt of Licensor's notice that Licensee will
market the Licensed Products with Improvements on the terms and conditions set
forth in this Agreement with respect to the Licensed Product. Licensor shall be
free to market the Licensed Products with Improvements or license others to
market the Improvements on such terms and conditions as Licensor may desire.
3. Supply of Licensed Products.
3.1 The Licensed Product is an activator which may be
clear, cloudy or colored to be used in connection with a process for applying a
protective covering to fingernails (the "Licensed Product" or the "Licensed
Products," as the context may require).
3.2 From and after the date hereof, and upon the
terms and subject to the conditions hereof, any and all of Cosmar's requirements
for the Licensed Product shall be supplied solely by Licensor, and Cosmar shall,
subject to Section 9.4 hereof, purchase all of its requirements for the Licensed
Product from Licensor. Licensor agrees to supply all of Cosmar's requirements
with respect to the Licensed Product. Neither Licensor nor any affiliate or
associate of Licensor shall supply, directly or indirectly, the Licensed Product
to any person or company other than Cosmar for sale in or to the Licensed
Markets. Neither Cosmar nor any affiliate or associate of Cosmar shall sell,
directly or indirectly, any other product if such product infringes upon the
Patent. Commencing with its first purchase order, Cosmar shall furnish to
Licensor a 90-day forecast of Cosmar's anticipated requirements of Licensed
Product, which forecast shall be updated thereafter by Cosmar.
3.3 Unless and until increased as provided below, the
purchase price for the Licensed Product shall be $125 per gallon. The purchase
price set forth above is based upon, and all Licensed Products shall be ordered
in fifty-five (55) gallon container quantities. Commencing on the first
anniversary thereafter, the above purchase price may be increased upon 90 days'
advance written notice from Licensor to Cosmar. The amount of the increase, if
any, shall be equal to and based on the greater of (i) Licensor's increased bulk
quantity raw material costs, over such costs on the date hereof, for any of the
Licensed Products, and (ii) any increase in the national consumer price index
("CPI") published by the United States Government (or any successor or
comparable index), using December 31, 1995 as the reference or base index.
Licensor shall furnish to Cosmar, together with any notice of price increases,
evidence reasonably satisfactory to Cosmar regarding the basis for any price
increase and the computation thereof. For any Royalty Year, for example, a
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<PAGE> 4
price increase for the Licensed Product may be based on an increase in raw
material costs or an increase in the CPI.
3.4 From time to time during the term of this
Agreement, as Cosmar may require, Cosmar shall place orders for the Licensed
Product. Any order placed by telephone shall be confirmed in writing within 48
hours. Cosmar will place orders six months in advance of the requested delivery
date, although Cosmar shall have the right to increase or decrease any order
until 60 days prior to the requested delivery date (which 60th day is
hereinafter referred to as the "Firm Order Date". Cosmar shall pay fifty percent
(50%) of the total purchase price for each month's order at least 45 days before
the delivery date for such order. Payment shall be made either by bank check or
by wire transfer, payable to Licensor. The balance of the purchase price shall
be paid within fifteen (15) days after Licensee receives the invoice for the
Licensed Product ordered.
3.5 The Licensed Product shall be delivered to Cosmar
F.O.B. shipping point, which shipping point shall be where the Licensed Product
is manufactured, which currently is TEVCO, South Plainfield, New Jersey. Title
to the Licensed Product shall pass to Cosmar upon delivery to the carrier, and
Licensor shall have no liability for any damage to or loss of the Licensed
Product after the Licensed Product is delivered to the carrier with which the
Licensed Product is shipped. If Cosmar so desires, Cosmar shall be responsible
for obtaining insurance to cover the risk of loss or damage to the Licensed
Product from and after the time Licensor delivers the goods to the carrier.
3.6 The anticipated date of shipment of all Licensed
Product ordered hereunder is within sixty (60) days following the Firm Order
Date. Licensor shall use its best efforts to meet this schedule. In any event,
Licensor shall ship all Licensed Product ordered hereunder within ninety (90)
days following the Firm Order Date, the specific shipment date to be confirmed
by Licensor to Cosmar within ten (10) days after the Firm Order Date. Subject to
Section 3.9, if at any time during the term hereof Licensed Products are not
delivered within ninety (90) days following Firm Order Date, Licensor shall have
ninety (90) more days within which to either deliver all then delinquent
Licensed Product or enter into an agreement with a third party reasonably
acceptable to Cosmar (which may be Renee Resler, who is acceptable to Cosmar),
which third party shall by written agreement of assignment and assumption agree
to perform all of the Licensor's obligations hereunder ("New Supplier"). If
within the aforementioned second ninety (90) day period, Licensor has not
delivered all then delinquent Licensed Product orders or appointed a New
Supplier as aforesaid, then Cosmar shall immediately thereupon have the right to
manufacture or cause to have manufactured for its account the Licensed Product
(or equivalent) prior to the requested delivery date and Licensor shall use its
best efforts, on an urgent basis, if requested in writing by Cosmar, (i) to
deliver to Cosmar true and complete copies of all formulas and the names and
addresses of all suppliers and all other commercially useful information
regarding the Licensed Product, and (ii) to do
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all other things necessary or desirable to facilitate Cosmar's immediate entry
into and continued production of Licensed Products for its own account. In
addition, from and after such time any and all obligations of Cosmar under
Sections 3.2, 3.3, 3.4 and 3.5 shall be suspended, and any and all obligations
of Licensor under Sections 3.2, 3.3, 3.4, 3.5 and the first four sentences of
this Section 3.6 shall be suspended, all subject to reinstatement as hereinafter
provided. If at any time after Cosmar has commenced the manufacture of Licensed
Product pursuant to Section 3.6, Resler or Licensor desire to reinstate the
obligations of Cosmar under Section 3 hereto, then Renee Resler or Licensor
shall have the right to do so upon ninety (90) days' written notice to Cosmar.
In lieu of furnishing this 90-day notice, Renee Resler or Licensor may reinstate
Cosmar's obligations immediately upon (a) delivery to Cosmar of written
assurances reasonably satisfactory to Cosmar of Renee Resler or Licensor, as the
case may be, as to the assumption of and performance by the assuring party of
all of Licensor's obligations with respect to the delivery of Licensed Products,
including unfilled purchase orders, and (b) the cash purchase and payment by the
assuring party of all equipment and the like purchased by Cosmar for the purpose
of or used by Cosmar in the manufacture of Licensed Products. The purchase price
for all of said property shall be Cosmar's depreciated cost. Reinstatement of
Cosmar's obligations hereunder shall be subject to the concurrent reinstatement
of Licensor's obligations hereunder. Trade secret and other confidential
information disclosed hereunder to Cosmar will be maintained in strictest
confidence and will be used only as contemplated hereby.
3.7 Except as hereinafter provided, Licensor
represents, covenants and agrees that all quantities of Licensed Product shall,
to the Licensor's knowledge, be free from defects in material, manufacturing and
packaging at the point of pick-up of the Licensed Product by the carrier and
shall indemnify Cosmar from and against any and all claims, demands, actions or
causes of action of any kind or nature whatsoever concerning personal injury
and/or property damages arising from any such defect; provided, however, that
Licensee acknowledges that the glue used in or with respect to the Licensed
Product is not manufactured by Licensor and that, accordingly, Licensor makes no
representation or warranty, express or implied with respect to such glue and
shall have no liability for any defect in or damage caused by such glue. Should
Cosmar be named as a party in any such action then Licensor shall also indemnify
Cosmar for all of its reasonable costs and expenses in defending any such
action. The foregoing representations, warranties and indemnifications shall not
apply if or with respect to, as appropriate: (i) the Licensed Products have been
subjected to misuse, negligence or accident as a result of any act or omission
of Cosmar; (ii) the Licensed Products shall not be used in accordance with
Licensor's written instructions; (iii) the Licensed Product shall have been
altered or modified by Cosmar without the written approval of Licensor; or (iv)
any other cause not within the control of Licensor shall result in any of the
foregoing. Except as set forth in this Section 3.7 and Section 6 Licensor makes
no other representations and warranties express or implied with respect to the
Licensed Products, and all such other representations and warranties are hereby
expressly disclaimed and denied. The
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indemnifications contained in this Section 3.7 shall also not apply unless: (i)
Cosmar notifies Licensor promptly in writing of the claim, (ii) Cosmar allows
Licensor, at its sole cost and expense, to fully participate in the defense of
such claim and (iii) Cosmar does not agree to any settlement of such claim
without Licensor's written consent. At any time within thirty (30) days after
Licensor is notified by Cosmar of claim pursuant to clause (i) in the preceding
sentence, and provided that Cosmar does not notify Licensor that Cosmar has
determined, in the exercise of its reasonable discretion, that a conflict of
interests makes separate representations by Cosmar's own counsel advisable, and
provided further that Licensor is not in default under this Agreement and
continues to perform its obligations under this Agreement, Licensor may elect to
assume the defense of any such claim by notice to Cosmar, which notice shall
confirm that Licensor is obligated to indemnify Cosmar with respect to such
claim. Failure by Licensor to notify Cosmar of the Licensor's election to defend
any such claim within ten (10) days after notice thereof shall have been given
to Licensor shall be deemed a waiver by Licensor of its right to defend such
claim. If a responsive pleading is due before Licensor makes the election to
defend, Cosmar shall take all action which is reasonably necessary to preserve
the Licensor's right to defend the action (including but not limited to
employing attorneys to, among other things, obtain an extension to reply or to
reply to the responsive pleading). All reasonable expense of Cosmar in taking
such action shall be indemnified by Licensor. If Licensor assumes the defense of
any claim, the obligations of Licensor hereunder as to such claim shall be
limited to taking all steps necessary in the defense or settlement of such claim
and to holding Cosmar harmless from and against any and all losses, damages and
liabilities caused by or arising out of any settlement or any judgment in
connection with such claim or litigation resulting therefrom. Cosmar shall
retain the right to employ its own counsel and to participate in the defense of
any claim, the defense of which has been assumed by Licensor pursuant hereto,
but Cosmar shall bear its own costs and expenses in connection with such
participation. For purposed of this Section 3.7, "Cosmar" shall mean Cosmar and
each of its affiliates, directors, officers, shareholders, employees,
representatives, successors and assigns. Notwithstanding the foregoing, Licensor
shall have no responsibility whatsoever for any damage to the Licensed Products
in transit resulting from any act or omission occurring after delivery of the
Licensed Products to the carrier with which the Licensed Products are shipped.
3.8 Licensor and Cosmar covenant and agree that each
will keep in force during the entire term of this Agreement product liability
insurance, each policy for which shall name the other party as an additional
insured thereunder. In the case of Licensor the amount of the combined single
limit of liability minimum amount shall not be less than $1,000,000 and in the
case of Cosmar the minimum amount shall be $2,000,000. Licensor and Cosmar shall
each provide to the other a certificate evidencing said insurance which
prohibits cancellation, termination or modification without thirty (30) days'
written notice to the named additional insured.
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3.9 In the event only of war declared by the United
States Congress, strike, national or Phoenix, Arizona labor shortage, declared
national state of emergency or state of emergency in the city or county of the
place or business of Licensor or any of its suppliers, fire, flood, famine, and
failure of interstate transportation systems, or any order, direction, law or
equivalent of the United States Government, or of any state or subdivision
thereof or any other country or subdivision, which renders impossible the
performance by Licensor of its obligations hereunder ("force majeure"), the
obligations of Licensor's performance, except as set forth in the next sentence,
shall be suspended during the continuance of such event of force majeure, and no
liability for failure to perform during such suspension shall accrue.
Notwithstanding the occurrence of an event of force majeure, Licensor shall use
its reasonable best efforts to seek alternative means of performance on an
interim basis and to resume performance of its obligations hereunder in
accordance with their terms at the earliest time practicable; provided, however,
that Licensor shall not be required by the foregoing to take any action
requiring any material expenditure of funds or any exposure to liability so long
as it presents to Cosmar the expenditure or exposure and Cosmar does not
forthwith agree to pay or indemnify Licensor as to same. If Cosmar forthwith
agrees to pay or indemnify Licensor as to same, then Licensor shall be required
to take the subject action.
4. Royalty Payments.
4.1 Cosmar shall pay to Licensor in addition to the
consideration referred to in Section 3.3 hereof, royalties in the amounts and at
the times hereinafter set forth. On the first day of each month commencing
January 1, 1996 an amount equal to one-twelfth of the then Minimum Royalty (as
defined in Section 4.4 hereof). Commencing on April 30, 1996, and on the 30th
day of each April, July, October and January thereafter until the expiration or
earlier termination of this Agreement, Cosmar shall pay to Licensor a royalty of
six percent (6%) of the Net Sale Price of all Licensed Product sold by Cosmar
("Product Royalty") during the immediately preceding calendar quarter less an
amount equal to Minimum Royalty payments made pursuant to the immediately
preceding sentence for the immediately preceding calendar quarter. Licensor
specifically acknowledges Cosmar's right to include Licensed Products together
with Cosmar's own products in kits to be marketed and sold in Cosmar's packaging
and under its trademarks. Prior to sale of any such kits, Licensor and Cosmar
shall agree on the portion of the sale price thereof to represent the Licensed
Product and be included in Net Sales Price.
4.2 Licensed Products shall be considered as "sold"
when Licensed Products or products incorporating same are shipped to customers.
Each April 30, July 30, October 30 and January 30 Cosmar shall send to Licensor
a statement whether or not any Product Royalty payments are due showing in
reasonable detail the computation of the Product Royalty for the prior calendar
quarter. No Product Royalty payments shall be triggered solely by any bulk sale
of the Licensed Product by Cosmar in connection with the cessation of sale of
Licensed
7
<PAGE> 8
Product by Cosmar or the sale of Cosmar's business or the Licensed Product
component of such business, so long as the purchaser under any such bulk sale is
reasonably satisfactory to Licensor, has agreed to and does, in fact, accept
assignment to it of, and assume Cosmar's obligations under this Agreement and is
able to meet such obligations, and, provided that subsequent sales of unit(s) of
such bulk-sold Licensed Products shall occasion payment of the Product Royalty.
4.3 In the event that Minimum Royalty or Product
Royalty payment due dates fall on a Saturday, Sunday or a legal holiday, such
payment shall be due on the following business day. Unless and until otherwise
notified in writing by Licensor, all payments to Licensor hereunder shall be
made in person or by deposit on the date in the United States mails, first-class
postage prepaid, of Cosmar's check in the amount due, payable and addressed as
follows: The Nail consultants, Ltd., 10171 N. 19th Avenue, Phoenix, Arizona
85021. There shall be a late charge of 1/2% per month on all payments of Minimum
Royalty or Product Royalty more than fifteen (15) days late.
4.4 Notwithstanding payment of all Product Royalty,
the continued maintenance of the exclusivity of the license granted hereby shall
be subject to payment by Cosmar of minimum annual royalties; payable pro rata on
a monthly basis, commencing January 1, 1996, according to the following schedule
("Minimum Royalty"):
<TABLE>
<CAPTION>
Royalty Year Minimum Royalty
------------ ---------------
<S> <C>
1996 $250,000
1997 350,000
1998 400,000
1999 450,000
2000 500,000
</TABLE>
Cosmar agrees to pay $50,000 to Licensor on September 15, 1995, one-twelfth of
which shall be credited against each Minimum Royalty payment to be paid by
Cosmar during each month of calendar year 1996. Cosmar shall not be entitled to
any refund if at any time Product Royalty is less than Minimum Royalty for any
period, it being understood and agreed that the Minimum Royalty is a guaranteed
minimum amount to be paid by Licensee to Licensor hereunder.
4.5 Provided it is not in default under this
Agreement, Cosmar shall have the right, but no obligation, to extend the term of
this Agreement by an additional three years by delivering written notice of such
extension to Licensor at least 90 days prior to the expiration of this
Agreement. In the event Cosmar extends the term of this Agreement the Minimum
Royalty during each of the subsequent years shall be $500,000.
8
<PAGE> 9
4.6 Cosmar shall have the right to convert the
exclusive license granted hereunder to a nonexclusive license at any time after
December 31, 1998, by delivering written notice of such election to Licensor
prior to July 1, 1998. In this event, the Minimum Royalty applicable to each
year following such election (including the years 2001, 2002 and 2003, in the
event that Cosmar extends the term of this Agreement pursuant to Section 4.5
above) shall be $350,000.
4.7 Licensor and Cosmar agree that Cosmar shall have
the right to introduce flanking products based on products sold under the LaJoe,
Pro 10 or other Cosmar product lines (exclusive of product lines based on the
Licensed Products), and that Licensor will not be entitled to any royalties in
connection with sales of such flanking products. However, sales by Cosmar of
flanking products based on the Licensed products or sold or advertised for sale
as part of, in connection or for use with, or under the same name or system as
the Licensed Products ("Flanking Products") shall be subject to a royalty to be
agreed to, in writing by Licensor and Cosmar in their sole discretion, (and not
subject to arbitration pursuant to Section 11.6) but not to exceed six percent
(6%) of the Net Sale Price of such product payable at the same time and for the
same periods Product Royalty is payable with the same proof of the amount
thereof due as for Product Royalty, and such products shall generally be
considered Licensed products for purposes of this Agreement except that Licensor
makes no representations or warranties, express or implied, and has no
obligations or liability with respect thereto and sale of such product shall not
be taken into account in determining Product Royalty or payments thereof. Cosmar
may not sell Flanking Products unless the royalty with respect thereto has been
agreed to.
5. Audit of Product Royalty and Section 4.7 Payments.
5.1 Licensor shall have the right to perform from
time to time in Licensor's sole reasonable discretion, an audit of the books and
records of Cosmar by notifying Cosmar in writing of its desire to perform an
audit thereof ("Payment Audit"). Licensor or its authorized agent shall then
have the right to examine, during Cosmar's regular business hours, all relevant
books and records of Cosmar for the purpose of verifying the accuracy of the
Product Royalty payment(s) or nonpayment(s) or the accuracy of the payments due
under Section 4.7 ("Section 4.7 Payments"). Cosmar agrees that it will at all
times keep true and complete books of account containing a current record of all
sales and other data in sufficient detail to enable the royalties payable under
this Agreement to be computed and verified. If, after any Payment Audit,
Licensor should conclude that Product Royalty and Section 4.7 Payments paid to
Licensor is less than the amount which should have been paid to Licensor for the
period covered by the Payment Audit, then Licensor shall make a claim in writing
upon Cosmar stating the aggregate amount of Product Royalty and Section 4.7
Payments which should have been paid to Licensor for such period, the deficient
amount due, and the date(s) upon which each such deficient amount was initially
due. Cosmar shall with ten (10) business days after receipt of written notice
9
<PAGE> 10
of such claim either pay the aggregate amount of said deficiency, plus simple
interest at the rate of ten percent (10%) per annum on the amount of the
deficiency from the date(s) payment was initially due, or name an independent
certified public accounting firm satisfactory to Licensor not previously
retained by licensor or Cosmar or any of their respective affiliates or
affiliated persons to perform a new audit for the period that was the subject of
the Payment Audit (the "Independent Audit"). If Cosmar and Licensor cannot agree
upon such a firm, then Cosmar may name such a firm from among the 50 largest
national accounting firms or the 15 largest Los Angeles accounting firms (as
shown in the latest Los Angeles Business Journal listing or other published
source).
5.2 Within sixty (60) days after the naming of a firm
to perform the Independent Audit (the "Independent Firm"), the Independent Firm
shall set the proper payment for the audited period, including any interest due
as hereinafter prescribed, and shall notify Licensor and Cosmar in writing of
the amount. During the course of the Independent Audit, Licensor and Cosmar
shall be entitled to make whatever timely submissions they reasonably desire to
the Independent Firm. The determination of the Independent Firm shall be final
and binding on the parties; provided, however, that in the event the
determination depends upon an interpretation of this Agreement, such Independent
Firm shall seek advice of counsel acceptable to the parties hereto, or the
parties shall resolve any such disagreement about interpretation by submission
to arbitration as provided hereunder.
5.3 After the royalty payment due as aforesaid has
been set, Cosmar shall promptly make payment of the amount due, plus simple
interest at the rate of ten percent (10%) per annum from the date payment was
initially due, all as determined by the Independent Firm.
5.4 All fees and expenses of any Payment Audit or
Independent Audit shall be paid by Licensor, provided, however, that if any
additional amount claimed by Licensor, after any Payment Audit, is paid or
payable by Cosmar and the additional amount paid or payable exceeds by more than
three percent (3%) the amount previously paid by Cosmar with respect to the
period audited, or is not paid and Cosmar does not name an independent Firm as
required above, or if the amounts which should have been paid during the audited
period, as determined by the Independent Audit, is greater than the actual
payments made by Cosmar during the period audited, and the incremental amount
exceeds by more than three percent (3%) the actual amount paid by Cosmar, then
the reasonable fees and expenses of the Payment Audit and any Independent Audit
shall be paid by Cosmar. Licensor shall be entitled to a maximum of one (1)
Payment Audit in any one Royalty Year; provided, however, that any Payment Audit
the costs of which are required to be borne by Cosmar shall not count for
purposes of the foregoing limitation.
5.5 During any Payment Audit, all periods covered by
this Agreement not previously subject of a Payment Audit may be examined and no
more.
10
<PAGE> 11
Notwithstanding any contrary provision herein, no firm which has previously
performed an Independent Audit shall be virtue of that fact alone be
disqualified from performing an Independent Audit.
6. Representations and Warranties of Licensor
Licensor represents and warrants that as of the date of the
execution of this Agreement.
6.1 Licensor has the exclusive right to use and
practice the inventions disclosed in the Patent, free and clear of any liens,
encumbrances, licenses (other than this Agreement) or, to the best of Licensor's
knowledge, claims of any nature relating to or affecting Licensor's right to use
and practice such inventions, other than and as set forth in Section 9.5 hereof,
and has made no agreement (with the exception of an agreement with Pro Finish
U.S.A., Ltd.) regarding distribution of Licensed Product to which this Agreement
and the rights of Licensee hereunder is subject with respect to the Patent or
Licensor's related know-how disclosed to Cosmar by Licensor hereunder (relating
to the storage, shelf-life, packaging and marketing of Licensed Products) which
is in conflict with this Agreement;
6.2 Except as previously disclosed to Cosmar in
writing, Licensor has received no notice, written or oral, of any action or
claim with respect to the product safety or efficacy of any of the Licensed
Product, either as a whole or as to any component thereof, nor has Licensor
received any report relating to the same;
6.3 Licensor has not at any time filed, or caused to
be filed, applications for patents, or obtained in its name, or caused to be
obtained in the name of others, any patents in the United States other than the
Patent, or filed in any foreign country any patent or similar applications or
registrations with respect to the Licensed Products, the Patented Process, or
any Improvements thereof.
7. Representations and Warranties of Cosmar.
Cosmar represents and warrants to Licensor as follows:
7.1 Cosmar is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
7.2 The execution, delivery and performance of this
Agreement by Cosmar have been duly authorized by all necessary corporate action.
This Agreement has been duly executed by Cosmar and constitutes a valid and
legally binding obligation of Cosmar enforceable against Cosmar in accordance
with its terms, except to the extent that enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws relating to or
affecting generally the
11
<PAGE> 12
enforcement of creditors' rights, and subject to the effect of general
principles of equity. Cosmar has obtained all necessary authorizations,
consents, licenses and approvals, governmental and otherwise, presently required
for the execution and delivery of this Agreement and performance of its
obligations hereunder and is in compliance therewith in all material respects.
7.3 The execution, delivery and performance of this
Agreement by Cosmar in accordance with its terms will not, with or without the
giving of notice of the passage of time, or both, conflict with, result in a
default, right to accelerate or loss of rights under, or result in the creation
of any lien, claim or encumbrance on the assets of Cosmar or require the consent
of any third party or governmental authority, pursuant to (i) any provision of
the certificate of incorporation or by-laws of Cosmar or (ii) any franchise,
mortgage, indenture or deed of trust or any lease, license or other agreement or
any law, rule, regulation, order, judgment or decree to which Cosmar is a party
or by which Cosmar (or any of its assets, properties, operations or businesses)
may be bound, subject to or affected.
7.4 There are no material claims, legal actions,
arbitrations, governmental investigations or other legal or administrative or
other proceedings, decrees or judgments in progress, pending or in effect, or to
the knowledge of Cosmar threatened, against or relating to Cosmar, its
properties, assets or business or the transactions contemplated by this
Agreement which, if resolved adversely to Cosmar, would, individually, or
together, have a material adverse effect on Cosmar's financial condition or its
ability to perform its obligations under this Agreement.
8. Marketing.
8.1 Cosmar agrees that it will mark all Licensed
Products made and/or sold by it with appropriate patent pending or patent
notices as specified by applicable patent laws.
8.2 Licensee agrees to commence selling the Licensed
Product not later than February 1, 1996 and to use its best efforts to market
and sell the Licensed Product to the Licensed Markets. Licensee further agrees
to spend the amounts set forth on Schedule A hereto in the manner and for the
purposes set forth on said Schedule in furtherance of its marketing efforts.
9. Patent Litigation Involving Third Parties.
9.1 Provided that Cosmar has made substantially all
payments required to be made by it hereunder and is otherwise not in material
default under this Agreement, Licensor shall defend solely at its own expense,
and hold Cosmar harmless from and against any actions and claims brought by
third parties against Licensor and/or Cosmar concerning Licensor's rights with
respect to the Patent and its related know-how, or the right of Licensor to
enter into this
12
<PAGE> 13
Agreement. The provisions of Section 3.7 of this Agreement relating to
indemnification procedures, including, without limitation, Cosmar's obligation
to give notice regarding claims and Licensor's right to defend, are hereby
incorporated in full in this section as if fully set forth herein.
9.2 Provided that Cosmar has made substantially all
payments required to be made by it hereunder and is otherwise not in material
default under this Agreement, Licensor shall defend solely at its expense, and
hold Cosmar harmless from and against any actions and claims of infringement
that may be brought by third parties in the United States against Cosmar
relating to Cosmar's exercise of any rights or licenses granted to it pursuant
to this Agreement. The provisions of Section 3.7 of this Agreement relating to
indemnification procedures, including, without limitation, Cosmar's obligation
to give notice regarding clams and Licensor's right to defend, are hereby
incorporated in full in this section as if fully set forth herein.
9.3 In the event either Licensor or Cosmar discovers
any infringement of the Patent or related know-how by a third party in the
Licensed Markets, the other party shall be promptly notified of such
infringement. Except as hereinafter provided, Licensor shall not create any
controversy with an alleged infringer without Cosmar's prior written consent.
Cosmar may, at its option and at its sole expense, through attorneys of its own
selection, take appropriate action to terminate or prevent the infringement. In
the event of any legal action initiated by or with the prior written consent of
Cosmar and relating to an infringement by a third party of the Patent or related
know-how in any of the Licensed Markets, all costs and expenses and such legal
action shall be paid by Cosmar and all recoveries shall be retained by Cosmar.
If Cosmar takes no action within one hundred twenty (120) days of the discovery
of the infringement, then Licensor may, at its option and at its sole expense,
take such action as it deems appropriate to protect its rights without
interfering with or adversely affecting the benefits enjoyed by Cosmar
hereunder. Each party, without cost or expense to itself, shall render all
reasonable cooperation and assistance to the other in connection with any legal
action brought by either party, including, without limitation, consenting to be
named or joined as a party therein to the event that either party may be deemed
a necessary or indispensable party to a legal proceeding brought or proposed to
be brought by the other party. The parties may jointly initiate any legal action
upon such terms as they shall mutually agree.
9.4 In light of the fact that no foreign patent
applications or registrations were made by the inventor of the Licensed Products
and the Patented Process, it is possible that Cosmar's foreign sale of Licensed
Product may infringe upon the rights of one or more third parties in one or more
foreign countries ("Foreign Infringement"). In the event of any claim or dispute
between Cosmar and a third party regarding a Foreign Infringement, as a result
of which Cosmar becomes obligated pursuant to a written instrument, a copy of
which shall be furnished to Licensor, to make any payment, in the nature of a
royalty, licensee or otherwise, then
13
<PAGE> 14
as to, but only to the extent of, sales of Licensed Product or similar product
in the foreign country or countries affected, Cosmar shall be relieved of any
obligation to Licensor under Sections 3.2 and 4 of this Agreement,
notwithstanding the provisions thereof to the contrary; provided, however, that
to the extent any such payment(s) in respect of a Foreign Infringement is less
than the sum of (a) the greater of the Product Royalty and Minimum Royalty
payment(s) and (b) Section 4.7 Payments that would otherwise be due, Cosmar
shall make payment of the difference to Licensor when the same would otherwise
be due. The foregoing provision shall not affect Licensor's obligation to defend
Cosmar against a claim of Foreign Infringement pursuant to Section 9.2 above.
9.5 Notwithstanding anything contained in this
Agreement, Licensor shall have no liability whatsoever for any claim made under,
through, as a result of or by the holder of the Russo Patent U.S. Patent No.
4,687,827 ("Russo Patent") nor shall Cosmar make any claim against Licensor
under the provisions of this Agreement, including, without limitation the
indemnification provisions or otherwise as a result of the existence or use of
the Russo Patent. Licensee shall be responsible to enter into any arrangement,
and pay all costs, licenses fees, royalties and other expenses in connection
therewith, as may be necessary to resolve any claim or demand under the Russo
Patent or by reason of its existence.
10. Duration and Termination.
10.1 Unless otherwise terminated as hereinafter set
forth, this Agreement and the license granted hereby shall continue in full
force and effect until December 31, 2000. Cosmar shall have the right to
terminate this Agreement at any time after December 31, 1998, with six (6)
months prior written notice to Licensor.
10.2 If Cosmar shall at any time default in rendering
any of the statements required hereunder, in the payment of any monies due
hereunder, or in fulfilling any of its other material obligations hereof, and
such default shall not be cured within 10 days, in the case of a monetary
default, or 45 days in the case of a non-monetary default, in each case after
written notice thereof is given by Licensor to Cosmar, Licensor shall have the
right to terminate this Agreement by giving written notice of termination to
Cosmar. Cosmar shall have the right to cure any such default up to the effective
date of termination.
10.3 Licensor shall have the right to terminate this
Agreement by giving written notice of termination to Cosmar in the event of any
one of the following, such termination being effective within 60 days of receipt
of such notice, unless such event is cured within such 60 day period:
(a) Filing of a petition of insolvency or
bankruptcy of Cosmar or Renaissance Corp., whether voluntary or involuntary;
14
<PAGE> 15
(b) Appointment of a trustee or receiver for
Cosmar or Renaissance Corp.; or
(c) Any assignment by Cosmar or Renaissance
Corp. for the benefit of creditors.
10.4 In the event that substantially all claims of
the Patent are held invalid in an unappealed or unappealable decision of a court
of competent jurisdiction, either party may at any time thereafter, at its sole
discretion, elect to terminate this Agreement in its entirety upon ten (10)
days' written notice to the other party.
10.5 The expiration or early termination of this
Agreement for any cause whatsoever shall in no manner interfere with, affect or
prevent the collection by Licensor of any and all sums of money due to it under
this Agreement. Upon the expiration or termination of this Agreement for any
reason, Cosmar's payments required by Section 4, but not yet due, shall become
due and payable as if such Agreement had not been terminated, including, but not
limited to, payments on the sale of Cosmar's inventory of Licensed Product which
Cosmar shall be entitled to continue to sell in the ordinary course of its
business. Moreover, Cosmar shall have a limited, non-exclusive license (i) to
complete work-in-process subsequent to the date of expiration or termination
hereof, provided such work-in-process was undertaken prior to such date of
expiration or termination, subject to payment of the Product Royalty, Minimum
Royalty and Section 4.7 Payments which accrues on the sale of the Licensed
Product resulting from the completion of said work-in-progress; and (ii) to
produce Licensed Product subsequent to the date of expiration or termination
hereof it and as required to fulfill purchase orders or other commitments,
provided that such purchase orders were accepted or such commitments made prior
to such date of expiration or termination, subject to payment of the Product
Royalty, Minimum Royalty and Section 4.7 Payments on the sale thereof. The
foregoing does not confer upon Cosmar any right to manufacture Licensed Product.
11. Miscellaneous.
11.1 Further Action. Each of the parties hereto
agrees that it will, at any time, and from time to time, after the date hereof,
upon the request of the other party, do, execute, acknowledge and deliver, or
will cause to be done, executed, acknowledged and delivered, all such further
acts, deeds, assignments, transfers, conveyances, powers of attorney and
assurances as may be required or effectuate the provisions and intent of this
Agreement.
11.2 Notices. All notices, consents, requests,
demands and other communications hereunder shall be in writing and shall be
deemed to have been duly given or delivered if delivered personally or mailed by
registered or certified mail, return receipt requested, with first class postage
prepaid as follows:
15
<PAGE> 16
(a) If to Cosmar, to:
Cosmar Corporation
7432 Prince Drive
Huntington Beach, California 72647
Attention: Mark Rovner
(b) If to Licensor, to:
The Nail Consultants, Ltd.
10171 N. 19th Avenue
Suite 1
Phoenix, Arizona 85021
Attention: Ms. Renee Resler
with a copy to:
Robinson Silverman Pearce Aronsohn & Berman
1290 Avenue of the Americas
New York, New York 10104
Attention: Alan S. Pearce, Esq.
or to such other address as Cosmar or Licensor shall have last designed by
notice to the other party. All notices mailed shall be deemed to have been given
or received when actually received or when acceptance of such notice has been
declined.
11.3 Modification. This Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
herein and shall not be modified or amended except by an instrument in writing
signed by or on behalf of the parties hereto. No course of prior dealings
between the parties and no usage of the trade shall be relevant or admissible to
supplement, explain or vary any of the terms of this Agreement. Acceptance of,
or acquiescence in, a course of performance rendered under this or any prior
agreement shall not be relevant or admissible to determine the meaning of this
Agreement even through the accepting or acquiescing party has knowledge of the
nature of the performance and an opportunity to make objection. No other
representations, understandings or agreements have been made or relied upon in
the making of this Agreement other than those specifically set forth herein.
11.4 California Law to Govern. This Agreement shall
be governed by and construed and enforced in accordance with the laws of the
State of California applied to agreements to be fully performed within the State
of California.
16
<PAGE> 17
11.5 Attorneys' Fees. In the event of any
controversy, dispute or claim arising out of, or relating to this Agreement, the
prevailing party in any litigation or arbitration shall be entitled to receive
reimbursement for all of its reasonably incurred attorneys' fees, costs and
expenses of such litigation or arbitration. In the event of litigation or
arbitration which results in a final judgment or award, the prevailing party
shall be that party who obtains such judgment or award in its favor. A judgment
or award shall be deemed final after all rights of appeal have been exhausted.
11.6 Arbitration. Any controversy, dispute or claim
arising out of, or relating to, this Agreement shall, unless resolved by
agreement of the parties, be settled by arbitration in Phoenix, Arizona in
accordance with the Rules of the American Arbitration Association then existing.
This Agreement to arbitrate shall be specifically enforceable under the
prevailing arbitration law of the State of Arizona. For the purpose of enforcing
an arbitration award granted herein or enforcing any other provisions or rights
hereunder or connected hereto, the parties hereby agree and consent to in
personam jurisdiction of the courts of the State of Arizona, United States of
America. The award rendered by the arbitrator(s) shall be final and judgment may
be entered upon the award in any court of the State of Arizona having
jurisdiction of the matter.
11.7 Waiver. No waiver by either party hereto,
whether express or implied, or any of its rights under any provision of this
Agreement at any particular time shall constitute a waiver of such party's
rights under such provision at any other time or a waiver of such party's rights
under any other provision of this Agreement. No failure by either party hereto
to take any action against any breach of this Agreement or default by the other
party hereto shall constitute a waiver of the former party's right to enforce
any provision of this Agreement or to take action against each breach or default
or any subsequent breach or default by such other party.
11.8 Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and upon their respective
successors and assigns. Each party shall have the right freely to assign,
transfer or subcontract this Agreement or any of its rights or obligations
hereunder without the consent of the other party.
11.9 Severability. Any provisions of this Agreement
which may be prohibited by law or otherwise held invalid shall be ineffective
only to the extent of such prohibition or invalidity and shall not invalidate or
otherwise render ineffective the remaining provisions of this Agreement.
11.10 Relationship of the Parties. The parties hereto
are independent contractors and nothing contained in this Agreement shall be
deemed or construed to create the relationship of partnership or joint venture
or principal and
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<PAGE> 18
agent or of any association or relationship between the parties other than that
of independent licensor and licensee, and vendor and vendee of the Licensed
Products.
11.11 Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
11.12 Expenses. Licensor and Cosmar shall each bear
their respective expenses in connection with the transactions herein
contemplated.
11.13 Section Headings. Section headings shall not be
of any force or effect whatsoever in the interpretation of this Agreement and
shall be deemed inserted and used solely for the convenience of the parties.
11.14 Counsel. The undersigned have carefully read
the foregoing and understand the provisions thereof, and, having consulted or
had the opportunity to consent with their separate counsel, acknowledge that
they have signed the same of their own free act and deed.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first herein written.
COSMAR CORPORATION
By /s/ Illegible
--------------------------------
THE NAIL CONSULTANTS, LTD.
By /s/ Renee Resler, Pres.
--------------------------------
Renee Resler, President
18
<PAGE> 19
ULTRAGEL
MARKETING SUPPORT - YEAR ONE
<TABLE>
<S> <C>
TRADE PROMO 401,862
COMMISSIONS 587,628
CO-OP ADVERTISING 602,793
CONSUMER PROMOS/PR 250,000
SELLING MATERIAL 50,000
DISPLAYS - Promotional 150,000
DISPLAYS - Permanent 65,000
MEDIA 1,500,000
----------
TOTAL ADV/PROMO $3,607,282
</TABLE>
19
<PAGE> 1
Exhibit 10.143
[LOGO] RENAISSANCE COSMETICS, INC.
1996 INCENTIVE PLAN PAYOUT SCHEDULE
PAYMENT OF INCENTIVE AWARD IS BASED ON THE SUCCESS OF THE BUSINESS UNIT IN
ACCOMPLISHING ITS GOAL OF EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATION (EBITDA) ON A FISCAL YEAR BASIS.
EMPLOYEES ARE NOTIFIED UPON HIRE IF THEY ARE ELIGIBLE TO PARTICIPATE IN THE
INCENTIVE PLAN.
PERCENTAGE OF AWARD FOR EACH EMPLOYEE IS BASED ON THEIR POSITION AND IS
COMMUNICATED UPON HIRE OR ELIGIBILITY.
PAYMENT BEGINS AT 90% OF EBITDA AND THERE IS NO PAYMENT IF BUSINESS UNIT EARNS
LESS THAN 90%.
THE PAYMENT SCHEDULE IS AS FOLLOWS:
PERCENTAGE OF PERCENTAGE OF
EBITDA AWARD
90% 5%
91% 10%
92% 20%
93% 30%
94% 40%
95% 50%
96% 60%
97% 70%
98% 80%
99% 90%
100% 100%
IF BUSINESS UNIT EXCEEDS 100% OF EBITDA, THE AMOUNT OF AWARD INCREASES 1% FOR
EACH FULL 1% OVER EBITDA GOAL THUS, 101% OF EBITDA RESULTS IN 101% OF AWARD.
AN EMPLOYEE MUST BE ACTIVELY EMPLOYED ON DAY OF INCENTIVE PAYOUT IN ORDER TO BE
ELIGIBLE FOR A PAYMENT.
AN EMPLOYEE WHO IS ACTIVELY EMPLOYED FOR LESS THAN A FULL YEAR WILL HAVE THEIR
AWARD PRORATED ACCORDINGLY FOR EACH FULL MONTH OF EMPLOYMENT.
ANY EMPLOYEE HIRED DURING THE LAST QUARTER OF A FISCAL YEAR IS NOT ELIGIBLE FOR
AN AWARD FOR THAT YEAR.
EACH YEAR THE INCENTIVE PLAN IS SUBJECT TO APPROVAL BY THE CHAIRMAN AND THE
BOARD OF DIRECTORS.
FINAL AWARD PAYMENTS NEED APPROVAL OF THE CHAIRMAN.
<PAGE> 1
Exhibit 10.144
AGREEMENT
THIS AGREEMENT made as of the 1st day of July, 1995 by and among MEM
COMPANY, INC., a New York corporation, with offices in New Jersey and a mailing
address at P.O. Box 928, Northvale, New Jersey 07647 (interchangeably "LICENSOR"
or "MEM"), and FILO AMERICA, INC. (interchangeably "LICENSEE" or "FILO"), a
California corporation with offices at 10850 Wilshire Boulevard, Suite 550, Los
Angeles, California 90024,
WITNESSETH:
WHEREAS, MEM is the owner of the trademark "ENGLISH LEATHER" and the
design frequently accompanying it for numerous products of interest to men in
International Class 3; and
WHEREAS, Filo is capable of manufacturing or causing to be manufactured
manual shaving tools and accessories for the reusable and disposable markets;
and
WHEREAS, MEM is willing to license its trademarks to Filo for use on
and in connection with the sale of shaving equipment as well as other related
items; and
WHEREAS, Filo desires to obtain the use of the "ENGLISH LEATHER"
trademark to enable it to offer products with increased potential to capture a
share of the valuable shaving equipment market;
1
<PAGE> 2
NOW, THEREFORE, in consideration of the covenants of each of the
parties hereto to each other party the receipt and sufficiency of which are
hereby acknowledged, MEM and Filo agree as follows:
1. DEFINITIONS
(a) The term "AFFILIATED BUSINESS ORGANIZATIONS", "AFFILIATED COMPANY"
or "AFFILIATES" will mean any person, corporation, or other legal entity that
directly or indirectly, through one or more intermediaries, controls or is
controlled by or is under common control with the company named.
(b) The terms "CLAIM" or "CLAIMS" will comprehend any means employed by
anyone, whether in or out of court, to obtain legal (e.g. monetary) or equitable
(e.g. injunctive) relief from Licensor.
(c) The term "CONTRACT QUARTER" will mean any of the successive three
(3) month periods next following and including the first Contract Quarter which
will begin on January 1, 1996 and end on March 31, 1996.
(d) The term "CONTRACT YEAR" will mean each successive yearlong period
this agreement is in force with the exception of the 1st contract year, which
begins on the Effective Date and ends on December 31, 1996 (e.g. the fourth
Contract Year would be the period January 1, 1999 - December 31, 1999).
(e) The term "CONTROL" (including the terms "CONTROLLING", "CONTROLLED
BY" and "UNDER COMMON CONTROL WITH"), as used herein will mean possessing,
directly or indirectly, the
2
<PAGE> 3
power to direct or cause the direction of the management and policies of any
person, firm or corporation, whether through ownership of voting securities, by
contract or otherwise.
(f) The term "COSTS" will mean any money expended by Licensor on
account of a Claim, whether for damages, reasonable legal fees, litigation
expenses or otherwise.
(g) The term "DUE DATE" will mean the last business day of the month
next following any Calendar Quarter.
(h) The "EFFECTIVE DATE" is the date the last party executes this
agreement.
(i) The term "LICENSE" will mean the exclusive and non-transferable
license to use the Trademarks to manufacture, advertise, promote, sell and
distribute the Products within the Territory.
(j) The term "NET SALES" will mean the amount of money charged and
billed by Licensee to Unrelated Customers purchasing the Products ("STANDARD
CHARGES") after deducting (i) actual trade discounts (unless deducted before
calculating Standard Charges), (ii) returns, (iii) taxes (shown on Licensee's
invoices and payable by purchasers), and (iv) transportation and postage charges
(to the extent prepaid by the Licensee and billed on its invoices as a separate
item). It is understood, however, that the following items may not be deducted
from Standard Charges in calculating Net Sales: (aa) cash discounts, (bb)
advertising allowances, or (cc) promotional allowances.
(k) The term "PRODUCTS" will mean the Products on Schedule A annexed
hereto and made a part hereof.
3
<PAGE> 4
(l) The term "TERRITORY" will mean the United States of America, and
the countries specified on Schedule B. Upon written notice, incorporating a lead
time for actual deliveries of not less than 60 days, and absent MEM's written
objection within 10 business days of its receipt of such notice, Filo may add
countries to Schedule B.
(m) The terms "TRADEMARK" or "TRADEMARKS" will mean the registered
trademark "ENGLISH LEATHER", and the registered design frequently accompanying
its trademark in the countries in the Territory as more fully set forth on
Schedule C, annexed hereto and made a part hereof.
(n) The term "UNRELATED CUSTOMERS" means all customers purchasing the
Products which are not Affiliated Business Organizations.
2. REPRESENTATION BY LICENSEE
(a) Filo represents to the Licensor that its present financial
structure and present facilities are such that they are now, and, absent some
unforeseeable circumstance, will be throughout the term of this agreement, in a
favorable position to manufacture, distribute, advertise and sell the Products
within the Territory under the license hereinafter granted with respect to the
Trademarks.
(b) Filo represents to Licensor that no Affiliated Business
Organization of it is a competitor of Licensor.
(c) Filo represents that it will not sell or sponsor the sale of a line
of toiletries and cosmetics in the Territory which is competitive with any line
of MEM's.
4
<PAGE> 5
3. GRANT OF LICENSE TO USE OF THE TRADEMARK
(a) Licensor hereby grants to Licensee during the term of this
agreement, and subject to its terms and conditions as hereinafter set forth, the
License.
(b) Licensee's policy (in using the Trademarks) of sale, distribution
and use will not reflect adversely upon Licensor's Trademarks. For example,
Licensee will only sell to organizations having established outlets so as to
exclude sales to flea markets and sidewalk vendors. Licensee will provide, on an
annual basis, to Licensor, a customer list of those organizations purchasing or
otherwise receiving Products from Licensee with the net volume shown for each
customer. This customer list will be held by Licensor under the same terms and
conditions of confidentiality as set forth in paragraph 7(b)(v) of this
agreement.
(c) If the Products are not brought to market within the Territory
within twelve months of the Effective Date, the Licensor may terminate the
License by sending written notice to the Licensee, effective upon receipt.
(d) Prior to any use by the Licensee of the Trademarks it must submit
to the Licensor for its approval, each different designs, materials, packages,
labels, promotional materials and advertising by means of which it intends to
market, sell or distribute any and all Products on which the Trademarks appear.
Upon receipt, Licensor will review same. If Licensor makes no written comments
containing reasonable objections within 10 business days of such receipt, then
Licensee may deem all such submitted material approved. Licensee will amend to
the satisfaction of Licensor or discard any such materials which are not
approved by Licensor.
5
<PAGE> 6
(e) In conjunction with each and every use of the Trademarks, Licensee
will cause to appear adjacent to it, appropriate statutory notice of
registration or application for registration ((R) or TM as the case may be).
Licensee will also cause to appear on or within all advertising, promotional
display, or other printed material bearing the Trademarks, the following or a
notice to the same effect: "ENGLISH LEATHER" is a registered trademark of MEM
Company, Inc., Northvale, New Jersey, and is being used under a license from MEM
Company, Inc.
(f) Licensee will indemnify and hold Licensor harmless from any Costs
and will defend Licensor against any Claims in accordance with the provisions of
Section 11 of this agreement.
4. INITIAL OBLIGATIONS OF LICENSEE
(a) Licensee is an independent contractor and will, at its own expense,
adapt such of its facilities, purchase such raw materials, hire such personnel,
arrange for such transportation and delivery, as are necessary to commence the
manufacture and sale of the Products. Licensee will at its sole expense, comply
with all Federal, State and local laws and regulations relating to the
manufacture and sale of the Products, including, but not limited to, all
labeling requirements.
(b) Licensee will maintain, at its sole expense, products liability
insurance covering both Licensor, Licensee, and its agent, Fashion Licensing of
America, Inc., for bodily injury and property damage liability in at least the
Combined Single Limit of U.S. $1,000,000.00. Such insurance will cover the
Products throughout the Territory during the period of the License. Licensee
will deliver to Licensor, promptly after execution of this agreement, a
certificate issued by a nationally reputable insurance company evidencing such
coverage and providing that such insurance may not be canceled,
6
<PAGE> 7
except on thirty (30) days written notice to Licensor and Licensee. If Licensee
fails to maintain such insurance, Licensor may obtain it and charge the cost
thereof to Licensee or may treat such failure as a breach of a material
provision of this agreement.
5. INSPECTION
(a) Licensee will permit Licensor, by representatives designated by
Licensor, to inspect the design and manufacture of the Products manufactured by
Licensee for sale by it under the Trademarks. All such inspections will be
during normal business hours and upon reasonable notice. At all times, Licensee
will comply with the reasonable quality control procedures furnished or
approved, from time to time, in writing by Licensor.
(b) Licensee will submit to Licensor three (3) specimens of each of the
Products prior to its first being offered for sale. In order not to
unnecessarily protract the time between manufacture and delivery, it is
understood that such specimens may be submitted by Filo to MEM at an early stage
in the operation of this agreement. By sending such specimens, Filo warrants
that each manufacturing run of Products will substantially conform to these
specimens. As proof thereof, Filo will send specimens of each new manufacturing
batch to MEM as the Products are being shipped. Should MEM object to the quality
of any such specimen, Filo will correct the error as follows: (i) prior to
manufacture if MEM objects to the initial specimens, or (ii) in the next
succeeding manufacturing batch, if MEM objects to later submitted specimens. In
its review, Licensor will indicate its approval or disapproval of each item with
comments. If the Licensor fails to comment within 10 business days
7
<PAGE> 8
of receipt of a specimen, the Product represented by the specimen will be deemed
to have been approved. In addition, the Licensor may, from time to time, request
samples of the Products.
6. TITLE TO THE TRADEMARKS
(a) Licensee recognizes Licensor's title to the Trademarks and the good
will associated with them and their importance to Licensor, and will not at any
time do or suffer to be done any act or thing which will in any way impair the
rights of Licensor in and to the Trademarks. It is understood that Licensee will
not acquire nor will it claim title to the Trademarks by virtue of the license
granted to Licensee herein, or Licensee's use of the Trademarks.
(b) In the event any infringement of the rights of Licensor to any of
the Trademarks in the Territory comes to the notice of Licensee during the term
of this agreement, Licensee will promptly notify Licensor, in writing, and will
join with Licensor, upon Licensor's written request and at Licensor's expense in
taking such steps, if any, as Licensor deems advisable to protect its rights.
Licensee will take no action independent of Licensor without the express written
consent of Licensor.
(c) During the term of this agreement, the Licensor will maintain the
registration of the existing Trademarks in the Territory, in full force and
effect, free and clear of any and all cancellation petitions, interferences or
objections. It is understood that MEM may have to extend the reach of the
Trademarks to one or more international classes in some or all of the countries
in the Territory. To the extent required, MEM will move expeditiously to file
the applications necessary to effect these changes and will prosecute them
diligently until they are accepted or rejected for
8
<PAGE> 9
registration in each country. In the unlikely event of any such rejection, MEM
and Filo will decide together whether to continue to ship to the country
rejecting MEM's application. MEM's obligation to obtain new registrations is
limited to the word mark "ENGLISH LEATHER" and does not extend to any design not
already incorporated into an existing registration in any country in the
Territory.
7. ROYALTIES
(a) Payment.
(i) Licensee will pay to Licensor a royalty of four (4%) percent for
the first $3,000,000 of Net Sales and a royalty of five (5%) percent of all Net
Sales in excess of this sum in any Contract Year.
(ii) Irrespective of sales, Filo will pay MEM minimum guaranteed
royalties each year (the "MGR") in accordance with the following schedule:
<TABLE>
<S> <C>
1st Contract Year $ 20,000
2nd Contract Year 40,000
3rd Contract Year 80,000
4th Contract Year 120,000
5th Contract Year 200,000
6th Contract Year 240,000
Each Succeeding Contract Year 270,000
</TABLE>
It is understood that the MGR for the 1st Contract Year will be paid $10,000
upon the execution of this agreement and $2,500 on the first business day of
each of the next successive four Contract Quarters.
9
<PAGE> 10
(iii) Products will be deemed to have been sold on the earliest of the
following dates: (A) when invoiced, (B) when delivered, shipped or mailed or (C)
when payment has been received.
(b) Accounting.
(i) Licensee will maintain itemized, complete and accurate books of
account with respect to all Products sold under this agreement.
(ii) Licensee will render to Licensor an accounting, certified by a
financial officer of Licensee, specifying exactly how royalties were computed
including how Net Sales were calculated (i.e. by enumerating all deductions
used). This accounting must be rendered on or before each Due Date.
(iii) On or before each Due Date, Licensee will pay Licensor all
royalties owed from sales during the previous Contract Quarter.
(iv) In the event Licensee fails to make any payment due on a Due Date,
Licensor will give Licensee written notice. Upon receipt of such notice,
Licensee will have five (5) business days to pay. Thereafter, Licensor may
charge Licensee interest on the unpaid amount at the annual rate of two (2%)
percent above the prime rate reported by the Wall Street Journal on that Due
Date.
(v) Licensor may review or may designate, at its expense, a certified
public accountant to review the accounts of Licensee, for a period of not more
than four (4) Contract Quarters immediately preceding the date of review to
determine whether proper accounting and
10
<PAGE> 11
payments have been made. Any such review will take place upon reasonable notice
to Licensee and within regular business hours. Acceptance or receipt of payment
by Licensor will not preclude it from questioning the correctness of any
statement or royalty payment. Any review of Licensee's accounts will be made
under the strictest confidentiality. No material obtained by Licensor or its
designated auditor may be used or disclosed for purposes other than enforcing
compliance with the terms of this agreement without the prior written consent of
Licensee, unless ordered to do so by a court or other tribunal having
jurisdiction over Licensor, in which case Licensor will give reasonable notice
to Licensee. If the audit reveals an underpayment, Licensee will immediately
remit payment to Licensor.
8. Promotional Activities
Licensee will use its best efforts to fully promote the sale of the
Products in the Territory, and maintain the high standards of Licensor as to
advertising and all other promotional material. No advertising or promotional
material may be used by Licensee until it has been submitted to and approved by
Licensor, in writing, in advance, except cooperative advertisements. All
advertising and promotional costs are to be borne by Licensee. Licensor's
approval will not be unreasonably withheld and, if no objection is raised by
Licensor within ten (10) business days of receipt of the material, Licensor will
be deemed to have approved them. In addition, Licensee will expend at least two
(2%) percent of Net Sales each Contract Year for general advertising and
promotion of the Products including cooperative advertisements.
11
<PAGE> 12
9. TERM
Unless sooner terminated as hereinafter provided, this agreement will
commence as of the Effective Date and run for successive two-year periods
thereafter, unless sooner terminated at the end of one of these terms in
accordance with Section 10 hereof. The first such term will expire on December
31, 1997.
10. TERMINATION
(a) Either Licensor or Licensee may terminate this agreement, if it
gives written notice to the other party to the effect that that party has
committed a breach of a material provision of this agreement and the party
receiving said notice fails to cure that breach within thirty (30) days of such
receipt.
(b) Either Licensor or Licensee may terminate this agreement without
cause if it gives the other party written notice at least sixty (60) days prior
to the expiration of any successive two-year term.
(c) Licensor may terminate this agreement by giving written notice to
Licensee effective on receipt, for damage to the commercial impression of the
Trademarks, if Licensee (i) becomes insolvent, (ii) files a petition in
bankruptcy or insolvency, (iii) files any petition or answer seeking
reorganization of Licensee's business under any law relating to insolvency or
bankruptcy, (iv) makes an assignment for the benefit of creditors, or (v) fails
within thirty (30) days to secure the dismissal of any receiver, trustee or
liquidator appointed for any of its property.
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<PAGE> 13
(d) Licensor may terminate this agreement by giving written notice to
Licensee effective on receipt (i) if Licensee fails, within 30 days of its
accrual, to pay any monies owed to Licensor pursuant to this agreement, (ii) if
any competitor of Licensor becomes an Affiliate of Licensee, or (iii) if
Licensee fails to bring the Products to market as required by Subparagraph 3(c).
(e) If Licensee becomes Controlled by any persons or other legal
entities other than those controlling them or either of them as of the Effective
Date (individually or collectively the "New Owner"), the entity experiencing the
change will notify MEM within ten (10) business days, identifying the new
Controlling person or persons and providing verifiable information as to the New
Owner's financial standing. If within a similar period, MEM does not approve of
the New Owner, which approval will not be unreasonably withheld, this agreement
will terminate automatically at the end of such period.
(f) Upon termination of this agreement, Licensee will immediately and
completely discontinue use of the Trademarks, provided, however, that Licensee
may sell existing stock if it complies with subparagraph (g) of this paragraph.
(g) For a period not to exceed 180 days immediately following
termination of this agreement, Licensee may sell any completed Products it had
in stock on the date of termination. It is understood that Licensee will pay
Licensor all royalties due from such sales within thirty (30) days of receipt of
notice from Filo that it has made its last shipment of Products. Within 10
business days after the end of this 180-day period, an officer of the Licensee
will deliver to the Licensor a certification that
13
<PAGE> 14
all Products in the possession or under the control of the Licensee have been
destroyed or given to charity.
(h) Termination for any reason will not prejudice the rights of either
party to collect monies owed it by the other party hereunder or to prosecute
claims for damages against the other party.
11. Indemnification
(a) Licensee will indemnify Licensor and hold it harmless from any
Costs and will defend Licensor against any Claims arising out of or in
connection with Licensee's performance under the License, including but not
limited to the manufacture, use, marketing, sale and distribution of the
Products attributable to alleged defects in the Products, and for copyright
infringement, patent infringement or unfair competition caused by or arising out
of the manufacture or sale of the Products.
(h) In the same manner and to the same extent, Licensor will defend and
indemnify Licensee for Costs and against Claims arising out of or in connection
with allegations of trademark infringement.
12. Exoneration from Responsibility for Manufacturing Errors
Neither Licensor nor its employees will have any responsibility for the
operation of the manufacturing facilities of Licensee contemplated under this
agreement, whether upon the recommendation of Licensor or otherwise.
14
<PAGE> 15
13. Arbitration
Any controversy or dispute arising out of or in connection with the
Agreement, whether relating to its interpretation, performance, or termination
may be submitted to arbitration by any party and if so submitted, will be
finally settled by arbitration conducted in accordance with the rules of the
American Arbitration Association then in effect. Any such arbitration will take
place in New Jersey. The decision of a single arbitrator will be binding and
conclusive upon the parties, their successors and assignees, and the parties
will comply with such decision in good faith. Judgment upon the decision of the
arbitrator may be entered in any court having jurisdiction over the party to be
charged. The parties may each seek and the arbitrator may grant in additional to
legal remedies equitable remedies (including, without limitation, temporary
restraining orders, injunctions, preliminary or permanent and attachments) and
each hereby consents to jurisdiction over its legal person in the State and
Federal Courts of New Jersey for the purpose of enforcing such orders.
14. Construction
This agreement will be construed in accordance with the internal laws
of the State of New Jersey.
15. Independent Contractors
Nothing contained in this agreement will constitute Licensee the agents
or legal representatives of Licensor for any purpose whatsoever. Licensee is an
independent contractor with the rights granted hereunder and no others.
15
<PAGE> 16
16. Assignment
This agreement may not be assigned in whole or in part by Licensee
without Licensor's prior written consent and any such purported assignment will
be void. Except as expressly provided herein, this agreement will be binding
upon and inure to the benefit of the parties hereto, their successors and
assigns.
17. Notices
All notices, requests, demands and other communications which are
required or may be given under this agreement will be in writing and will be
deemed to have been given if delivered personally, or sent by facsimile, by
certified mail, return receipt requested, postage prepaid and addressed:
If to Licensor to:
Mr. Gay A. Mayer
MEM Company, Inc.
P.O. Box 928
Northvale, New Jersey 07647
Tel. 201-767-0100
Fax. 201-767-0698
with a copy to:
Dennis J. Helms, Esq.
Mathews, Woodbridge & Collins
100 Thanet Circle
Suite 306
Princeton, New Jersey 08540-3662
Tel. 609-924-3773
Fax. 609-924-3036
16
<PAGE> 17
If to Licensee:
Mr. Fred Pourbaba
Filo America
10850 Wilshire Boulevard-Suite 550
Los Angeles, California 90024
Tel. 310-475-7087
Fax. 310-475-3025
with copies to:
Courtney Wilson, Esq.
Colucci & Umans
101 E. 52nd Street
New York, New York 10022
Tel. 212-935-5700
Fax. 212-935-5728
and
Ms. Maria A. Metzner
Fashion Licensing of America
380 Lexington Avenue, Suite 3200
New York, New York 10168
Tel. 212-370-0770
Fax. 212-370-0778
or to such other addresses as may be furnished, from time to time, in writing,
by the pates hereto.
18. Miscellaneous
(a) This agreement contains all of the understandings of the parties
hereto and no provision of this agreement may be modified except in writing
signed by the parties hereto.
(b) The failure of any party to enforce any right hereunder will not be
deemed a waiver of any other right, whether of a similar nature or otherwise.
17
<PAGE> 18
(c) If any provision of this agreement is declared void by any
arbitrator, court or administrative body of competent jurisdiction, the validity
of all other provisions which may nonetheless by given effect will not be
affected thereby.
(d) The headings used in this agreement are for the convenience of the
parties and have no legal significance.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the day and year first above written.
ATTEST: MEM COMPANY, INC.
Margaret A. Powers By: /s/ Gay A. Mayer
- ------------------------ -----------------------------
Gay A. Mayer
Secretary President
[SEAL)
ATTEST: FILO AMERICA, INC.
/s/ [illegible] By: /s/ Fred Pourbaba
- --------------------- --------------------------
Secretary Fred Pourbaba
[SEAL]
18
<PAGE> 19
SCHEDULE A
1. A cartridge loading razor sold with 3 extra cartridges and marketed as
the "English Leather(R) Shaving System"(TM)
2. A 4-pack of cartridges to fit the razor used in the English Leather(R)
Shaving System"(TM) and marketed as "English Leather(R) Cartridges"(TM)
3 A shaving brush, stand or holder, and razor handle marketed as the
"English Leather(R) Gift Pack"(TM)
4 A 10-pack of disposable razors with twin-bladed heads marketed as the
"English Leather(R) Disposable 10-Pack"(TM)
5. A 5-pack of disposable razors with twin-bladed heads marketed as the
"English Leather(R) Disposable 5-Pack"(TM)
19
<PAGE> 20
SCHEDULE B
Panama
Honduras
Mexico
Nicaragua
Canada
20
<PAGE> 21
SCHEDULE C
<TABLE>
<CAPTION>
Country Registration No. Class Expiration Date
- ------- ---------------- ----- ---------------
<S> <C> <C> <C>
U.S. 848,350 3 4/30/2008
Panama 12,125 3 6/24/2000
Honduras (under
license from Cussons)
Mexico 117,654 3 2/12/2004
Nicaragua 21,602 C.C. 3 6/17/2002
Canada 125465 3 2/16/2007
</TABLE>
21
<PAGE> 1
1
EXHIBIT 10.145
AGREEMENT
THIS AGREEMENT made as of the 1st day of January, 1995 by and
among the MEM Company, Inc., Union Street, Northvale, New Jersey, "Licensor" and
M.Z. Berger, 33-00 Northern Boulevard, Long Island City, New York; "Licensee".
W I T N E S S E T H :
WHEREAS, MEM Company, Inc. is the owner of the trademark
"TINKERBELL" for numerous products of interest to young girls; and
WHEREAS, M.Z. Berger is capable of manufacturing or causing to
be manufactured watches/clocks and plastic jewelry.
WHEREAS, MEM Company is willing to license its trademark to
M.Z. Berger for use on and in connection with the sale of watches, clocks and
plastic jewelry - alone or in combination with other products.
NOW, THEREFORE, in consideration of the covenants of each of
the parties hereto to each other party the receipt and sufficiency of which are
hereby acknowledged, MEM Company, Inc. and M.Z. Berger & Co., Inc. agree as
follows:
1. Definitions
(a) The term "Affiliated Business Organizations",
"Affiliated Company" or "Affiliates" will mean any person, corporation, or other
legal
<PAGE> 2
2
organization that directly or indirectly, through one or more intermediaries,
controls or is controlled by or is under common control with the company named.
(b) The terms "Claim" or "Claims" will comprehend any means
employed by anyone, whether in or out of court, to obtain legal (e.g. monetary)
or equitable (e.g. injunctive) relief from Licensor.
(c) The term "Contract Quarter" will mean any of the
successive three (3) month periods next following and including the first
Contract Quarter which will begin on JANUARY 1, 1995.
(d) The term "Contract Year" will mean each successive (18)
month periods this agreement is in force, beginning with the period January 1,
1995 to June 30, 1996 ("Year One") and followed by the period July 1, 1996 to
December 31, 1997 ("Year Two"). Thereafter, provided minimums are achieved as
defined in this agreement, the term "Contract Year" during the renewal period
(see 9. Term on page 12) will refer to twelve (12) month years, unless otherwise
mutually agreed upon by both parties at time of renewal.
(e) The term "control" (including the terms "Controlling",
"Controlled By" and "Under Common Control With"), as used herein will mean
possessing, directly or indirectly, the power to direct or cause the direction
of the management and policies of any person, firm or corporation, whether
through ownership of voting securities, by contract or otherwise.
(f) The term "Costs" will mean any money expended by Licensor
on account of a Claim, whether damages, reasonable legal fees, litigation
expenses or otherwise.
<PAGE> 3
3
(g) The term "Due Date" will mean the 1st business day of the
month next following any Calendar Quarter.
(h) The "Effective Date" is the date first above written.
(i) The term "License" will mean the exclusive and non-
transferable license to use the Trademarks in relation to the Products (and not
to any other products) within the Territory.
(j) The term "Net Sales" will mean the amount of money charged
and billed by licensee to Unrelated Customers purchasing the Products ("Standard
Charges") after deducting (i) actual trade discounts (unless deducted before
calculating Standard Charges), (ii) returns, (iii) percentage allowances granted
in lieu of returns, (iv) taxes (shown on Licensee's invoices and payable by
purchasers), and (v) transportation and postage charges (to the extent prepaid
by the Licensee and billed on its invoices as a separate item). It is
understood, however, that the following items may not be deducted from Standard
Charges in calculating Net Sales: (aa) cash discounts, (bb) advertising
allowances, or (cc) promotional allowances.
(k) The term "Products" will mean the items on Schedule A
annexed hereto and made a part hereof. If M.Z. Berger wishes to license and
manufacture, respectively, certain other products for sale they are to notify
MEM Company, Inc. in writing and absent any objection from MEM Company, Inc.
within 15 business days of receipt of such notice, M.A. Berger may add these
items to Schedule A. If it objects, MEM Company, Inc. must do so in writing and
the items it objects to will not be incorporated in Schedule A.
<PAGE> 4
4
(l) The term "Territory" will mean the United States of
America, Puerto Rico, U.S. Virgin Islands, U.S. Military Bases, Canada and
Mexico.
(m) The term "Trademarks" will mean:
(i) the registered trademark "TINKERBELL", and
(ii) the registered design frequently accompanying the
trademark "TINKERBELL".
(n) The term "Unrelated Customers" means all customers
purchasing the Products which are not Affiliated Business Organizations.
2. Representation by Licensee
(a) M.Z. Berger represents to the Licensor that the present
financial structure and present facilities are such that they are now, and will
be throughout the term of this Agreement, in a favorable position to
manufacture, distribute, advertise and sell the Products within the Territory
under the license hereinafter granted with respect to the Trademarks.
(b) M.Z. Berger represents to Licensor that no Affiliated
Business Organization of it is a competitor of Licensor.
(c) M.Z. Berger represents that it will not sell or sponsor
the sale of a line of toiletries and cosmetics in the Territory competitive with
TINKERBELL. However, Licensee may incorporate TINKERBELL components or
accessories in packages and sets along with agreed-upon watches, clocks, and/or
plastic jewelry products, subject to written approval and terms outlined in
paragraph 3(e) below.
<PAGE> 5
5
3. Grant of License to Use of the Trademark
(a) Licensor hereby grants to Licensee during the term of this
agreement, and subject to its terms and conditions as hereinafter set forth, the
License to use the Trademark in relation to the products (and not to any other
products) within the Territory.
(b) Licensee's policy (in using the Trademarks) of sale,
distribution and use will not reflect adversely upon Licensor's Trademarks. For
example, Licensee will only sell to organizations having established outlets so
as to exclude sales to flea markets and sidewalk venders. Licensee will provide,
on an annual basis, to Licensor, a customer list of those organizations
purchasing or otherwise receiving Products from Licensee with the net volume
shown for each customer. This customer list will be held by Licensor under the
same terms and conditions of confidentiality as set forth in paragraph 7(g) of
this agreement.
(c) licensee may manufacture or offer for sale product used as
premiums or promotional products at pricing differing from retail outlet
pricing. Such arrangements shall be deemed subject to standard royalty basis.
(d) If Watch/Clock Products are not brought to market within
the Territory within twelve months of the Effective Date, or plastic jewelry
products within eighteen months of the effective date, the Licensor may
terminate the License for either of these respective categories, by sending
written notice to the Licensee, effective upon receipt.
(e) Licensee may incorporate TINKERBELL components or
accessories in packages and sets along with agreed-upon watches, clock, and/or
<PAGE> 6
6
plastic jewelry products, subject to prior approval of MEM Company, Inc. which
will not be unreasonably withheld. In such event, Licensor agrees to supply
selected components on a "best efforts" basis and subject to the availability
from its inventory, and/or to order components to meet Licensee's forecasts.
Cost price of such components will be negotiated separately in good faith by
both parties, based on selected item, quantity, existing market conditions,
source of supply, and Licensor's manufactured standard cost (materials, labor,
direct or indirect manufacturing overheads, including administration and
handling). All prices and orders will be subject to a minimum 90 day advance
written letter of confirmation, guaranteed only for the quoted quantity or
delivery period, and may be revised at the discretion of Licensor based on
changing market conditions or quantities for subsequent orders. In any instance
where Licensee incorporates TINKERBELL components in combination with other
authorized products, Net Sales as defined in paragraph 1(j) above will be
reduced by the cost price value of the componentry. Excluded from the above
calculation are freight, delivery and/or duty charges, which will be the direct
responsibility of M.Z. Berger.
(f) Prior to any use by the Licensee of the Trademarks it must
submit to the Licensor for its approval, designs, materials, packages, labels,
promotional materials and advertising by means of which it intends to market,
sell or distribute any and all Products on which the Trademarks appear. Upon
receipt, Licensor will review same. If Licensor makes no written comments
containing reasonable objections within 15 business days of such receipt, then
Licensee may
<PAGE> 7
7
deem all such submitted material approved. Licensee will amend to the
satisfaction of Licensor any such materials which are not approved by Licensor.
(g) In conjunction with each and every use of the Trademarks,
Licensee will cause to appear adjacent to it, appropriate statutory notice of
registration or application for registration (R or TM as the case may be).
Licensee will also cause to appear on or within all advertising, promotional
display, or other printed material bearing the Trademark, the following or a
notice to the same effect: "TINKERBELL" is a Registered trademark of MEM
Company, Inc., Northvale, New Jersey, and is being used under a license from MEM
Company, Inc.
(h) Licensee hereby indemnifies and holds Licensor harmless
from any costs and undertakes to defend Licensor against any Claims arising out
of the activities of Licensee under the License (including but not limited to
the manufacture, use, marketing, sale, and distribution of the Products)
attributable to alleged defects in the Products.
4. Preparation by Licensee
(a) Licensee is an independent contractor and will, at its own
expense, adapt such of its facilities, purchase such raw materials, hire such
personnel, arrange for such transportation and delivery, as are necessary to
commence the manufacture and sale of the products. Licensee will at its sole
expense, comply with all Federal, State and Local laws and regulations relating
to the manufacture and sale of the Products, including, but not limited to, all
labeling requirements.
(b) Licensee will maintain, at its sole expense, products
liability insurance covering both Licensor and Licensee for bodily injury and
property damage
<PAGE> 8
8
liability in at least the Combined Single Limit of U.S. $3,000,000.00. Licensee
will deliver to Licensor, promptly after execution of this agreement, a
certificate issued by a nationally reputable insurance company evidencing such
coverage and providing that such insurance may not be canceled, except on thirty
(30) days written notice to Licensor and Licensee. If Licensee fails to maintain
such insurance, Licensor may obtain it and charge the cost thereof to Licensee
or may treat such failure as a breach of material provisions of this agreement.
5. Inspection
(a) Licensee will at all times permit Licensor, by
representatives designated by Licensor, to inspect the design and manufacture of
the Products manufactured by Licensee for sale by it under the Trademarks. At
all times, Licensee will comply with the reasonable quality control procedures
furnished or approved from time to time, in writing by Licensor.
(b) Licensee will submit to Licensor three (3) specimens of
each of the Products prior to its being offered for sale. Licensor will review
each such item and indicate its approval or disapproval with comments. If the
Licensor fails to comment within 15 business days of receipt of a specimen, the
Product represented by the specimen will be deemed to have been approved. In
addition, the Licensor may, from time to time, request samples of the Products.
6. Title to the Trademarks
(a) Licensee recognizes Licensor's title to the Trademarks and
the goodwill associated with them and their importance to Licensor, and will not
at any time do or suffer to be done any act or thing which will in any way
impair the rights
<PAGE> 9
9
of Licensor in and to the Trademarks. It is understood that Licensee will not
acquire nor will it claim title to the Trademarks by virtue of the license
granted to Licensee herein, or Licensee's use of the Trademarks.
(b) In the event any infringement of the rights of Licensor to
any of the Trademarks in the Territory comes to the notice of Licensee during
the term of this agreement, Licensee will promptly notify Licensor, in writing,
and will join with Licensor, upon Licensor's written request and at Licensor's
expense in taking such steps, if any, as Licensor deems advisable to protect its
rights. Licensee will take no action independent of Licensor without the express
written consent of Licensor.
(c) During the term of this agreement, the Licensor will
maintain the registration of the Trademarks in the Territory, in full force and
effect, free and clear of any and all cancellation petitions, interferences or
objections.
7. Royalties
(a) Licensee will pay to Licensor a total percentage royalty
in the amount of six (6.0%) percent of net sales over the term of this
agreement.
(b) Licensee will pay to Licensor a total minimum guaranteed
compensation of $50,000 during the term of this agreement from January 1, 1995
to December 31, 1997. This minimum compensation will be applicable against the
six (6.0%) percent royalty on Licensee's Net Sales, with minimum amounts payable
as follows:
<TABLE>
<CAPTION>
<S> <C>
Due upon execution of agreement $10,000
Additional due no later than June 30, 1996 $15,000
Additional due no later than December 31, 1996 $10,000
Additional due no later than December 31, 1997 $15,000
</TABLE>
<PAGE> 10
10
Once total of guaranteed minimum payments and or percentage royalties paid
equals or exceeds $50,000, no further minimum guaranteed compensation will be
due.
(c) Products will be deemed to have been sold on the earliest
of the following dates: (i) when invoiced, (ii) when delivered, shipped or
mailed or (iii) when payment has been received.
(d) Licensee will maintain itemized, complete and accurate
books of account with respect to all Products sold under this agreement.
(e) Licensee will render to Licensor an accounting, certified
by a financial officer of Licensee, specifying exactly how royalties were
computed including how Net Sales were calculated (i.e. by enumerating all
deductions used). This accounting must be rendered on or before each Due Date.
(f) On or before each Due Date, Licensee will pay Licensor all
royalties owed from sales during the previous Contract Quarter.
(g) In the event Licensee fails to make any payment due on a
Due Date, Licensor may charge Licensee interest on the unpaid amount at the
annual rate of three (3%) percent above the prime rate reported by the Wall
Street Journal on that Due Date.
(h) Licensor may review or may designate, at its expense, a
certified public accountant to review the accounts of Licensee, for a period of
not more than four (4) Contract Quarters immediately preceding the date of
review to determine whether proper accounting and payments have been made. Any
such review will take place upon reasonable notice to Licensee and within
regular business hours. Acceptance or receipt of payment by Licensor will not
preclude it from
<PAGE> 11
11
questioning the correctness of any statement or royalty payment. Any review of
Licensee's accounts will be made under the strictest confidentiality. No
material obtained by Licensor or its designated auditor may be used or disclosed
for purposes other than enforcing compliance with the terms of this agreement
without the prior written consent of Licensee, unless ordered to do so by a
court or other tribunal having jurisdiction over Licensor, in which case
Licensor will give reasonable notice to Licensee.
8. Promotional Activities
Licensee will use its best efforts to fully promote the sale
of the Products in the Territory, and maintain the high standards of Licensor as
to advertising and all other promotional material. No advertising or promotional
material may be used by Licensee until it has been submitted to and approved by
Licensor, in writing, in advance. All advertising and promotional costs are to
be borne by Licensee. Licensor's approval will not be unreasonably withheld and,
if no objection is raised by Licensor within fifteen (15) business days of
receipt of the material, Licensor will be deemed to have approved them.
9. Term
Unless sooner terminated as hereinafter provided, this
agreement will commence as of the Effective Date and remain in effect until
December 31, 1997 provided that minimum guaranteed compensation payments are
met. Thereafter, Licensee is granted the right to renewal for an additional
three (3) year period of consecutive twelve (12) month years provided that
minimum guarantees of $50,000 have been paid to licensor during the initial term
of this agreement. Said renewal will
<PAGE> 12
12
be subject to mutual agreement on annual yearly minimums for both watches,
clocks and/or plastic jewelry, which will not exceed $25,000 per year.
10. Termination
(a) Either Licensor or Licensee may terminate this agreement,
if it gives written notice to the other party to the effect that that party has
committed a breach of a material provision of this agreement and the party
receiving said notice fails to cure that breach within thirty (30) days of such
receipt.
(b) Licensor may terminate this agreement by giving written
notice to Licensee effective on receipt, for damage to the commercial impression
of the Trademarks, if Licensee (i) becomes insolvent, (ii) files a petition in
bankruptcy or insolvency, (iii) files any petition or answer seeking
reorganization of Licensee's business under any law relating to insolvency or
bankruptcy, (iv) makes an assignment for the benefit of creditors, or (v) fails
within sixty (60) days to secure the dismissal of any receiver, trustee or
liquidator appointed for any of its property.
(c) Licensor may terminate this agreement by giving written
notice to Licensee effective on receipt (i) if Licensee fails to pay any monies
owed to Licensor pursuant to this agreement within 30 days after receipt of
written notice from Licensor of such failure, (ii) if any competitor of Licensor
becomes an Affiliate of Licensee, (iii) if Licensee fails to bring the Products
to market as required by Subparagraph 3(d), or (iv) in the event Licensor is
sold or acquired.
(d) If Licensee becomes Controlled by any persons or other
legal entities other than those controlling them or either of them as of the
Effective Date (individually or collectively the "New Owner"), the entity
experiencing the change
<PAGE> 13
13
will notify MEM Company, Inc. within fifteen (15) business days, identifying the
new Controlling person or persons and providing verifiable information as to the
New Owner's financial standing. If within a similar period, MEM Company, Inc.
does not approve of the New Owner, which approval will not be unreasonably
withheld, this agreement will terminate automatically at the end of such period.
(e) Upon termination of this agreement, Licensee will
immediately and completely discontinue use of the Trademarks, provided, however,
that Licensee may sell existing stock if it complies with subparagraph (f) of
this paragraph.
(f) For a period not to exceed 120 days immediately following
termination of this agreement, Licensee may sell any completed Products it had
in stock on the date of termination. It is understood that License will pay
Licensor all royalties due from such sales as though this agreement were still
in effect. Within 10 business days after the end of this 120-day period, an
officer of the Licensee will deliver to the Licensor a certification that all
Products in the possession or under the control of the Licensee have been
destroyed or given to charity.
(g) Termination for any reason will not prejudice the rights
of either party to collect monies owed it by the other party hereunder or to
prosecute claims for damages against the other party.
11. Indemnification
Licensee hereby indemnifies Licensor and holds it harmless
from any Costs and will defend Licensor against any Claims arising out of or in
connection with Licensee's performance under this agreement, and for copyright
infringement, patent infringement or unfair competition caused by or arising out
of the manufacture
<PAGE> 14
14
or sale of the Products. Licensor will similarly defend and indemnify Licensee
for claims of trademark infringement.
12. Exoneration from responsibility for Manufacturing Errors
Neither Licensor nor its employees will have any
responsibility for the operation of the manufacturing facilities of Licensee
contemplated under this agreement, whether upon the recommendation of Licensor
or otherwise.
13. Arbitration
Any controversy or dispute arising out of or in connection
with the Agreement, whether relating to its interpretation, performance, or
termination may be submitted to arbitration by any party and if so submitted,
will be finally settled by arbitration conducted in accordance with the rules of
American Arbitration Association then in effect. Any such arbitration will take
place in New Jersey. The decision of a single arbitrator will be binding and
conclusive upon the parties, their successors and assignees, and the parties
will comply with such decision in good faith. Judgement upon the decision of the
arbitrator may be entered in any court having jurisdiction over the party to be
charged. The parties may each seek and the arbitrator may grant in addition to
legal remedies, equitable remedies (including, without limitation, temporary
restraining orders, injunctions, preliminary or permanent and attachments) and
each hereby consents to jurisdiction over its legal person in the State and
Federal Courts of New Jersey for the purpose of enforcing such orders.
<PAGE> 15
15
14. Construction
This agreement will be construed in accordance with the
internal laws of the State of New Jersey.
15. Independent Contractors
Nothing contained in this agreement will constitute Licensee
the agents or legal representatives of Licensor for any purpose whatsoever.
Licensee is an independent contractor with the rights granted hereunder and no
others.
16. Assignment
This agreement may not be assigned in whole or in part by
Licensee without Licensor's prior written consent and any such purported
assignment will be void. Except as expressly provided herein, this agreement
will be binding upon and inure to the benefit of the parties hereto, their
successors and assigns.
17. Notices
All notices, requests, demands and other communications which
are required or may be given under this agreement will be in writing and will be
deemed to have been given if delivered personally or sent by certified mail,
return receipt requested, postage prepaid and addressed.
If to Licensor to: Mr. Gay A. Mayer
MEM Company, Inc.
P.O. Box 928
Northvale, New Jersey 07647
and to: Mr. Michael G. Kazimir, Jr.
MEM Company, Inc.
P.O. Box 928
Northvale, New Jersey 07647
<PAGE> 16
16
with a copy to: Dennis J. Helms, Esq.
Mathews, Woodbridge & Collins
Suite 306
100 Thanet Circle
Princeton, New Jersey 08540-3662
If to Licensee: Mr. Bernard Mermelstein
M.Z. Berger & Co., Inc.
33-00 Northern Boulevard
Long Island City, NY 11101
with a copy to: Allan Steinberg
Chief Financial Officer
M.Z. Berger & Co., Inc.
33-00 Northern Boulevard
Long Island City, NY 11101
or to such other addresses as may be furnished, from time to time, in writing,
by the parties hereto.
19. Miscellaneous
(a) This agreement contains all of the understandings of the
parties hereto and no provision of this agreement may be modified except in
writing signed by the parties hereto.
(b) The failure of any party to enforce any right hereunder
will not be deemed a waiver of any other right, whether of a similar nature or
otherwise.
(c) If any provision of this agreement is declared void by any
arbitrator, court or administrative body of competent jurisdiction, the validity
of all other provision which may nonetheless be given effect will not be
affected thereby.
<PAGE> 17
17
IN WITNESS WHEREOF, the parties hereto have executed this
agreement as of the day and year first above written.
ATTEST: MEM COMPANY, INC.
/s/ Margaret A. Powers By: /s/ Micharl G. Kazimir, Jr.
- --------------------------- -------------------------------
Secretary Michael G. Kazimir, Jr.
Executive Vice President &
Chief Operating Officer
ATTEST: M.Z. BERGER
- --------------------------- By:/s/ Bernard Mermelstein
-------------------------------
(NAME)
(TITLE) CEO
<PAGE> 18
SCHEDULE A
Product Category listing for TINKERBELL License:
M.Z. BERGER:
All watches and clocks, individually and/or as sets in
combination with related Jewelry, Cosmetics and Accessories.
Plastic Jewelry for Children, individually and/or as sets in
combination with other jewelry, plastic jewelry, watches or
items, excluding plastic jewelry in the MEM TINKERBELL line.
Any additions can be amended by Schedule herein.
ATTEST: MEM COMPANY, INC.
/s/ Margaret A. Powers By: /s/ Micharl G. Kazimir, Jr.
- ---------------------------- --------------------------------
Secretary Michael G. Kazimir, Jr.
Executive Vice President &
Chief Operating Officer
ATTEST: M.Z. BERGER
- ---------------------------- By: /s/ Bernard Mermelstein
--------------------------------
(NAME)
(TITLE) CEO
<PAGE> 1
EXHIBIT 10.146
LICENSE AGREEMENT made as of the 1st day of August, 1978, by
and between G. Visconti di Modrone, S.p.A., a corporation organized under and
existing by virtue of the laws of Italy, having its principal place of business
at Via Benigno Crespi 24, Milan, Italy (hereinafter "Licensor"), and V.O.M.
Ltd., a corporation organized under and existing by virtue of the laws of the
Commonwealth of Pennsylvania, having its principal place of business at 5227
Germantown Avenue, Philadelphia, Pennsylvania (hereinafter "Licensee").
W I T N E S S E T H :
Whereas the Licensor has been and now is engaged in the
manufacture and marketing of men's toiletries throughout the world under the
name of Victor and other trademarks (hereinafter "Products"), either directly or
pursuant to license which it has granted to others; and
Whereas the Licensor has adopted, registered in the United
States and used in its men's toiletries business the Trademarks set forth in
Schedule A hereto annexed (hereinafter "Trademarks"); and
Whereas the Licensor has heretofore granted a license for the
manufacture and sale of Products in the United States to Victor of Milano, Ltd.,
Inc.; and
Whereas Victor of Milano, Ltd., Inc. has, with the consent of
the Licensor, simultaneously herewith executed and delivered an agreement by the
terms of which it has sold to the Licensee all of its assets, including its
rights under the
1
<PAGE> 2
license agreement in effect with the Licensor to manufacture and sell Products,
and Licensee has assumed all of the obligations of Victor of Milano, Ltd., Inc.
under said license agreement, except as hereinafter set forth; and
Whereas the parties hereto desire to terminate the license
agreement originally executed between the Licensor and Victor of Milano, Ltd.,
Inc. and so assigned to and assumed by Licensee, and to enter into the within
new license agreement pursuant to which the rights, duties, privileges and
obligation of the parties shall henceforth be determined.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter contained and upon all of the terms and conditions hereinafter set
forth, the parties hereto mutually agree as follows:
1. Termination of Existing License Agreement
The parties hereto do hereby agree that any and all license
agreements, addendums thereto or modifications thereof, either oral or in
writing, between Licensor or its predecessors on the one hand and Licensee's
predecessor, Victor of Milano, Ltd., Inc. or any person or firm with which it
has been associated in the manufacture, marketing and sale of Products, and
Licensee as assignee of Victor of Milano, Inc., on the other hand, is hereby
terminated, cancelled, abrogated and annulled, except to the extent hereinafter
set forth in, Paragraphs 2 and 17(a) hereof.
2. Reservation of Rights
2
<PAGE> 3
Notwithstanding the provisions of Paragraph 1 hereof, the
Licensor expressly reserves any and all rights or claims that it may presently
have as against the Licensee's predecessors in interest, or any of them,
pursuant to the previous license agreement or otherwise, but Licensor agrees
that any breach or violation thereof shall be enforced solely against the
Licensee's predecessor in interest and shall not serve as the basis for any
claim against the Licensee hereunder except and unless, and only to the extent
that, the Licensee has undertaken and agreed herein or with its predecessor to
make payments for their account of moneys due and owing to the Licensor under
the terms of the said cancelled agreement.
3. Grant of License
Licensor grants to Licensee, subject to the terms and
conditions hereinafter set forth, the exclusive rights to use Trademarks or any
other trademarks hereafter adopted and used by either of the parties hereto
subject to any territorial or other limitation on any right to use a trademark
which Licensor acquires from other firms or persons, together with Licensor's
interest in the good will of the business in connection with which said marks
are used in Licensed Territory in the manufacture and sale in Licensed Territory
of the Products now or hereafter manufactured or sold in the men's toiletries
market. There is expressly excluded from this License Agreement any and all
other products manufactured, distributed or licensed by Licensor that are not
marketed as men's toiletries products.
3
<PAGE> 4
4. License Territory
Licensee shall have the sole and exclusive right, to the
exclusion of all others, including the Licensor, to import, manufacture and sell
the Products in the United States and its territories and possessions (including
Guam, Puerto Rico and the U.S. Virgin Islands) and in the Bahama Islands
(hereinafter "Licensed Territory"). Notwithstanding any restriction herein after
set forth, the Licensee shall have the right to sell the Products in the
Licensed Territory to any instrumentality of the United States government or any
United States Embassy Purchasing Office for re-sale by them to their personnel
in all areas of the world, but this shall not include direct sales by Licensee
to such instrumentalities or Embassy Purchasing Offices located outside the
United States. In addition, Licensee shall have the right to offer the Products
for sale in the Licensed Territory to any United States (but not foreign)
passenger airline solely for re-sale by such airline to its passengers then
flying on its aircraft or for distribution by such airline as a packaged gift to
its aircraft passengers.
5. Use Of Name
Licensor does hereby expressly consent, that so long as this
License Agreement shall remain in force and effect and for such reasonable
period thereafter as may be required for the purposes of subparagraph 25(e)
hereof, in any event not to exceed one year, that the Licensee shall have the
right to use, in the marketing and sale of the Products, the corporate name
"Victor of
4
<PAGE> 5
Milano, Ltd." or any derivative or variation thereof as well as any type style,
logo or other symbol now or hereafter used in conjunction with the marketing of
Products by Licensor or by Licensee's predecessor or which may hereafter be
adopted and used by Licensor or by Licensee with Licensor's approval, which
shall not be unreasonably withheld.
6. Use of Trademark
Licensee does hereby acknowledge and agree that the Trademarks
and all other trademarks that the Licensor or any of its other licensees may now
use or hereafter adopt and use in the sale of men's toiletry products are and
shall at all times remain the sole and exclusive property of Licensor and shall
be used and applied by Licensee solely in respect to the manufacture, promotion
and sale of Products. Licensor will, at its own cost and expense, apply for and
prosecute the necessary applications for trademark registration in Licensed
Territory for all trademarks which the parties hereto mutually agree to adopt,
which new trademark shall be owned solely by Licensor subject to Licensee's
right to use as herein provided.
7. Product Standards
Licensee acknowledges that the quality and character of the
Products are such that they have been recognized and accepted by the public as
having achieved the repute of being a leading high style line of men's
toiletries and Licensee agrees to use the Trademarks, names, type styles, logos
and symbols described in Paragraphs 5 and 6 only on the Products manufactured
and sold
5
<PAGE> 6
by it in accordance with the specifications, directions, formulae, processes,
methods of manufacture and instructions furnished by Licensor or on Products
sold to Licensee by Licensor or its approved sources of supply, and in
accordance with this License Agreement. The quality of all of the Products which
Licensee manufactures, assembles or has caused to have manufactured or assembled
for its account in the United States under the provisions of this License
Agreement, as well as their presentation, is acknowledged by Licensee to
constitute the fundamental basis of the business of Licensor and of its success,
and Licensee agrees to obey the instructions of Licensor concerning
specifications, directions, formulae, processes and methods of manufacture and
preparation of the Products as well as the packaging thereof.
8. Marketing of Products
Licensee shall, in its selection of retail sales outlets,
marketing policies, advertising programs, and promotional activities, consistent
with the parties' intention of achieving widespread distribution throughout the
Licensed Territory, make every reasonable effort to maintain and foster the
image of Products as a leading high style line of men's toiletries.
9. Competitive Products
Licensor acknowledges that Licensee is a wholly owned
subsidiary of MEM Company, Inc. (hereinafter "MEM"), the manufacturer and
distributor of several lines of men's toiletries
6
<PAGE> 7
which it, or other of its wholly owned subsidiaries, or its or their licensee
manufacture or sell throughout the world under trade names such as ENGLISH
LEATHER and various other names, and Licensor further acknowledges that these
products are competitive with the Products which are the subject matter of this
agreement, and does hereby consent to the manufacturing, marketing and sale of
the Products by Licensee in the Licensed Territory by MEM or through or in
conjunction with its marketing and sales personnel, agencies, manufacturers,
representatives and any person, firm or corporation affiliated with or selected
by MEM, provided Licensee and such other firms and persons comply with the
provisions of this License Agreement applicable to such manufacturing,
marketing, sale and promotion of Products.
10. Sale of Products
Licensee agrees to use all reasonable efforts to promote and
sell the Products in the Licensed Territory but such undertaking shall not be
deemed or construed to require Licensee to expend any fixed sum or sums of money
or any fixed percentage of sales in promoting and fostering the sale of the
products, provided however that any allowance or discount for advertising or
promotion granted by Licensor as hereinafter provided in Paragraph 14(e) shall
actually be employed by Licensee to promote the sale of Products in such manner
as it, in its sole but reasonably exercised discretion shall determine.
11. Advertising of Products
Licensee agrees to furnish Licensor upon request with
7
<PAGE> 8
copies of all advertising and promotional materials, etc., which Licensee
intends to use in connection with its publicity, advertising and promotion of
Products. Licensee agrees that all Licensee's advertising or promotional
material and media shall be of such content and shall be employed in such manner
as not to demean or degrade the name or Trademarks of Licensor or any of the
Products in any way. Licensee further agrees that all advertising and
promotional material shall be such as is consistent with establishing and
maintaining the Products as a leading high style line of men's toiletries in the
Licensed Territory. As an accommodation to Licensor, but not as a legal
obligation to Licensor, Licensee will endeavor to furnish Licensor annually with
a copy of its proposed advertising and promotional budget for Products.
12. Sources of Products
(a) Except for those essential oils and essences used in the
manufacture of Products which shall be purchased by Licensee as hereinafter
provided Licensee may at its option and subject to the provisions of Paragraph
13 hereof;
(1) Purchase such quantities of Products or any components
thereof, in bulk or in fully assembled packages as completed units, ready for
sale at retail as a packaged men's toiletry product (hereinafter "finished
Product") directly from Licensor (subject to the provisions of paragraph 13(b)
hereof) or from such other sources as Licensor shall approve, which approval
shall not be unreasonably withheld; or
8
<PAGE> 9
(2) Manufacture Products in the Licensed Territory in
accordance with paragraph 7 hereof either at its own plant or, subject to the
provisions of subparagraphs (e) and (f) hereof, at the plant or facility of any
other manufacturer in Licensed Territory including MEM, which Licensee shall
select. The full compliance with paragraph 7 and subparagraphs 12(e) and (f)
hereof by Licensee and MEM or any of their subsidiaries, affiliates or divisions
is a material condition for the grant of the license hereunder and an uncured
breach thereof by them after notice and expiration of grace period hereunder
shall be a material breach by Licensee hereunder. In the event any independent
manufacturer, not affiliated with or owned or controlled by Licensee or MEM,
shall fail or refuse to comply with the provisions of paragraph 7 and
subparagraphs 12(e) and (f) hereof then Licensee shall upon demand in writing of
Licensor discontinue the manufacture of Products at the plant or facility of
such independent manufacturer as soon as possible after receipt of such demand,
and Licensee's failure to do so shall be a material breach by Licensee
hereunder.
(b) All essential oils and essences used in the manufacture of
Products shall be purchased by Licensee from either:
(l) Licensor or from such other producer thereof located
outside the Licensed Territory as Licensor shall designate in writing; or
(2) At Licensee's option, with Licensor's prior
9
<PAGE> 10
written consent which shall not be unreasonably withheld, from any manufacturer
in the Licensed Territory which is an affiliate, subsidiary or division of a
producer theretofore designated as an approved source by Licensor.
(c) Licensee shall have the option to purchase from Licensor,
or from others, its reasonable requirements of advertising materials including
showcards, display cards, samples and testers. Such materials, if purchased from
Licensor shall be sold at Licensor's actual cost for labor and materials only
and no overhead for production costs or any profit shall be added thereto, but
without discounts thereon.
(d) Licensee shall have the option to purchase its
requirements of packaging materials, bottles, containers, boxes, fillers,
cartons and the like from either the Licensor or from any other source which it
may select, either in the Licensed Territory or elsewhere, provided however that
the Licensee shall first obtain the consent, in writing, of the Licensor of the
quality and design of such materials purchased from others, which consent shall
not be unreasonably withheld.
(e) Licensee shall notify Licensor of the names and addresses
of all persons, firms or corporations with which, from time to time, Licensee
places orders for the manufacturing, packaging or assembling of Products or any
component parts thereof. Such notice shall specify the quantities ordered from
each such source, and shall be furnished by Licensee delivering to Licensor
copies of all such purchase orders issued to its
10
<PAGE> 11
suppliers of Products or component parts thereof. The giving of such notices is
a material condition of the grant of the license hereunder.
(f) Licensee covenants and agrees that it will not permit any
person, firm or corporation to manufacture or formulate the Products unless and
until Licensee shall have received an agreement in writing from such person,
firm or corporation that it will comply with paragraph 7 hereof and shall give
the Licensor at its request the information set forth in subparagraph (e) hereof
if Licensee fails to comply with such subparagraph (e), and that it will not
manufacture or formulate Products or their components for sale or delivery or
use by any party other than Licensee and will not furnish to any third persons
any data concerning the manufacture or formulation of Products without the prior
written consent of Licensor. Licensee shall furnish a duplicate original copy of
such agreement to Licensor by delivery thereof to Maggin & Swan, Esqs., 509
Madison Avenue, New York, New York, 10022.
13. Purchases by Licensee from Licensor
(a) Except for Products manufactured by or for its account in
the Licensed Territory or elsewhere as specifically permitted by this License
Agreement, Licensee shall purchase all of its requirements of Products solely
from Licensor or sources designated by Licensor in writing.
(b) Licensor agrees to manufacture and sell Licensee, or cause
others to do so, with all of Licensee's reasonable
11
<PAGE> 12
requirements of Products and all components thereof, for sale by Licensee in the
Licensed Territory, subject, however, to the then current and reasonable
obligations of Licensor for its own manufacturing and sales and for sales to its
other licensees.
(c) It is agreed between the parties that Licensee's
reasonable requirements of Products shall in no manner be measured by the volume
requirements that shall have existed under the license agreement between
Licensor and Victor of Milano, Ltd., Inc. Licensee shall furnish Licensor on or
before April 1, of each year with a reasonable written projection or estimate of
the purchases of Products, essences, essential oils and other components, as
well as of advertising materials and packaging materials, which Licensee expects
to purchase from Licensor during the next calendar year. While Licensor shall
make every reasonable effort to furnish additional quantities of such items
should they be ordered by Licensee for delivery during such next calendar year,
Licensor's failure to do so shall not be considered a breach of this License
Agreement. Licensee's purchases during such next calendar year shall bear a
reasonable relationship to the projections and estimates so submitted by
Licensee to Licensor.
(d) Except as such conditions that may excuse performance by
Licensor, as heretofore or hereinafter provided, delivery of Products shall be
made f.o.b. Licensor's plant or that of its designated supplier within 90 days
of actual receipt by Licensor of Licensee's orders.
12
<PAGE> 13
(e) Licensor shall not be responsible for any damage to
Product or advertising material purchased by Licensee from Licensor, or its duly
authorized source of supply, which shall have occurred while said goods were in
transit, but in the event such goods arrive at Licensee's place of business in a
defective, adulterated or evaporated condition, or in any other damaged
condition which shall be determined to have occurred as a result of faulty or
improper manufacturing or packaging, Licensor shall be promptly notified of any
such defect and Licensor shall have the right to have such merchandise inspected
and tested by Licensor or its duly authorized representatives. If Licensor is
determined to be responsible for such defect, the parties shall mutually agree
that Licensee shall either be supplied with replacement merchandise without cost
landed, duty and all other normal and customary expenses paid at an East Coast
United States Port or be allowed a credit by Licensor equal to the amount of
Licensee's costs for said confirmed defective merchandise including all freight
charges paid by Licensee from point of origin to Licensee's plant or other
warehouse, as well as insurance expenses, duties, customs brokerage fees and any
other normal and customary expenses reasonably incurred by Licensee.
(f) Upon Licensor replacing defective merchandise or granting Licensee
credit as provided in subparagraph 13(e) hereof, Licensee shall deliver the
damaged goods to Licensor, or its duly authorized representative, F.O.B.,
Licensee's plant or warehouse, for disposal of same in such manner as Licensor
shall
13
<PAGE> 14
determine, provided, however, Licensor covenants and agrees that it shall not
offer the said goods for sale or otherwise dispose of the same in any manner
whatsoever in the Licensed Territory.
14. Licensor's Selling Price
(a) Licensor warrants and represents that all essential oils
and essences which are purchased by Licensee in accordance with the provisions
of Paragraph 12(b)(1) hereof shall be invoiced by Licensor or such producer
thereof at the same net ex-factory price, after any and all discounts, as is
paid therefore by Licensor. This warranty and representation shall not apply to
purchases of essential oils and essences in accordance with Paragraph 12(b)(2)
hereof.
(b) Licensor warrants and represents that the prices hereafter
from time to time charged by Licensor to Licensee for merchandise described in
Licensor's current price lists (copy of which is attached as Schedule B) or
similar items hereafter sold and delivered by, or offered for sale by, Licensor
to Licensee, presently represent and will hereafter represent the prices at
which each of said or similar items of merchandise are being offered for sale by
Licensor under its official price lists to:
(1) All present and future licensees of Licensor (but not
including Licensor) for the countries set forth in Schedule C, except for
present and future licensees for Australia, South Africa, Egypt, Greece,
Yugoslavia and Holland; and except for discounts to Licensee as hereinafter
provided, as to which excepted countries Licensor is free to give any
14
<PAGE> 15
discounts it so desires.
(2) Seventy-five (75%) percent of all matured future
licensees of Licensor (but not including Licensor) for any countries other than
those set forth in Schedule C, such seventy-five (75%) percent to be determined
not by dollar value of purchases by such licensees of such merchandise but by
the number of such licensees making purchases of such merchandise from Licensor
during the immediately preceding calendar year. The word "matured", as used in
this subparagraph shall mean future licensees for countries not listed in
Schedule C whose licenses have been in existence for more than three (3) years.
However, it is expressly understood and agreed that until such future licensees
for countries not listed in Exhibit B have matured, Licensor is free to give
them any discount it so desires.
(3) Licensor will in due course notify Licensee of the
grant of new licenses for the Products and the effective date thereof.
(c) The price lists of Licensor described in subparagraph
14(b) hereof shall be expressed in United States Dollars and purchases of such
items by Licensee shall be payable in United States Dollars without reference to
the then lira-dollar or other exchange rate unless applicable government
regulations and laws hereafter otherwise provide. New price lists of Licensor
shall be airmailed to Licensee not less than forty-five (45) days prior to the
date such new price lists are
15
<PAGE> 16
to become effective.
(d) Licensee will not be entitled to any discount on
merchandise purchased from Licensor or from Licensor's approved source for
advertising help or otherwise except as specifically provided in subparagraph
14(e) hereof.
(e) Subject to the provisions of subparagraph 14(f) hereof,
Licensee shall receive a discount of nineteen (19%) percent solely on packaging
materials purchased by Licensee directly from Licensor pursuant to orders for
such packaging materials received by Licensor from Licensee or Victor of Milano,
Ltd., Inc., after April 13, 1978, but only to the extent that such discount has
not heretofore been granted on such orders to prior licensee, Victor of Milano,
Ltd., Inc. Such discounts shall prevail with respect to all packaging materials
except finished Products, advertising materials (either finished or components
thereof), products in bulk, raw materials and concentrates, plastic shaker tops,
and cardboard liners. Such discounts shall be based on the price for such
packaging materials in effect as fixed by Licensor at the time the order
therefore is actually received by Licensor. No discount shall be granted with
respect to any tax, insurance or freight or other charges paid by Licensee with
respect to such purchase.
(f) Discounts received by Licensee as hereinbefore provided
shall be applied by it toward advertising and promoting the sale of the Products
in Licensed Territory under this License Agreement, and shall be so used and
applied within a period of
16
<PAGE> 17
not more than thirty (30) months from the time that Licensee has actually
received such discount, either by way of a direct payment from Licensor or by
way of an offset or credit against the price otherwise payable under an invoice
from Licensor to Licensee for such packaging materials. Licensee shall not be
required to account to Licensor with respect to the application of such
discounts.
(g) In the event finished Products or Components to be sold to
Licensee by Licensor or a producer designated in writing by Licensor, are
manufactured, sold and shipped from a point in Italy other than Licensor's place
of business in Milan, they shall be of equal quality with finished Products
manufactured at the Licensor's plant in Milan and shipping costs therefore shall
not exceed those charged for shipments from Milan.
(h) In the event finished Products or Components to be sold to
Licensee by Licensor or a producer designated in writing by Licensor are
manufactured, sold and shipped from a point outside Italy, they shall be of
equal quality to Milan but shall be sold F.O.B. point of origin, and paid for
according to then established price lists.
(i) Finished Products to be sold by Licensor, or by a producer
designated by Licensor, shall be labeled, prior to shipment in such manner as to
conform with existing regulations of United States Customs, Food and Drug
Administration and any and all governmental regulations regulating the
importation and sale of such Products, provided that Licensee shall give
Licensor
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<PAGE> 18
reasonable prior written notice of any change in such regulations.
15. Terms of Sale by Licensor
All Products and components sold by Licensor to Licensee shall
be open account and payment therefore shall be made within ninety (90) days from
the date of delivery to Licensee or its duly authorized agents in Italy or such
other point of origin as shall be designated by Licensor unless the parties
hereto otherwise agree in writing. Payment for essences and essential oils sold
by firms designated by Licensor, shall be on such reasonable terms laid down by
such firms.
16. Reports to Licensor
On or before the forty-fifth (45th) day following the end of
each calendar quarter, Licensee shall forward to Licensor a written statement
certified as correct by a duly authorized officer of Licensee indicating net
invoice sales (gross sales less all returns and allowances) of Product by or on
behalf of Licensee in the licensed territory for the calendar quarter next
immediately preceding. At the time that Licensee furnishes Licensor with the
report due hereunder for the last quarter of each calendar year, Licensee shall
also report the annual unit quantity of each Product sold by or on behalf of
Licensee during such calendar year.
17. Royalty Payments
(a) Reports of Products manufactured, packaged or assembled by
or on behalf of Licensee and of royalties payable by
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<PAGE> 19
Licensee for the calendar year 1978 shall be, made, computed and paid by the
within Licensee as presently provided in the License Agreement which was
assigned as aforesaid by Victor of Milano, Ltd., Inc. to and assumed by Licensee
herein, but minimum royalties shall be as set forth in subparagraph (f) hereof.
From and after January 1, 1979, royalties and reports of sales shall be
computed, paid and made as per the provisions of subparagraphs (b) to (h)
inclusive of this paragraph 17.
(b) At the same time and for the same period that Licensee
reports sales data pursuant to Paragraph 16 hereof, Licensee shall pay to
Licensor a royalty of four (4%) percent, solely on the net invoice sales during
such quarter by or on behalf of Licensee, of Products manufactured, packaged or
assembled by or on behalf of Licensee, computed as per subparagraph (c) hereof.
No such royalty shall be due or payable with respect to Licensee's sales of
finished Products which Licensee shall have purchased from Licensor or its
designated in writing producer thereof.
(c) The net invoice sales of Licensee for each such quarter
annual period shall be an amount equal to one-half the aggregate retail selling
price (as shown on Licensee's then approved official retail selling price list
for such period but before granting of any discount thereon) for all Products
manufactured, packaged or assembled by or on behalf of Licensee and which have
been sold by or on behalf of Licensee during such quarter annual period.
19
<PAGE> 20
(d) The royalty determined, as provided in subparagraph 17(b)
and (c) shall be due and payable by Licensee to Licensor simultaneously with the
rendition of its report of sales as provided in Paragraph 16 hereof for the next
succeeding calendar quarter.
(e) Notwithstanding the foregoing, it is agreed that Licensee
shall pay Licensor the following annual minimum royalties on Products
manufactured, packaged or assembled by or on behalf of Licensee and sold by or
on behalf of Licensee in the Licensed Territory, in accordance with the
following schedule:
<TABLE>
<CAPTION>
Calendar Year Minimum Royalty Payment
<C> <C>
1978 $50,000
1979 60,000
1980 70,000
1981 75,000
1982 80,000
1983 90,000
1984 90,000
1985 90,000
1986 90,000
1987 90,000
1988 90,000
</TABLE>
and $90,000.00 for each calendar year thereafter that this License Agreement
remains in force.
(f) The minimum royalty payment for the calendar year
20
<PAGE> 21
1978 shall include all payments heretofore actually made by Victor of Milano,
Ltd., Inc. for the calendar quarters ending March 1978 and June 1978 so that the
Licensor shall receive from Licensee for the year 1978 not less than the sum of
$50,000.
(g) In the event the sum of the four quarterly royalty
payments required to be made during any calendar year as aforesaid shall total
less than the minimum annual royalty payment for the specific calendar year
provided in subparagraph 17(d), then the payment for the last quarter annual
period of such calendar year shall be increased and such additional sum shall be
increased so that the aggregate royalty payments by Licensee to Licensor for
such calendar year shall equal the required minimum royalty payment for such
calendar year set forth in subparagraph 17(d).
(h) Unless excused pursuant to the provisions of Paragraph 26
hereof, the failure of Licensee to submit such quarterly statements and to remit
such quarterly and minimum royalty payments as hereinbefore provided shall
constitute a material breach of this agreement.
18. Sale of Products by Licensee
Annexed hereto and made a part hereof (as Schedule D) is
Licensee's schedule of suggested official retail selling prices at which the
Products are offered for sale by Licensee in the Licensed Territory. Licensee
agrees not to change such price schedule without the prior written consent of
Licensor, which consent shall not be unreasonably withheld.
21
<PAGE> 22
19. Restriction on Licensor
(a) During the term of this agreement Licensor agrees not to
ship or sell any Products to any person, firm or corporation in the Licensed
Territory other than to or for the account of the Licensee without first
obtaining Licensee's written consent thereto.
(b) To the extent that such action is not prohibited by law,
Licensor shall instruct its agents, representatives, other licensees and
customers of the existence of the prohibition against selling or shipping any
Products to any person, firm or corporation in the Licensed Territory other than
to or for the account of the Licensee under penalty of having such shipments
deemed fraudulent and having its agency or license cancelled. Such instructions
need not be given in writing unless demand therefor is made by the Licensee in
which Licensee shall indicate that a specified agent, representative, licensee
or customer of Licensor has caused or is about to cause a violation of the
provisions of this subparagraph.
(c) To the extent that such action is not prohibited by law,
Licensor agrees to take all steps reasonably required to prevent violation of
the provisions of subparagraph 19(b) including, but not limited to, termination
of sales to or license agreements with any person, firm or corporation which,
having received notice of such prohibition shall thereafter violate, either
directly or indirectly, the terms of the restrictions imposed by this paragraph
19.
22
<PAGE> 23
(d) To the extent that such action is not prohibited by law,
Licensor agrees to use its best efforts to regulate the retail selling price of
Products in Canada so that they shall be not less than those prevailing in the
Licensed Territory for comparable Products manufactured, packaged or assembled
in the Licensed Territory, but its failure or inability to do so shall not be
deemed a material breach of this agreement.
20. Restrictions on Licensee
(a) During the term of this agreement Licensee agrees not to
ship or sell any Products to any person, firm or corporation in any country
other than the Licensed Territory except as expressly allowed pursuant to the
provisions of Paragraph 4 hereof.
(b) To the extent that such action is not prohibited by law,
Licensee shall instruct its agents, representatives and customers of the
prohibition against selling or shipping any Products to any person, firm or
corporation outside the Licensed Territory. Such instructions need not be given
in writing unless demand is made by the Licensor in which it shall indicate that
a specified agent, representative or customer of Licensee had caused or is about
to cause a violation of the provisions of this subparagraph.
(c) To the extent that such action is not prohibited by law,
Licensee agrees to take all steps reasonably required to prevent violation of
the provisions of subparagraph 20(b) including, but not limited to, cessation of
sales to any person,
23
<PAGE> 24
firm or corporation which, having received notice of such prohibition shall
thereafter violate, either directly or indirectly, the terms of the restrictions
imposed by this paragraph 20.
(d) Licensor has furnished to Licensee a copy of an agreement
dated as of September 1, 1965, by and between The J.B. Williams Company, Inc.
and Licensor's predecessor, Gruppo Industriale Guiseppe Visconti di Modrone,
S.p.A., which, by its terms restricts The J.B. Williams Company, Inc. from the
use of its Trademark "AQUA VELVA" in respect to the marketing of a cologne, and
correspondingly restricts the Licensor from the use of its Trademark "ACQUA DI
SELVA" in respect to the marketing of an after shave preparation. Licensor shall
have the right in its sole discretion to modify same so as to eliminate such
restrictions.
21. Licensor's Right of Inspection
(a) At all times during the term of this agreement, Licensor
shall have the right, at its own cost and expense, to inspect at reasonable
times the books and records of Licensee or of any subsidiary of Licensee (or of
MEM or any of its subsidiaries, but only as to manufacture or sale of Products)
to verify the selling prices charged by Licensee to its customers, the unit
sales of Products, the net invoice prices thereof, allowances granted thereon,
and the payments received by Licensee for Products sold by or on its behalf.
(b) Licensor shall have the right to inspect the
24
<PAGE> 25
premises and books and records of Licensee or any subsidiary of Licensee (as
well as those of MEM and its subsidiaries which are manufacturing or packaging
Products) to observe: the methods and procedures involved in the manufacturing
and packaging of Products by or on behalf of Licensee and to verify that such
Products have been manufactured, packaged and assembled in accordance with
Licensee's obligation hereunder; whether the Products on hand or sold by or on
behalf of Licensee have been purchased from Licensor or its duly authorized
source or manufactured, packaged or assembled by or on behalf of Licensee; and
the quantities of Products or components purchased, acquired, or manufactured or
assembled by or on behalf of Licensee.
(c) Licensor shall have the right, at its own cost and
expense, to have its duly authorized representatives make copies of or take
excerpts from the books and records referred to in subparagraphs (a) and (b)
hereof with respect to the rights therein granted to Licensor, and to use the
photocopy facilities at the premises so inspected to make copies of such books
and records upon giving prior written notice of its intention to do so to the
Licensee.
(d) If, as a result of such inspection by Licensor it shall be
ascertained that Licensee has failed to remit royalties by an amount equal to or
greater than five (5%) percent of the sum actually then due and payable to
Licensor, Licensee shall reimburse Licensor for the reasonable costs and
expenses attendant upon such inspection and verification. Licensee shall
25
<PAGE> 26
in any event promptly pay any additional royalties shown by such inspection to
be due and payable by Licensee to Licensor.
22. Licensee's Right of Inspection
At all times during the term of this agreement and on
reasonable prior written notice to Licensor, Licensee, or its duly authorized
representative, shall have the right, at its own cost and expense, to examine in
Milan, Italy or elsewhere, Licensor's books and records of purchases, sales,
payments and receipts to verify that Licensor's selling prices of Products to
Licensee are as provided in Paragraph 14 hereof. Licensee shall be entitled to
make copies or take excerpts from Licensor's books and records and to use
Licensor's photocopy facilities to make such copies. Such right of inspection
shall not be made more than once in any calendar year, and shall be made only
after giving Licensor prior reasonable notice of Licensee's intention so to do.
23. Term of License
(a) This agreement shall continue in full force and effect
from the date hereinabove set forth up to and including December 31, 1988.
(b) Licensee shall have the right upon giving prior written
notice to Licensor, postmarked no later than December 31, 1987, to renew the
term of this License Agreement for ten (10) additional years, in which event,
upon timely exercise of such option as aforesaid, this License Agreement shall
expire on December 31, 1998 instead of December 31, 1988.
26
<PAGE> 27
24. Assignment of Licensee's Rights
(a) A transfer of the controlling interest or shares of
Licensee shall be considered a sale or assignment of its rights under this
License Agreement and shall not be made or permitted except as hereinafter
provided.
(b) The Licensee shall not have the right to grant any
sublicenses hereunder without the prior written consent of Licensor.
(c) Licensee shall not have the right to assign, transfer,
sell, convey, pledge or otherwise dispose of any other rights or privileges in
the License granted hereunder without the prior written consent of Licensor. In
the event Licensee shall give notice to Licensor of its intention to assign,
transfer or sell all of Licensee's right, title and interest in the license
granted hereunder and of the terms of such transaction, to a firm, person or
corporation whose name and address is given in such notice (hereinafter
prospective assignee), Licensor will consent in writing to such proposed
assignment, transfer or sale of all of Licensee's right, title and interest in
this License Agreement, provided all the following conditions are fulfilled:
(1) In Licensor's reasonably exercised judgment such
prospective assignee:
(i) is financially responsible; and
(ii) is experienced in the marketing of men's toiletries
in the United States; and
(iii) has the intention and capability of
27
<PAGE> 28
manufacturing and marketing the Products in accordance with the provisions of
this License Agreement and particularly paragraphs 7 and 8 hereof.
(2) Licensor and such prospective assignee are able on the
basis of good faith negotiation to agree in writing on the amendments of this
License Agreement which they shall mutually require.
(3) Licensee is not then guilty of an uncured default
hereunder after notice and expiration of grace period to cure.
(d) Licensee and MEM shall be released from any obligations
hereunder accruing from and after date that all conditions of subparagraph (c)
hereof are fulfilled.
25. Termination of Agreement
(a) In the event that this License Agreement shall be
terminated, the Licensee agrees that except as provided in paragraph 25(e)
hereof, it will promptly:
(1) take all required action at Licensee's expense to
cease doing business under the name of Victor of Milano, Ltd., Inc., or any name
in which the word "Victor" is incorporated, including the execution and filing
of a certificate of corporate change of name in the manner required by law;
(2) cease the use of the Trademarks, Trade Names, logos,
type styles or symbols used in connection with the sale of Products;
(3) cease to hold itself out as the Licensee and
28
<PAGE> 29
distributor of Products;
(4) execute and deliver such instrument as may reasonably
be required by Licensor, or its duly authorized representative, to effectuate a
transfer to Licensor or any person, firm or corporation which it shall designate
in writing, of all rights with respect to any Trademarks or Trade Names for
which application is then pending or which shall have been granted in connection
with the sale and distribution of Products.
(b) Upon termination of this agreement at the end of the term
granted herein, or any extension or renewal thereof, Licensee will upon the
demand of Licensor do any and all of the acts required pursuant to the
provisions of subparagraph 25(a) hereof.
(c) Upon the termination of this agreement for cause or
otherwise Licensor shall have the option for a period of ninety (90) days from
the date of termination to purchase from Licensee all of its then on hand
essential oils and essences used for manufacture of Products, as well as the
unsold stock of finished Products, or any component parts thereof, whether
theretofore purchased by Licensee from Licensor or manufactured by or for the
account of the Licensee, but in no event, upon the exercise of such option,
shall Licensor be required to purchase any quantity of Product or component
parts thereof (except as aforesaid with respect to essential oils or essences)
which shall be in excess of the average annual amount sold by Licensee during
the two (2) year period immediately preceding the date of
29
<PAGE> 30
termination. Upon Licensor's exercise of such option and payment for the
aforesaid quantities Licensee shall destroy, or deliver and transfer title
thereof to Licensor of, all such Products and components in excess of such
average annual amount, without charge to or payment therefor by Licensor, such
quantities being hereafter referred to as the "excess quantities". Upon exercise
of such option Licensor shall pay to Licensee for all but excess quantities of
such stock of merchandise F.O.B. Licensee's plant or warehouse as follows:
(1) All non excess quantities of such Product or
component parts thereof which had been purchased by Licensee from Licensor, or
its duly authorized source, shall be paid for at the actual cost price paid by
Licensee for such goods, during the two year period immediately preceding the
date of termination.
(2) In addition to the price provided pursuant to
subparagraph 25(c)(1), the Licensor shall pay to the Licensee all freight costs
on such goods from Licensor's plant in Milan or other place of manufacture to an
East Coast Port of the United States, which the Licensee shall have incurred, as
well as insurance expense, duties, customs brokerage fees, and any normal and
customary expenses reasonably and actually incurred by Licensee in their
importation, but not including any overhead, salaries or expenses of personnel
or employees of Licensee, less any reasonable cost to Licensor for relabeling of
Products and components which may be required to permit their sale under then
applicable United States laws and regulations.
30
<PAGE> 31
(3) Licensor's obligation to pay the purchase price as
provided in said Paragraph 25(c)(1) and (2) shall be conditioned upon such
Product and component parts being in the same condition as originally purchased
from and delivered by Licensor both as to packaging and contents and further
conditioned upon such Products, components, essential oils and essences which
were not purchased directly from Licensor then conforming as to quality,
packaging, contents and condition required to permit their manufacture, use and
sale by Licensee under the provisions of this License Agreement. In the event
such conditions shall not be fulfilled:
(i) the repurchase price of Products and components other
than essential oils and essences shall be adjusted downward accordingly by
agreement between the parties; and
(ii) Licensor shall not be obligated to purchase and
Licensee shall promptly destroy any essential oils or essences which do not
fulfill such conditions; and
(iii) if Licensor and Licensee cannot during such ninety
(90) day period agree as to the condition of such Products, components,
essential oils and essences or as to the quantities or value thereof, as the
case may be, such issues shall be determined by arbitration as herein provided.
However, pending any such determination by arbitration, such items shall not be
sold by Licensee but shall be delivered by Licensee to and accepted by Licensor
subject to provisions of any such
31
<PAGE> 32
arbitration award.
(4) All non-excess quantities of Product or component
parts thereof other than essential oils and essences which Licensee has
manufactured or shall have had manufactured for its account in the Licensed
Territory or elsewhere as permitted pursuant to the provisions hereof and in
full conformity with the provisions of paragraph 7 hereof, shall be paid for at
the Licensee's actual cost. There shall be deducted from such price any
reasonable cost to Licensor for relabeling of Products and components which may
be required to permit their sale under then applicable United States laws and
regulations.
(5) Licensor's obligation to pay the purchase price as
provided in subparagraph 25(c)(4) shall be conditioned upon the Product or any
component parts thereof not only being in full conformity with the provisions of
paragraph 7 hereof but also being in saleable condition both as to packaging and
contents, failing which the repurchase price shall be adjusted downward
accordingly by agreement between the parties, and if they cannot agree thereon
or as to the cost, saleable condition, conformity or quantity of such items
within such ninety (90) days period, same shall be determined by arbitration as
herein provided. Pending any such determination by arbitration such items shall
not be sold by Licensee but shall be delivered by Licensee to and accepted by
Licensor subject to the provisions of any such arbitration award.
(d) Upon exercise by Licensor of the option to
32
<PAGE> 33
repurchase granted pursuant to subparagraph 25(c) hereof, Licensee shall make no
further sales of delivery any such Products, components, essential oils or
essences in the Licensed Territory or elsewhere except to Licensor or to any
person, firm or corporation which it shall designate in writing. (e) If the
Licensor shall fail to exercise the option to purchase granted pursuant to
subparagraph 25(c) hereof, the Licensee shall have the right for a term of one
year from the date of termination of this License Agreement, without being in
violation of the terms hereof, to continue to sell all finished stocks of
Products then on hand which are in saleable condition and which were either
purchased from Licensor or manufactured by or on behalf of Licensee in
conformity with paragraph 7 hereof, bearing the Trademarks, symbols or
tradenames of Licensor. Such sales shall be made only in Licensed Territory and
to the extent feasible, shall be made to the same retail channels theretofore
sold by Licensee and at the last previously approved retail price schedule
promulgated by Licensee. Royalties as to such sales shall be paid to the
Licensor by the Licensee pursuant to the provisions of paragraph 17 hereof.
26. Excused Non-Performance
In the event performance of any of the terms and provisions of
this Agreement cannot be substantially met due to conditions such as war,
declared or undeclared, fire, flood, interruption of transportation, embargo,
governmental orders, strike or labor strife, riot, acts of God, or any other
measures
33
<PAGE> 34
or occurrences beyond Licensee's or Licensor's control, but not including
extraordinary changes in the economy, then performance of said provisions shall
be excused during the period that said conditions exist. It is further agreed
that Licensee shall be excused from the payment of said minimum annual royalty
payments (but not from payment of royalties actually earned hereunder) during
any period when any United States Government Import Regulation has actually
restricted or prohibited the importation of components necessary for manufacture
of Products in the United States provided that such components cannot reasonably
be secured by Licensee from sources in the United States. The parties shall
promptly notify the other in writing of the existence of such conditions and of
their termination.
27. Notice of Default
In the event that either party to this agreement fails to
comply with any of its terms and conditions the other party shall have the right
to serve written notice to such effect on the defaulting party. If such
condition is not cured within 30 days after receipt of such notice or if the
condition is such that it cannot reasonably be corrected in 30 days and the
commencement of the action required to correct such condition has not been
started within said period, or if such condition or alleged breach is undisputed
or unchallenged by the defaulting party then the other party shall have the
right to serve notice of termination hereunder.
28. Arbitration
34
<PAGE> 35
Any controversy or claim arising out of or relating to this
agreement or the breach thereof, including but not limited to questions of
damages or challenged allegations of default arising pursuant to Paragraph 27
hereof, shall be settled by arbitration before a panel of three (3) arbitrators
to be held in the City and State of New York in accordance with the rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. The
arbitrators shall have the right in addition to making monetary awards to grant
such equitable relief as they in their sole discretion shall deem appropriate.
29. Defense of Trademarks
Licensor covenants and agrees at its cost and expense to
defend any challenge made in Licensed Territory to the validity of its
Trademarks. Should Licensor fail to do so in due course after receipt from
Licensee of a request that Licensor do so, Licensee may do so and the costs and
expenses thereof shall be withheld by the Licensee as the same accrue from
royalty payments which Licensee is required to make to the Licensor pursuant to
the provisions of Paragraph 17 hereof.
30. Miscellaneous
(a) This agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective legal representatives,
successors and assigns.
(b) All questions with respect to the construction of this
agreement, and the rights and obligations of the parties
35
<PAGE> 36
hereunder shall be determined in accordance with the laws of the
State of New York.
(c) This agreement sets forth the entire agreement of the
parties and is intended to supersede all prior negotiations, understandings and
agreements. No provisions of this agreement may be waived or changed, except by
a writing by the party against whom such waiver or change is sought to be
enforced. The failure of any party to require performance of any provision
hereof shall in no manner affect the right at a later time to enforce such
provision.
(d) The paragraph headings are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
or any intent of this agreement.
(e) All notices, demands and other communications pursuant to
this agreement shall be in writing. Communications to the Licensor shall be sent
to it at the address set forth above with a copy to Messrs. Maggin & Swan, 509
Madison Avenue, New York, New York 10022. Communications to the Licensee shall
be sent to it at the address set forth above, with a copy to MEM Company, Inc.,
Union Avenue Extension, Northvale, New Jersey 07647. Any party may designate a
new address to which communications to it shall be sent. All communications
shall be effective when sent by Registered Air Mail, Return Receipt Requested,
addressed as stated above.
(f) One or more counterparts of this agreement may be executed
and together shall constitute but one agreement and in
36
<PAGE> 37
establishing the existence of this agreement neither party shall be required to
account for the absence of the counterparts.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals on the day and year first above written.
G. VISCONTI DI MODRONE, S.P.A.
ATTEST: By:____________________________
_________________
V.O.M. LTD.
ATTEST: By:____________________________
_________________
G U A R A N T Y
The undersigned, MEM COMPANY, INC., a New York Corporation,
having its principal place of business at Union Street Extension, Northvale, New
Jersey in consideration of the execution of a License Agreement by G. VISCONTI
di MODRONE, S.p.A. (hereinafter "Licensor") with V.O.M. LTD. (a wholly owned
37
<PAGE> 38
subsidiary of MEM COMPANY, INC.)(hereinafter "Licensee"), does hereby guaranty
to Licensor, its successors and assigns, full and complete payment and
performance by Licensee of all of the provisions, conditions, covenants and
agreements contained in the aforesaid License Agreement and does waive all
notice of default by the said Licensee except as provided in the License
Agreement, notice of the acceptance of this Guaranty by Licensor and consents to
any extension of time that may be given by Licensor to Licensee of time of
payment or performance.
IN WITNESS WHEREOF, MEM COMPANY, INC., by its duly authorized
officer has executed this Guaranty this day of October, 1978.
MEM COMPANY, INC.
By:________________________
TRADEMARKS REGISTERED IN U.S.A.
RELATING TO MEN'S TOILETRIES
<TABLE>
<CAPTION>
NUMBER MARK EXPIRATION DATE
<S> <C> <C>
639455 Victor January 1, 1997
649846 Silvestre August 6, 1997
857617 Acqua Di Selva September 24, 1988
1056831 Acqua Di Selva January 25, 1997
868289 Acqua Di Colonia
</TABLE>
38
<PAGE> 39
<TABLE>
<S> <C> <C>
Fresca April 15, 1989
1068829 Tabacco D'Harar July 5, 1997
</TABLE>
IN PROCESS OF REGISTRATION
Visconti E Biscione
SCHEDULE A
39
<PAGE> 1
EXHIBIT 10.147
[ENGLISH
LEATHER [MEM COMPANY, INC. LETTERHEAD]
LOGO]
November 6, 1996
Ms. Bonnie A. Appel
WELLING INTERNATIONAL
65 Bic Drive
Milford, Connecticut 06460
Dear Bonnie:
This will acknowledge your request for a formal three year extension to the
contract dated March 8, 1977 which we have up until now been extending through
mutual verbal agreement. This extension will run from March 8, 1996 through
December 31, 1999.
The minimum royalty will be waived given the excellent track record over these
many years. The royalty rate will be 5 per cent.
We plan a number of changes that will make English Leather much more visible in
the marketplace once the integration into Renaissance is completed early in
1997. Their new offices will be in Stamford shortly so it should be easier for
the marketing people to work together in the future.
If this is in accordance with your understanding, please sign and return the
enclosed copy.
Very truly yours,
/s/ Gay A. Mayer
Gay A. Mayer
GAM/sd
Agreed and Accepted
/s/ Bonnie A. Appel, Pres.
- --------------------------
WELLING INTERNATIONAL
<PAGE> 2
"ENGLISH LEATHER"
LICENSE AGREEMENT
AGREEMENT made as of the 1st day of April 1977 by
and between
MEN Company, Inc.,
a New York corporation
having its principal place of
business in Northvale, New Jersey ("Licensor")
and
WELLING INTERNATIONAL,
a Connecticut corporation
having its principal place of
business at 65 Caswell Street,
Milford, Connecticut ("Licensee").
WHEREAS, Licensor is the owner of certain rights in and to the United
States trademark registrations "ENGLISH LEATHER": 672, 943: 841, 770: and 848,
350; ("ENGLISH LEATHER") and
WHEREAS, Licensor is willing to license to Licensee the right to use as
hereinafter specified the trademark "ENGLISH LEATHER"; and
WHEREAS, Licensee is a manufacturer of ophthalmic eyeglass frames and
sunglasses; and
WHEREAS, Licensee desires to utilize "ENGLISH LEATHER" in connection
with the manufacture, sale and distribution of specific models of said
ophthalmic eyeglass frames and sunglasses ("Articles").
NOW THEREFORE, in consideration of the mutual promises herein
contained, it is hereby agreed as follows:
<PAGE> 3
1. GRANT OF LICENSE:
(a) Articles. Upon the terms and conditions hereinafter set
forth, Licensor hereby grants to Licensee and Licensee hereby accepts the
right, license and privilege, of utilizing "ENGLISH LEATHER" upon and in
connection with the manufacture, sale and distribution of the Articles.
(b) Territory. Licensee shall have the exclusive right, during
the term hereof to distribute the Articles for sale to the general public at
retail through establishments engaged in the business of selling prescription
eyewear to the general public in all of the United States, Puerto Rico, Guam,
the U.S. Virgin Islands and Canada.
(c) Term. The term of this license shall commence on April 1,
1977 and shall continue until March 31, 1979. Licensee may renew this license
for a period of two additional years provided that the licensee has paid the
minimum royalties for the immediately preceeding year of this license
agreement. Licensee pays a minimum royalty of $4,500 during the third year and
$5,000 during the fourth year.
(d) Use of the trademark by Licensee inures to the benefit of
the Licensor, and Licensee agrees to Licensor's applying for any and all U.S.
and foreign trademark registrations for "ENGLISH LEATHER" for the Articles.
Licensee will refrain from filing any such trademark applications during and
after this agreement.
<PAGE> 4
2. ROYALTIES AND TERMS OF PAYMENT:
(a) Guaranteed Minimum Royalties. Licensee agrees to pay to Licensor on
or before the commencement of each contract year during the term of the
Agreement and/or extensions thereof the following non-returnable guaranteed
minimum royalties ("Minimum Royalties") during the initial Contract Period or
extension of this Agreement as follows:
<TABLE>
<CAPTION>
For the year April 1, 1977 to March 31, 1978:
<S> <C>
$ 1,000 (upon execution of contract)
by September 30, 1977 833
by December 31, 1977 833
by March 31, 1978 834
-------
$ 3,500
For the year April 1, 1978 to March 31, 1979:
by June 30, 1978 $ 1,000
by September 30, 1978 1,000
by December 31, 1978 1,000
by March 31, 1979 1,000
-------
$ 4,000
</TABLE>
(b) Royalty Rate. During the Contract Period Licensee agrees to pay to
Licensor as royalty a sum equal to three and one-half percent (3 1/2%)
("Royalty") of all sales by Licensee, or any of its affiliated, associates or
subsidiary
<PAGE> 5
companies, of the Articles less any Minimum Royalties paid by Licensor during
the Royalty Period. The term "sales" shall mean gross sales, less quantity
discounts and returns. No deduction shall be made for cash, freight or
advertising allowances, other discounts. No costs of manufacture, sales
distribution or exploitation of the Articles or uncollectable accounts shall be
deducted. The Royalty shall also be paid on all Articles distributed by Licensee
or any of its affiliated, associated, subsidiary or related companies, excepting
those Articles not billed, such as free introductory offers and samples.
(a) Quarterly Statements. Within thirty (30) days after the initial
shipment of the Articles and within a reasonable period of time (not to exceed
thirty (30) days) following each calendar quarter thereafter, Licensee shall
furnish to Licensor a complete, accurate statement in quadruplicate, showing the
number (if any), description, and actual selling price of the Articles
distributed and sold by Licensee during the preceding quarter.
(d) Payment of Royalty. The payment of the Royalty shall accompany the
statements furnished under Paragraph (c) and payments shall be made to and in
the name of Licensor at the address specified below. The receipt and acceptance
thereof by the Licensor shall not preclude Licensor from questioning the
correctness of such statements and royalties at any time.
<PAGE> 6
(e) Damages. The Minimum Royalties specified above are subject
to the provisions of Paragraph 2 (b) hereof. No part of said guaranteed Minimum
Royalties shall in any event be repayable to Licensee. In the event of any
default or breach by Licensee, Licensor shall be entitled only to the Minimum
Royalty due up to the next succeeding March 31, after the date of default or
breach by Licensee as liquidated damages, except as otherwise provided in
Articles 5 (b) and 6 below.
3. MANUFACTURE AND DISTRIBUTION:
Sale of Articles. Licensee agrees to sell and distribute the Articles
outright, and not on an approval consignment or return basis (other than to such
customers as may be mutually agreed upon by Licensee and Licensor). Licensee
agrees to sell to Licensor such reasonable quantities of the Articles as
Licensor shall order at as low a wholesale price as the Licensee sells similar
quantities of the Articles to the general trade.
4. GOODWILL:
Licensee agrees to cooperate fully in good faith with Licensor at
Licensor's expense for the purpose of securing and preserving Licensor's rights
in and to the trademark. Nothing contained herein shall be construed as an
assignment or grant to Licensee of any right, title or interest in or to the
trademark, or goodwill, all rights relating thereto being reserved by Licensor,
except for the license hereunder to Licensee.
At the termination, expiration or cancellation of this Agreement
Licensee will be deemed to have granted to Licensor
<PAGE> 7
any trade rights, trademarks, equities, goodwill, titles, copyrights, renewals
of copyright or other rights in and to "ENGLISH LEATHER", obtained by Licensee
or vested in Licensee in pursuance of any endeavors covered hereby. Licensee
will execute any instruments requested by Licensor to accomplish or confirm the
foregoing, without other consideration than the mutual covenants and
consideration in this Agreement.
5. LICENSOR'S TITLE:
(a) Title. During the term of this License or thereafter, Licensee will
neither attack Licensor's title to any rights in and to "ENGLISH LEATHER" nor
attack the validity of this License.
(b) Infringement Claims. Licensee, at Licensor's expense, for
Licensee's direct costs, agrees to assist the Licensor to the extent necessary
to procure any protection of any of Licensor's rights to the trademark.
Licensor, if it so desires, may commence or prosecute any claims or suits in its
own name or in the name of Licensee or join Licensee as a party thereto.
Licensor agrees to hold Licensee harmless from all loss, cost liability or
expenses as a result of any claim made against Licensee as a result of its
action hereunder. Licensee shall notify Licensor in writing of any infringements
or imitation by others of the trademark or Articles similar to those covered by
this Agreement which may come to Licensee's attention, and Licensor shall have
the sole right to determine whether or not
<PAGE> 8
any action shall be taken on account of any such infringements or imitations. If
Licensor determines not to bring an action of the type referred to in the
preceding sentence, Licensee shall, but only with the prior written consent of
Licensor, have the right to bring such an action at Licensee's own expense.
6. INDEMNIFICATION AND INSURANCE:
Licensee hereby indemnifies and holds harmless Licensor, and any and
all other persons whose names appear below, and undertakes to defend them and
each of them against any actions, claims, suits, loss, damages, costs and
expenses (including but not limited to attorneys' fees) arising out of
Licensee's activities hereunder (including but not limited to the production,
sale and distribution of the Articles), including actions, claims, suits, loss,
damages, costs and expenses arising out of alleged defects in the Articles or
arising out of any alleged acts of piracy, plagiarism, or of libel or invasion
of privacy, but excluding any claims against Licensor arising out of Licensee's
actions pursuant to Article 5 (b) above.
Licensee agrees, at its own expense, to obtain and maintain product
liability insurance, in form and with an insurance company satisfactory to
Licensor, insuring Licensor and any and all other persons whose names appear
below, against any claims, suits, loss and damages including but not limited to
those arising out of any alleged defects in the Articles, such insurance to be
maintained with limits of not less than $500,000 and Licensee shall within
thirty (30) days from the date hereof, submit to Licensor a copy of such fully
paid policy of insurance. As used in this
<PAGE> 9
Section 6, "Licensor" shall include the agents, officers, directors and
employees thereof and the term "persons" all juridical persons licensed to use
the trademark "ENGLISH LEATHER" by Licensor at the time of such law suit, etc.
The indemnification agreement and the insurance policies referred to in
this Section 6 shall be not only for the benefit of Licensor and the aforesaid
"persons" individually, but also for the benefit of any entities owned or
controlled by MEM Company, Inc., and the partners, officers, directors, agents
and employees licensees, successors and assignors of each of the foregoing.
Licensee shall provide Licensor with a certificate of insurance substantiating
that the above requirements of this section have been met and expressly
providing that the insurer will not cancel, reduce or otherwise adversely change
the coverage without first giving Licensor twenty (20) days prior written
notice.
7. QUALITY OF MERCHANDISE:
Licensee agrees that the Articles shall be made of plastic and/or metal
and be of high standard and of such style, appearance and quality as to be
adequate and suited to their reasonable exploitation to the best advantage and
to the protection and enhancement of the trademark and the good will pertaining
thereto, and that such Article will be manufactured, sold and distributed in
accordance with all applicable Federal, State, Local and other laws.
It is agreed that Licensor shall control the nature and quality of the
goods under the trademark "ENGLISH LEATHER" pursuant to which Licensee shall,
before selling or distributing any of the Articles, furnish to Licensor, for its
written approval,
<PAGE> 10
a reasonable number of samples of each Article and of its point of sale
packaging and any other material used in connection with the advertisement, sale
and exploitation of the Articles. The quality and style of such Article and such
packaging and materials shall be subject to the prior written approval of
Licensor, which approval may be granted or withheld by Licensor. Licensor's
failure to mail notice of disapproval within twenty-one (21) days after actual
receipt of such samples shall constitute approval. After approval of samples,
Licensee shall not depart therefrom materially without Licensor's prior written
consent and Licensor shall not withdraw its approval of the approved samples on
less than one hundred twenty (120) days' written notice to Licensee. From time
to time, both before and after Licensee commences selling the Articles, Licensee
shall furnish, at Licensor's request and without cost to Licensor, not more than
fifteen (15) additional random samples of each Article, together with any
cartons, containers and packing, wrapping and other material used in connection
therewith at the point of sale or in connection with the advertisement, sale and
exploitation of the Articles. The approvals required by this paragraph shall not
be unreasonably withheld.
8. LABELING AND ADVERTISING:
(a) Approval of Notice. The license herein granted is conditioned upon
Licensee's full and complete compliance with the provisions of this subparagraph
and upon Licensee's full and complete compliance with the provisions of the
trademark laws. Licensee agrees to cause to appear on or within each Article on
each carton, container and/or packing or wrapping material bearing
<PAGE> 11
the trademark "ENGLISH LEATHER" and on or within all advertising, promotional
or display material, any appropriate notice desired by Licensor.
Each and every tag, label, imprint or other device containing any such
notice and all advertising, promotional or display material bearing the
trademark shall be submitted by Licensee to Licensor for its written approval
prior to use by the Licensee. The trademark notice shall read "ENGLISH LEATHER"
together with the registration notice (R) and such registration notice will
always accompany all appearances of the trademark "ENGLISH LEATHER" whenever
used by the Licensee, except when notified by letter from Licensor to the
contrary.
(b) Radio, Television, Billboard Advertising.
Licensee shall not undertake any billboard, radio, television or motion picture
advertising in connection with the Articles without the prior written consent
of Licensor.
(c) Art Work. All art work for or in connection with Articles
shall be at Licensee's sole cost, shall be subject to written approval of
Licensor and notwithstanding the origination and use by Licensee. Licensee
shall have no right to use such art work after the expiration of the term
hereof and Licensee shall immediately upon expiration or termination of the
terms destroy all dies, molds, forms, masters and the like incorporating such
art work.
<PAGE> 12
(d) Approval. Approval by Licensor of any matter under this Agreement
shall not constitute a waiver of Licensor's rights or Licensee's duties
hereunder.
9. EXCLUSIVITY AND PREMIUMS:
(a) Exclusivity in Licensed Territory. Nothing herein shall prevent
Licensor from granting any other licenses for the use of the trademark or from
utilizing the trademark in any manner whatsoever; Licensor agrees, however, that
except as provided in this paragraph 9 (a) and in paragraph 9 (b) hereof, it
shall grant no other licenses in the licensed territory effective during the
term of this Agreement for the use of the trademark in connection with the
Articles contemplated by this Agreement. If Licensor has placed any limitation
(such as, but not limited to, price design or material of manufacture) on any of
the Articles or the commercial utilization of any such Articles, Licensee's
right of exclusivity as specified in the preceding sentence shall not apply to
products outside such limitations, whether or not such products are otherwise
identical to Articles.
(b) Premiums. The rights granted to Licensee do not include the right
to utilize or exploit the trademark or Articles carrying the trademark as
premiums, give-aways or for other promotional arrangements, unless they are
billed or distributed in accordance with the terms hereof.
10. RECORDS:
Licensee agrees to keep accurate books of account and records covering
all transactions relating to this license.
<PAGE> 13
Licensor and its authorized representative shall have the right at all
reasonable hours to examine said books and records and all other documents and
material in the possession or under the control of Licensee with respect to the
subject matter and terms hereof and for the purpose of making extracts
therefrom. Upon demand of Licensor, Licensee shall at the expense of Licensor
furnish to Licensor a detailed statement by an independent certified public
accountant, showing the number, description, actual selling price and itemized
deductions from such price of the Articles distributed and/or sold by Licensee
to the date of Licensor's demand. All books of account and records shall be kept
available for at least two (2) years after the termination of this license.
11. BANKRUPTCY:
If Licensee files a petition in bankruptcy or is adjudicated a bankrupt
or if it becomes insolvent, or makes an assignment for the benefit of its
creditors or an arrangement pursuant to any bankruptcy law, or if Licensee
discontinues its business or if a receiver is appointed for it or its business,
this license shall terminate forthwith without notice. If this license so
terminates, Licensee, its receivers, representatives, trustees, agent,
administrators, successors and/or assigns shall have no right to sell, exploit
or in any way deal with or in any of the Articles, trademark or any carton,
container, packing, or wrapping material, advertising, promotional display
material pertaining thereto, except with the written consent and instructions of
Licensor.
<PAGE> 14
12. BREACH OR DEFAULT:
If Licensee fails to perform any of its obligations hereunder, Licensor
shall have the right to terminate this license upon ten (10) days notice in
writing and such termination shall become effective unless Licensee shall
completely remedy the violation within thirty (30) days of receipt of notice of
such violation.
13. PROCEDURES AFTER EXPIRATION OR TERMINATION:
(a) Inventory Report. Sixty (60) days before the expiration of this
license and in the event of its termination ten (10) days after receipt of
notice of termination or the happening of the event which automatically
terminates this Agreement, a statement showing the number and description of the
Articles on hand or in process shall be furnished by Licensee to Licensor.
Licensor shall have the right to take a physical inventory to verify such
statement, and Licensee's refusal to permit such physical inventory shall
forfeit the Licensee's right (as specified below) to dispose of such inventory,
and Licensor shall retain all legal and equitable rights Licensor may have.
(b) Disposal of Merchandise and Materials. After expiration of the
license or after termination of the license under the provisions of Sections 12
or 15 of this Agreement, Licensee may dispose of Articles then on hand or in
process for a period of ninety (90) days after the expiration or ninety (90)
days after notice of termination as the case may be, provided royalties with
respect to that period are paid and statements are furnished for that period in
accordance with Section 2 hereof.
<PAGE> 15
Licensee shall not manufacture, sell or dispose of any Articles if termination
is based on the failure of Licensee to affix any notice to the Articles,
cartons, containers, or packing or wrapping material or advertising, promotional
or display material, or because of the departure by Licensee from the quality
and style approved by Licensor pursuant to Section 7 hereof. During the
aforementioned 90-day period, Licensor shall have the right to exploit and
license others to exploit the trademark in any manner, including, without
limitation, in connection with articles of the type described as Articles
herein.
(c) Reversion of Rights to Licensor. After the expiration, cancellation
or termination of this license, all rights granted to Licensee hereunder shall
forthwith revert to Licensor. Licensee shall refrain from further use of or
reference to the trademark or matters similar to the trademark either direct or
indirect, except as provided in paragraph (b) of this Section 13. All royalties
on sales made before such expiration or termination date shall immediately
become due and payable to Licensor.
14. FAILURE TO CEASE MANUFACTURING AT EXPIRATION OR
TERMINATION DATE:
Licensee acknowledges that its failure to cease the manufacture, sale
or distribution (except as otherwise provided herein) of any Articles on the
termination or expiration of this License Agreement will result in immediate and
irreparable damage to Licensor and to the rights of any subsequent Licensee,
that there is no adequate remedy at law for such failure, and agrees that in the
event of such failure, Licensor shall be entitled to equitable relief by way of
temporary and permanent injunctions and such further relief as any Court with
jurisdiction may deem just and proper.
<PAGE> 16
15. EXCUSE FOR NONPERFORMANCE:
If Licensee is delayed or prevented from performing any provisions
hereof by reason of any fire, strike, labor dispute, government law or
regulation, insurrection, war, public disaster, flood, unavoidable casualty, act
of God or the elements, delay in manufacturing or transportation, embargo, or
any other cause beyond the control of Licensee (whether of a similar or
dissimilar nature) or if Licensee fails to perform or is delayed or prevented
from performing any provision hereunder by reasons of adverse claim or an order,
judgment or decree of any Court or Governmental body having jurisdiction,
Licensor may terminate this Agreement without liability of either party to the
other except for prior performances rendered hereunder. In such events, all
royalties on sales theretofore made shall become immediately due and payable.
16. NOTICES:
All notices, statements and payments hereunder, shall be sent to the
respective addresses of the parties as set forth below unless notification of a
change of address is given in writing, Registered Mail, Return Receipt
Requested, and unless otherwise specified herein, the date of mailing, postage
prepaid, shall be deemed the date the notice or statement is given.
MEM Company, Inc.
Northvale, New Jersey 07647
Welling International
65 Caswell Street
Milford, Connecticut 06460
<PAGE> 17
17. NO JOINT VENTURE:
Nothing herein contained shall constitute the parties partners or joint
venturers and Licensee shall have no power to obligate or bind Licensor in any
manner whatsoever.
18. NO ASSIGNMENT OR SUBLICENSE BY LICENSEE:
Licensor may assign any or all of its rights hereunder, but this
License and all Licensee's obligations hereunder are personal to Licensee and
shall not without the prior written consent of Licensor, be assigned, mortgaged,
sublicensed or otherwise encumbered by Licensee or by operation of law, except
that Licensee shall have the right to subcontract any work to be done on any
Articles. Any attempt by Licensee to assign all or any part of this License or
any rights hereunder shall constitute a material breach of this Agreement.
19. SECTION HEADINGS, GENDER AND NUMBER:
The headings of paragraphs, subparagraphs, sections and other
subdivisions of this Agreement are for convenient reference only. They shall not
be used in any way to govern, limit, modify of construe this Agreement or any
part or provision thereof or otherwise be given any legal effect.
20. ENTIRE AGREEMENT:
Nothing contained herein shall be construed to be a warranty, unless
expressly stated to be. This Agreement contains the full and complete
understanding and agreement between the parties with respect to the written
subject matter and supersedes all other agreements between the parties whether
written or oral relating thereto, and may not be modified or amended except by
written instrument executed by both of the parties hereto. No
<PAGE> 18
agent, employee or representative of Licensor has any authority to make any
representation or promise not contained in this Agreement and Licensee expressly
agrees that Licensee has not executed this Agreement in reliance on any such
representation or promise. This Agreement shall in all respects be subject to
the laws of the State of New York applicable to agreements executed and wholly
performed within such State. The failure or delay of either party in enforcing
any of its rights under this Agreement shall not be deemed a continuing waiver
or a modification thereof, and either party may, within the time provided by
applicable law, commence appropriate legal proceedings to enforce any or all
such rights. No person, firm, group or corporation is a third party beneficiary
hereof, except as provided in Section 6 hereof.
This Agreement shall be construed in accordance with the laws of the
State of New York applicable to agreements entered into and wholly performed
within such state.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the day and year first above written.
Date: 3/8/77 Licensor:
MEM Company, Inc.
(seal)
by /s/ [Signature Illegible]
----------------------------------
Attest /s/ [Signature Illegible]
-------------------------------
Licensee:
Date: 4/14/77
(seal)
by /s/ [Signature Illegible]
----------------------------------
Attest /s/ [Signature Illegible]
-------------------------------
<PAGE> 1
Exhibit 10.148
January 29, 1996
Mr. Michael C. Schenk
Director of Sales & Marketing
HUTCH SPORTS USA
1835 Airport Exchange Blvd.
Erlanger, Kentucky 41018
Dear Mr. Schenk:
Thank you for your letter updating us on the status with Willow. In truth we did
not know anything about it since our last conversations in 1995 were with people
from the New York office.
I enclose a copy of our January, 1995 letter extending the 1985 contract.
Generally, the extension was handled when the year end royalty report and check
was received.
We are happy to confirm a one year extension to the July 3, 1985 contract for
the use of the ENGLISH LEATHER trademark. In conjunction with this, please send
us three samples of the current items that were shipped to your customers in
1995 for our review.
With regard to our one ounce bottles, the pricing for shipments after July 1,
1996 will be $ .36 per bottle due to increases in the raw material costs.
We look forward to hearing from you.
Very truly yours,
MEM COMPANY, INC.
Gay A. Mayer
GAM/sd
Enc.
PS: Please send via RPS or Parcel Post.
<PAGE> 2
[WILLOW HOSIERY CO., INC. LETTERHEAD]
January 25, 1993
Mr. Gay A. Mayer
Mem Company, Inc.
P.O. Box 928
Northvale, NJ 07647
Dear Gary:
We are writing to request that our License Agreement be extended on the same
terms for another year, to expire December 31, 1993.
Thank you for your continued cooperation.
Very truly yours,
/s/ Herb Libowitz
Herb Libowitz
mo
<PAGE> 3
EXTENSION OF TRADEMARK AGREEMENT
This AGREEMENT made as of the last day set forth below, by and between
MEM COMPANY, INC., a New York Corporation, having a place of business at
Northvale, New Jersey 07647 (hereinafter referred to as "LICENSOR"), and WILLOW
HOSIERY CO., INC., a New York Corporation, having a place of business located at
350 Fifth Avenue, New York, New York 10001 (hereinafter referred to as
"LICENSEE"),
W I T N E S S E T H:
WHEREAS, LICENSOR and LICENSEE did on the 3rd day of July, 1985, enter
into a TRADEMARK AGREEMENT in writing wherein and whereby LICENSOR did grant to
LICENSEE a license for the use of a certain TRADE SYMBOL in relation to certain
PRODUCTS within a certain TERRITORY from July 1, 1985, until December 31, 1986,
WHEREAS, pursuant to paragraph 11 of said Trademark Agreement, LICENSEE
was granted the option to renew said Trademark Agreement for the 1987 calendar
year at a similar minimum royalty of $5,000.
WHEREAS, LICENSEE has notified LICENSOR that it wishes to renew said
Trademark Agreement for calendar year 1987,
<PAGE> 4
NOW, THEREFORE, in consideration of the sum of $1.00, the receipt of
which is hereby acknowledged, and the mutual covenants and agreements herein
contained, the parties hereto do agree as follows:
1. LICENSOR hereby grants to LICENSEE an exclusive and non-transferable
License to use the TRADE SYMBOL in relation to the PRODUCTS within the
TERRITORY, to commence on January 1, 1987, and to terminate on December 31,
1987.
2. The extended period of the Trademark Agreement shall be under the
same terms and condition as set forth in the Agreement hereto annexed as
Appendix I, except as set forth below.
3. The minimum royalty for the extended term shall be $5,000.
4, LICENSEE shall have the option to renew the Trademark Agreement for
the 1988 calendar year at a similar minimum royalty of $5,000, such option to be
exercised by December 1, 1987.
2
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth below.
(Corporate Seal) MEM COMPANY, INC.
("LICENSOR")
ATTEST:
By: By:
------------------------ ----------------------------
Print Name Gay A. Mayer, President
---------------- Date:
--------------------------
(Corporate Seal) WILLOW HOSIERY CO., INC.
("LICENSEE")
ATTEST:
By: By:
------------------------ ----------------------------
Print Name Print Name:
------------------ ---------------------
Print Title Print Title:
------------------ ---------------------
Date:
--------------------------
3
<PAGE> 6
APPENDIX I
TRADEMARK AGREEMENT
This AGREEMENT is made as of the 3rd day of July, 1985, effective as of
the 1st day at July, 1985 (hereinafter referred to as the "EFFECTIVE DATE"), by
and between MEM COMPANY, INC., a New York corporation, with its principal office
for the transaction of business at Northvale, New Jersey 07647 (hereinafter
referred to as "LICENSOR"), and WILLOW HOSIERY CO., INC., a New York
corporation, with its principal office for the transaction of business at 350
Fifth Avenue; New York, New York 10001 (hereinafter referred to as "LICENSEE").
WITNESSETH
WHEREAS, LICENSEE desires to manufacture and market men's hosiery
(hereinafter referred to as the "PRODUCTS"), utilizing the TRADE SYMBOL, as
hereinafter defined, in the TERRITORY, as hereinafter defined, under grant of
right by LICENSOR.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. Definitions: For the purpose of this Agreement, the following
definitions shall apply:
(a) The term "TRADE SYMBOL" shall mean:
(i) the trademark ENGLISH LEATHER and
(ii) such slogans, labels, copyrights, emblems, insignia,
and other trade identifying symbols used in connection with
the sale of the PRODUCTS pursuant to LICENSOR's written
approval or hereafter designated by LICENSOR in writing for
use on the PRODUCTS, whether or not said TRADE SYMBOL be
registered in the TERRITORY.
(b) The term "TERRITORY" shall mean the fifty (50) states of the
United States and the District of Columbia.
1
<PAGE> 7
(c) The terms "affiliated business organizations", "affiliated company"
or "affiliates" shall mean any person, firm or corporation that directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with the company named.
(d) The term "control" (including the terms "controlling", "controlled
by" and "under common control with"), as used herein, shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of any person, firm or corporation, whether through
ownership of voting securities, by contract or otherwise.
2. Representation by LICENSEE:
(a) LICENSEE represents to LICENSOR that its present financial
structure and present facilities are such that it is now, and will be, in a
favorable position to manufacture, distribute, advertise and sell the PRODUCTS
within the TERRITORY under the license hereinafter granted with respect to the
TRADE SYMBOL.
(b) LICENSEE represents to LICENSOR that no parent, subsidiary, related
or affiliated business organization of LICENSEE is a competitor of LICENSOR.
3. Grant Of License To Use Of The TRADE SYMBOL:
(a) LICENSOR, to the extent that it may be able lawfully to do so,
hereby grants to LICENSEE, during the term of this Agreement, and subject to its
terms and conditions, an exclusive, except as set forth, and non-transferable
license to use of the TRADE SYMBOL in relation to the PRODUCTS within the
TERRITORY; provided, however, that LICENSOR reserves to itself, for its own use
and/or the use of its subsidiaries, related and affiliated business
organizations and licensees the right to use the TRADE SYMBOL in the TERRITORY
in connection with the sale and promotion of cosmetic, toiletry and fragrance
products, other than the PRODUCTS. It is expressly understood that the license
granted herein does not extend to any other items except those specific items
set forth as the PRODUCTS, which such rights are expressly reserved to LICENSOR.
Nothing herein contained shall prohibit, limit or restrict LICENSOR, in any form
or manner from
2
<PAGE> 8
using, in the TERRITORY, the TRADE SYMBOL either alone or as a component of
another trademark in relation to any other items other than the PRODUCTS and
nothing herein contained shall prohibit, limit or restrict LICENSOR from
licensing or otherwise disposing of such use, in the TERRITORY, to any other
person, firm or corporation.
(b) The TRADE SYMBOL may be used by LICENSEE only in relation to the
PRODUCTS.
(c) The permitted use by LICENSEE of the TRADE SYMBOL shall be subject
to the written instructions of LICENSOR furnished to LICENSEE from time to time,
and shall be made only in relation to the PRODUCTS which conform strictly to
written standards and written specifications furnished and/or approved, from
time to time in writing, by LICENSOR, and only after the complete package
thereof has been submitted to LICENSOR and the express written approval has been
received by LICENSEE from LICENSOR. Prior to any use, LICENSEE shall submit to
LICENSOR for written approval all designs, materials, packages, labels,
promotional materials and advertising for use in relation to the PRODUCTS and
any and all items on which the TRADE SYMBOL appears and LICENSEE specifically
undertakes to amend to the satisfaction of LICENSOR any such usage, designs,
materials, packages, labels, promotional materials and advertising which are not
approved by LICENSOR. Prior to initial sale, LICENSEE shall submit to LICENSOR
for written approval, samples of each of the PRODUCTS. Except as expressly
provided herein, neither LICENSEE nor any parent, subsidiary, related or
affiliated business organization of LICENSEE shall use the TRADE SYMBOL in
relation to the PRODUCTS or in relation to any other merchandise of any kind or
nature whatsoever. LICENSEE shall not offer for sale any of the PRODUCTS bearing
the TRADE SYMBOL for which it has not received written approval or which are of
a quality or a standard inferior to that prescribed and/or approved by LICENSOR
or which will tend to injure the reputation and goodwill attached to the TRADE
SYMBOL. LICENSEE shall indemnify
3
<PAGE> 9
and hold LICENSOR harmless against any expense or damages, including court costs
and reasonable attorneys fees, resulting from any default on the part of
LICENSEE.
4. Preparation By LICENSEE:
(a) LICENSEE is an independent contractor and shall, at its own
expense, adapt a part of its factory, as may be necessary, install the necessary
equipment and facilities, purchase the necessary raw materials and equipment,
hire the necessary personnel, arrange for the transportation and delivery of the
PRODUCTS and thereupon commence the manufacture and sale of the PRODUCTS.
LICENSEE shall have, at its sole cost and expense, the sole responsibility to
comply with all local laws relating to the manufacture and sale of the PRODUCTS,
including, but not limited to, all labeling requirements.
(b) LICENSEE agrees to maintain, at its sole cost and expense, products
liability insurance covering both LICENSOR and LICENSEE in at least the
following limits:
Bodily Injury and Property Damage Liability
Combined Single Limit: U. S. $3,500,000.00
LICENSEE shall delivery to LICENSOR, promptly after execution of this Agreement,
a certificate issued by the insurance company evidencing such coverage and
providing that such insurance may not be cancelled, except with thirty (30) days
written notice to LICENSOR and LICENSEE. If LICENSEE shall fail to maintain such
insurance, LICENSOR may obtain it and charge the cost thereof to LICENSEE or may
treat such failure as a breach of material provision of this Agreement.
5. Inspection:
(a) LICENSEE shall at all times permit LICENSOR, by representatives
designated by LICENSOR, to inspect the design and manufacture of the PRODUCTS by
LICENSEE and the PRODUCTS so manufactured by LICENSEE for sale under the TRADE
SYMBOL.
4
<PAGE> 10
Any such inspection shall be conducted during LICENSEE's normal business hours
and in a manner which does not significantly interfere with or disrupt
LICENSEE's normal business operations. At all times, LICENSEE shall comply with
the reasonable quality control procedures furnished or approved, from time to
time, in writing by LICENSOR.
(b) LICENSEE shall submit to LICENSOR ten (10) specimens of the
PRODUCTS sold under the TRADE SYMBOL every six (6) months.
6. Title To The TRADE SYMBOL:
(a) LICENSEE recognizes LICENSOR's title to the TRADE SYMBOL and shall
not, at any time, do or suffer to be done any act or thing which will in any way
impair the rights of LICENSOR in and to the TRADE SYMBOL. It is understood that
LICENSEE shall not acquire and shall not claim title to the TRADE SYMBOL adverse
to LICENSOR by virtue of the license granted to LICENSEE, or through LICENSEE's
use of the TRADE SYMBOL, it being the intention of the parties that all of the
use of the TRADE SYMBOL by LICENSEE shall at all times inure to the benefit of
LICENSOR. LICENSEE further undertakes that in the event any infringement of the
rights of LICENSOR to the TRADE SYMBOL in the TERRITORY comes to the notice of
LICENSEE during the term of this Agreement, LICENSEE shall promptly notify
LICENSOR, in writing, and shall join with LICENSOR, if required by LICENSOR, in
writing, and at the expense of LICENSOR, in taking such steps, if any, as
LICENSOR may deem advisable against the infringement, or otherwise, for the
protection of its rights. LICENSEE shall take no such action without the express
written consent of LICENSOR, which consent shall not be unreasonably withheld.
(b) Upon termination or cancellation of this Agreement, by expiration
or otherwise, LICENSEE shall immediately discontinue and shall thereafter
refrain from the use of the TRADE SYMBOL, in any way or for any purpose
whatsoever, and will not use, at any time, any trademarks, trade names, slogans,
labels,
5
<PAGE> 11
copyrights, emblems, insignia, packages and other trade identifying symbols
bearing confusing resemblance to the TRADE SYMBOL; provided, however, that
LICENSEE, subject to LICENSEE's obligations to pay royalties and to account to
LICENSOR with respect to said royalties as if this Agreement had not been so
terminated and to otherwise comply with the terms and provisions of this
Agreement as so terminated, may, in the regular course of business in the
TERRITORY (i) sell out any stock of approved completed goods remaining in its
hands as at the termination, and (ii) fill and satisfy any and all purchase
orders for PRODUCTS accepted and outstanding, in whole or in part, prior to the
date of cancellation or termination hereof, on condition that delivery of said
goods is made within a period of six (6) months after the date of cancellation
or termination of this Agreement, it is being expressly understood that no such
sales are to be made at closeout or distress prices.
7. Royalties:
(a) LICENSEE shall pay to LICENSOR, in consideration of the license
granted to LICENSEE by LICENSOR hereunder a royalty of five percent (5%) of
LICENSEE's NET SALES PRICE, as hereinafter defined, of the PRODUCTS bearing the
TRADE SYMBOL.
(b) The term "NET SALES PRICE", as used in this Agreement, shall mean
the amount actually billed by LICENSEE on its sales of the PRODUCTS, after
deducting, if not already deducted in the actual amount billed, normal and
customary trade discount actually allowed, returns, taxes the legal incidence of
which is on the purchaser and separately shown on LICENSEE'S invoices, and
transportation and postage charges, if prepaid by LICENSEE and billed on
LICENSEE'S invoices as a separate item; provided, however, that neither cash
discounts (as distinguished from deductible "trade discounts"), advertising nor
promotional allowances, even if already deducted in the actual amount billed,
may be deducted in determining NET SALES PRICE; provided further, however, for
the purposes of determining NET SALES PRICE, with respect to all such sales of
other disposition made between or
6
<PAGE> 12
among LICENSEE, any parent, subsidiary, related or other affiliated business
organizations of LICENSEE, for resale to a third party, the amount billed to the
third party shall be deemed to be the amount actually billed by LICENSEE, and
the sale to the third party shall be treated as a sale by LICENSEE. It is
understood that any sales of closeouts, irregular or damaged merchandise and
accommodation sales to employees or others are to be included for royalty
computation purposes in LICENSEE's NET SALES at the actual sales price for such
items.
(c) Said PRODUCTS shall be deemed to have been sold when invoiced; if
not invoiced, then when delivered, shipped or mailed, or when paid for, if paid
for before delivery.
(d) LICENSEE shall maintain itemized, complete and accurate books of
account with respect to its performance under this Agreement.
(e) LICENSEE shall render to LICENSOR an accounting, certified by a
financial officer of LICENSEE, of the production, gross sales, allowable
deductions taken under Subsection "(b)" above and NET SALES of the PRODUCTS made
by LICENSEE and royalty computations for such CONTRACT QUARTER, as hereinafter
defined, within thirty (30) days after the end of each such CONTRACT QUARTER.
The amount of royalty payments determined to be due LICENSOR hereunder shall be
made to LICENSOR within said thirty (30) days after the end of each CONTRACT
QUARTER, provided, however, that anything to the contrary herein contained
notwithstanding, the CONTRACT QUARTER ending on December 31, 1985 shall be
deemed to include the period commencing with the EFFECTIVE DATE to the end of
said CONTRACT QUARTER. In the event that LICENSEE does not make payment due
under the provisions of this Agreement to LICENSOR within the thirty (30) day
period specified, LICENSOR shall, at its option charge LICENSEE interest on the
unpaid amount at the rate of two percent (2%) above the prime rate charged by
Chemical Bank per annum. LICENSEE shall keep complete and accurate records of
the production and sales of the PRODUCTS, including all information relevant to
the computation of the royalty payments due hereunder. LICENSEE shall forward to
7
<PAGE> 13
LICENSOR monthly sales reports within thirty (30) days after the close of each
month. LICENSOR may review or may designate, at its expense, a certified public
accountant to review the accounts of LICENSEE, for a period of not more than
three (3) CONTRACT YEARS immediately preceding the date of review to determine
whether proper accounting and payments have been made; provided, however, that
if there is an error in favor of LICENSEE in excess of two percent (2%) in
computing such accounting, all expenses in connection with such review shall be
borne by LICENSEE. Such review will take place upon reasonable notice to
LICENSEE and within regular business hours.
(f) All payments due to LICENSOR hereunder shall be made to LICENSOR in
United States dollars at LICENSOR's Treasurer's Office, or in such manner or at
such other place as may be designated by LICENSOR in writing.
(g) Any taxes, duties or imposts, other than income or profit taxes,
assessed or imposed upon the sums due hereunder to LICENSOR or upon or with
respect to this Agreement, shall be borne and discharged by LICENSEE and no part
thereof shall be deducted from any amount payable to LICENSOR under any clause
of this Agreement, said amounts to be net to LICENSOR, free of any and all
deductions, except as provided herein.
(h) The term "CONTRACT QUARTER" as used in this Agreement shall mean the
three calendar months ending on the last days of March, June, September and
December in each CONTRACT YEAR.
(i) The term "FIRST CONTRACT YEAR" as used in this Agreement shall mean
the period commencing with the EFFECTIVE DATE and ending on December 31, 1986
and each subsequent twelve (12) month period shall be hereinabove and
hereinafter referred to as a "CONTRACT YEAR".
8. Guaranteed Payments:
(a) LICENSEE hereby guarantees to pay to LICENSOR, as a guaranteed
minimum royalty hereunder, a sum equal to at least the following;
8
<PAGE> 14
(i) U. S. $5,000.00 for FIRST CONTRACT YEAR;
to be paid upon signing, which will be credited against payments due during the
"FIRST CONTRACT YEAR."
9. Promotional Activities:
LICENSEE shall conscientiously work and fully develop the TERRITORY, use
its best efforts to fully and adequately promote the sale of the PRODUCTS under
the TRADE SYMBOL in the TERRITORY, and maintain the high standards of LICENSOR
as to advertising and all other promotion and promotional material. No
advertising or promotional material shall be used by LICENSEE until it has been
submitted to and approved by LICENSOR, in writing, in advance. All advertising
and promotional costs are to be borne by LICENSEE. LICENSOR's approval shall not
be unreasonably withheld.
10. Disclaimer Of Warranty: While LICENSOR believes that the TRADE
SYMBOL licensed hereunder will not infringe on any rights, trademark or
otherwise, owned by any other person, firm or corporation, it does not warrant
that any such TRADE SYMBOL does not or will not infringe on any prior existing
rights, trademark or otherwise, in any part of the world.
11. Term: Unless sooner terminated as hereinafter provided, this
Agreement shall commence as of the EFFECTIVE DATE and terminate on December 31,
1986. Willow will have the option for renewal for the 1987 calendar year at a
similar minimum royalty of $5,000.00, such option to be exercised by December 1,
1986.
12. Termination;
(a) Either party to this Agreement shall have, in addition to any other
rights and remedies it may have the right to terminate the same on thirty (30)
days written notice to the other, if the other party shall breach or default in
the performance of any material provision hereof; provided, however, that if the
party receiving such notice of termination shall cure the breach or default
within such thirty (30) day period, the Agreement shall continue in full force
and effect.
9
<PAGE> 15
(b) LICENSOR shall nave the right, notwithstanding any other provisions
of this Agreement, and in addition to any other rights and remedies it may have,
to terminate this Agreement forthwith and at any time if LICENSEE becomes
insolvent; or if LICENSEE files a petition in bankruptcy or insolvency; or if
LICENSEE is adjudicated bankrupt or insolvent; or if LICENSEE files any petition
or answer seeking reorganization, readjustment, or arrangement of LICENSEE's
business under any law relating to bankruptcy or insolvency; or if a receiver,
trustee or liquidator is appointed for any of the property of LICENSEE and
within thirty (30) days thereof LICENSEE fails to secure a dismissal thereof; or
if LICENSEE makes any assignment for the benefit of creditors; or in the event
of government expropriation of any of the assets of LICENSEE which relate to any
activities contemplated by this Agreement.
(c) If LICENSEE shall fail, for thirty (30) days after any financial
obligation to LICENSOR incurred by it under this Agreement shall have become
due, to discharge such obligation, LICENSOR shall have the right,
notwithstanding any other provisions of this Agreement, and in addition to any
other rights and remedies it may have, to terminate this Agreement forthwith.
(d) LICENSOR shall have, notwithstanding any other provisions of this
Agreement, and in addition to any other rights and remedies it may have, the
right to terminate this Agreement, at any tine, on thirty (30) days written
notice to LICENSEE if any competitor of LICENSEE is, or becomes an affiliate of
LICENSEE.
(e) In any event, termination shall not prejudice the right of either
party to recover any payment due at the time of termination or accruing as a
result thereof, nor shall it prejudice any cause of action or claim of either
party accrued or to accrue by reason of any breach or default by the other
party.
13. Indemnification: LICENSEE agrees to indemnify LICENSOR and hold
LICENSOR harmless for any and all, founded and unfounded, claims, suits, losses,
costs and/or expenses, including, without limitation, attorneys' fees, arising
10
<PAGE> 16
out of or in connection with LICENSEE's performance under this Agreement and/or
for copyright infringement, patent infringement and/or unfair competition caused
by or arising out of the manufacture and/or sale of the PRODUCTS, except if any
claim of infringement and/or unfair competition is the result solely due to
LICENSEE's use at LICENSOR's TRADE SYMBOL. LICENSOR agrees to indemnify LICENSEE
and will hold it harmless from and against any and all, founded or unfounded,
claims, suits, losses, cost or expenses, arising out of LICENSEE's use of TRADE
SYMBOL hereunder, provided that said use has been in accordance with the terms
of this Agreement.
14. Exoneration From Responsibility: Neither LICENSOR nor its employees
shall have any responsibility for the operation or production of the
manufacturing facilities contemplated under this Agreement, or for any decisions
which may be made in connection therewith, whether upon the recommendation of
LICENSOR or otherwise.
15. Arbitration: Controversies of any kind relating to this Agreement
shall be settled by arbitration in accordance with the rules then obtaining of
the American Arbitration Association in the state of New York, which said
arbitration shall be conducted in the city and state of New York. Both parties
shall be bound by the decision in any such arbitration, and judgment upon such
decision may be entered in any court having jurisdiction, or application may be
made to such court for a judicial acceptance of the award and an order of
enforcement, as the case may be.
16. Construction: This Agreement shall be construed in accordance with
the laws of the state of New York, United States of America.
17. Independent Contractor: Nothing contained in this Agreement shall
constitute LICENSEE the agent or legal representative of LICENSOR for any
purpose whatsoever. LICENSEE is not granted any right or authority to assume or
create any obligation or responsibility, expressed or implied, on behalf of, or
in the name of LICENSOR, or to bind LICENSOR in any manner, or with respect to
any thing whatsoever.
11
<PAGE> 17
18. Assignment: This Agreement shall not be assignable in whole or in
part by LICENSEE without LICENSOR's prior written consent and any such purported
assignment shall be void. Except as expressly provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties hereto, their
successors and assigns.
19. Notices: All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been given is delivered personally or sent by certified
mail, return receipt requested, postage prepaid and addressed:
If to LICENSOR to:
MEM COMPANY, INC.
Northvale, New Jersey 07647
If to LICENSEE to:
Mr. Herbert Libowitz
WILLOW HOSIERY CO., INC.
350 Fifth Avenue
New York, New York 10118
or to such other addresses as may be furnished, from time to time, in writing,
by the parties hereto.
20. Miscellaneous:
(a) This Agreement contains the entire agreement of the parties hereto
and no provision of this Agreement may be changed or modified except in writing
signed by the parties hereto.
(b) The failure of either party to enforce any right hereunder shall not
be deemed a waiver of any other right hereunder or any other breach or failure
by said party, whether of a similar nature or otherwise.
(c) If any provision of this Agreement shall be declared void by any
court or administrative body or competent jurisdiction, the validity of any
other
12
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above-written.
(Corporate Seal) MEM COMPANY, INC.
("LICENSOR")
ATTEST:
By: /s/ Signature Illegible By: /s/ Gay A. Mayer
----------------------------- --------------------------
Gay A Mayer, President
Print Name Gay A. Mayer
---------------------
Print Title Pres
---------------------
(Corporate Seal)
ATTEST:
By: /s/ Herbert W. Libowitz
-------------------------------
Print Name Herbert W. Libowitz
------------------------
Print Title President
------------------------
13
<PAGE> 1
EXHIBIT 10.149
English
Leather
[Logo} P O BOX 928 NORTHVALE, NEW JERSEY 07647-0828
MEM COMPANY, INC. 201-767-0100 FAX 201-767-0698
May 19, 1995
Mr. Solomon A. Sutton
BAG BAZAAR, LTD.
One East 33rd St.
New York, New York 10016
Dear Sam:
Per our conversation on May 18, the following represents my understanding of an
amendment to our contract between English Leather, Inc. and Bag Bazaar, Ltd.
dated July 1, 1991.
We agreed that the minimum royalty payable to the MEM Company for the contract
year ended December 31, 1995 would be $125,000. The minimum royalty for the
contract year ended December 31, 1996 would be $150,000, and the minimum royalty
for the contract year ended December 31, 1997 would be $175,000.
It is my understanding that any subsequent contract year after December 31, 1997
would be at the original $200,000 per year.
If you are in agreement with this understanding, please sign one copy of this
letter and return it to me.
Sincerely,
/s/ Michael G. Kazimir, Jr.
- ----------------------------------
Michael G. Kazimir, Jr.
Executive Vice President
Chief Operating Officer
MGK/p
COPIES TO: R. HURRY
- ----------------------------------- M. PATEL
Agreed: Solomon A. Sutton A. WILLIAMS
Bag Bazaar, Ltd.
<PAGE> 2
TRADEMARK LICENSE AGREEMENT
This Agreement made as of the 1st day of July, 1991, by and between
ENGLISH LEATHER, INC., a New Jersey corporation, with its principal office for
the transaction of business at Northvale, New Jersey 07647 (the "Licensor"), and
BAG BAZAAR, LTD., a New York corporation with its principal office for the
transaction of business at 1 East 33rd Street, New York, New York 10016 (the
"Licensee"),
WITNESSETH:
WHEREAS, the Licensor is the owner of a certain trademark and the logo
associated therewith duly registered in the United States (the Trademark defined
below); and
WHEREAS, the Licensee desires the exclusive right and license to use the
Trademark in the Territory (defined below) in connection with the manufacture,
import and sale of the Products (defined below).
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. Definitions
(a) The term "Trademark" will mean:
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<PAGE> 3
(i) the trademark "English Leather", and
(ii) the registered design frequently
accompanying the trademark "English Leather".
(b) The term "Territory" will mean the United States of America, Canada
and Mexico.
(c) The term "Products" will mean men's and women's handbags and
personal (small) leather goods, including belt bags, tote bags, back packs and
belts.
(d) The term "Affiliated Business Organizations", "Affiliated Company"
or "Affiliates" will mean any person, corporation, or other legal organization
that directly or indirectly, through one or more intermediaries, controls or is
controlled by or is under common control with the company named.
(e) The term "Control" (including the terms "Controlling", "Controlled
By" and "Under Common Control With") will mean possessing, directly or
indirectly, the power to direct or cause the direction or the management and
policies of any person, firm or corporation, whether through ownership of voting
securities, by contract or otherwise.
(f) The terms "Claim" or "Claims" will mean any means employed by
anyone, whether in or out of court, to obtain legal (e.g. money damages) or
equitable (e.g. an injunction) relief from another party.
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<PAGE> 4
(g) The term "Costs" will mean any money expended by Licensor on account
of a Claim, whether for damages, reasonable legal fees, expenses or otherwise.
(h) The term "Net Sales" will mean the amount of money charged and
billed by Licensee to Unrelated Customers purchasing the Products ("Standard
Charges") after deducting (1) actual normal cash discounts (unless deducted
before calculating Standard Charges), (ii) returns, (iii) taxes (shown on
Licensee's invoices and payable by purchasers), and (iv) transportation and
postage charges (to the extent prepaid by the Licensee and billed on its
invoices as a separate item). It is understood, however, that the following
items may not be deducted from Standard Charges in calculating Net Sales: (aa)
cash discounts other than actual normal cash discounts, (bb) advertising
allowances, or (cc) promotional allowances. It is further understood that, as
used above, the term "Unrelated Customers" does not include the Licensee's
Affiliated Business Organizations,
(i) The term "Contract Quarter" will mean each successive three (3)
month period commencing January 1, April 1, July 1 and October 1, of each
Contract Year provided, however, that the first Contract Quarter shall be the
period beginning on July 1, 1991 and ending on September 30, 1991, provided
further, that if this Agreement is terminated
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<PAGE> 5
pursuant to Paragraphs 8(a) or 11 (other than Paragraph 11(b)), the final
Contract Quarter shall be the period beginning the day following the most
recently ended Contract Quarter prior to the date of such termination and ending
on the date of such termination.
(j) The term "Contract Year" will mean each successive calendar year
period this Agreement is in force, provided, however, that the first Contract
year shall be the period beginning on July 1, 1991 and ending on December 31,
1991, provided further, however, that if this Agreement is terminated pursuant
to Paragraphs 8(a) or 11 (other than Paragraph 11 (b)), the final Contract Year
shall be the period beginning January 1 of the year in which such termination
occurs and ending on the date of such termination.
2. Representation by Licensee
(a) The Licensee represents to the Licensor that its present financial
structure and present facilities are such that it is now, and will be throughout
the term of this Agreement, in a favorable position to manufacture, distribute,
advertise and sell the Products within the Territory under the license
hereinafter granted with respect to the Trademark.
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<PAGE> 6
(b) Licensee represents to Licensor that no Affiliated Business
Organization of Licensee is a competitor of Licensor or Licensor's Affiliated
Business Organizations (other than Aristocrat Leather Products, Inc.), except
that Licensee has sold, and currently is selling, private label leather goods
with Jovan brand fragrance items. Licensee covenants to cease sales of goods
with Jovan brand fragrance items no later than 300 days from the date of this
Agreement.
3. Grant of License to Use of the Trademark
(a) Licensor hereby grants to Licensee during the term of this
Agreement, and subject to its terms and conditions, an exclusive and
non-transferable license to use of the Trademarks in relation to the Products
and only to the Products within the Territory (the "License").
(b) Licensee covenants that Licensee's policy (in using the Trademark)
of sale, distribution and use will not reflect adversely upon the Trademark. For
example, Licensee will only sell to organizations having established outlets so
as to exclude sales to flea markets and sidewalk vendors. Licensee recognizes
that the undertaking on its part set forth in this Paragraph 3(b) represents a
major inducement and consideration for Licensor to enter into this Agreement.
Licensee will provide, on an annual basis no later than the forty-fifth (45th)
day after the end of each Contract Year,
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<PAGE> 7
to Licensor, a customer list of those organizations purchasing or otherwise
receiving Products from Licensee with the net volume shown for each customer.
Each such customer list will be held by Licensor under the same terms and
conditions of confidentiality as set forth in Paragraph 7(a) of this Agreement.
(c) If the Products are not brought to market within the Territory
within six (6) months of the Effective Date, the Licensor may terminate the
License by sending written notice to the Licensee.
(d) Prior to any use by the Licensee of the Trademark, it must submit to
the Licensor for its approval or disapproval, designs, materials, packages,
labels, promotional materials and advertising by means of which it intends to
market, sell or distribute any and all Products on which the Trademark would
appear. Upon receipt, Licensor will review and approve or disapprove with
comments same, provided that Licensor will not unreasonably disapprove. If
Licensor makes no written comments containing reasonable objections within 7
business days after Licensor receives such material, then Licensee may deem all
such submitted material approved. Licensee will amend to the satisfaction of
Licensor any such materials which are not approved by Licensor.
-6-
<PAGE> 8
(e) In conjunction with each and every use of the Trademark, Licensee
will cause to appear adjacent to it appropriate statutory notice of registration
or application for registration ((R), or TM, as the case may be). Licensee will
also cause to appear on or within all advertising, promotional display, or other
printed material bearing the Trademark, the following or a similar notice to the
same effect: "ENGLISH LEATHER is a registered trademark of English Leather, Inc.
used with permission."
(f) Licensee hereby agrees to indemnify and to hold Licensor, its
Affiliated Business Organizations, and their respective officers, directors,
agents, employees and stockholders (the "Licensor Indemnified Parties") harmless
from any Costs, and will defend the Licensor Indemnified Parties against any
Claims, arising out of or in connection with the acts (whether of omission or
commission), of Licensee or any of its Affiliates, agents or employees under the
License (including but not limited to the manufacture, use, marketing, sale, or
distribution of the Products) attributable to alleged defects in the Products,
except, in each case, where it is determined that the Licensor Indemnified Party
seeking indemnification is directly responsible therefor. The Licensor
Indemnified Parties shall have the independent right to defend any claim at the
expense
-7-
<PAGE> 9
of Licensee if (i) legal counsel, reasonably acceptable to the Licensor
Indemnified Parties, appointed by Licensee's product liability insurer is not
defending the interests of the Licensee and the Licensor Indemnified Parties at
the expense of Licensee or such insurer or (ii) the Licensor Indemnified Parties
have reasonably concluded that there may be one or more legal defenses available
to it or them which are different from or additional to those available to the
Licensee and that the representation of Licensor Indemnified Parties and
Licensee by the same legal counsel will adversely effect the defense of Licensor
Indemnified Parties.
4. Preparation by Licensee
(a) Licensee is an independent contractor and will, at its own expense,
adapt such of its facilities, purchase such raw materials, hire such personnel,
arrange for such transportation and delivery, as are necessary to commence the
manufacture and sale of the Products. Licensee will, at its sole expense, comply
with all federal, state and local laws and regulations relating to the
manufacture and sale of the Products, including, but not limited to, all
labeling requirements.
(b) Licensee will procure and maintain, at its sole expense, products
liability insurance covering Licensor and its officers, directors, agents,
employees and
-8-
<PAGE> 10
stockholders, as named insureds, and Licensee for bodily injury and property
damage liability with a combined single limit of $1 million. Licensee will
deliver to Licensor, upon execution of this Agreement, a certificate issued by a
nationally reputable insurance company evidencing such coverage and providing
that such insurance may not be cancelled, except on thirty (30) days written
notice to Licensor and Licensee. If Licensee fails to maintain such insurance,
Licensor may obtain it and charge the cost thereof to Licensee or may treat such
failure as a breach of a material provision of this Agreement.
5. Inspection
(a) Upon not less than five (5) business day's prior oral notice from
Licensor, Licensee will permit Licensor, by representatives designated by
Licensor, to inspect the design and manufacture of the Products by Licensee and
the Products so manufactured by Licensee for sale under the Trademarks. At all
times, Licensee will comply with the reasonable quality control procedures
furnished or approved, from time to time, in writing by Licensor.
(b) Licensee will submit to Licensor one specimen of each of the
Products prior to its being offered for sale. Licensor will review each such
item and indicate its approval
-9-
<PAGE> 11
or disapproval with comments, provided that Licensor will not unreasonably
disapprove. It the Licensor fails to comment within seven (7) business days of
receipt of a specimen, the Product represented by the specimen will be deemed to
have been approved. In addition, the Licensor nay, from time to time, request
samples of the Products.
6. Title to the Trademarks
(a) The Licensor represents to the Licensee that it is the owner of the
Trademark in the Territory. Licensee acknowledges Licensor's title to the
Trademark throughout the world in any form or embodiment thereof and to the
goodwill associated, and which shall become associated, with it and its
importance to Licensor and Licensor's Affiliated Business Organizations, and
will not at any time do or suffer to be done any act or thing which will in any
way impair the rights of Licensor in and to the Trademark. It is understood that
Licensee will not acquire nor will it claim title to the Trademark by virtue of
the license granted to Licensee herein, or Licensee's use of the Trademark, nor
will it challenge the validity of the Trademark or any application for
registration thereof, or any copyright or trademark registrations thereof, or
any rights of Licensor therein.
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<PAGE> 12
(b) In the event any infringement of the rights of Licensor to the
Trademark in the Territory comes to the notice of Licensee during the term of
this Agreement, Licensee shall promptly notify Licensor, in writing, and will
join with Licensor, upon Licensor's written request and at Licensor's expense,
in taking such steps, if any, as Licensor deems advisable to protect its rights.
Licensee will take no action independent of Licensor without the express written
consent of Licensor, provided that if the items involved in any infringement are
Products, Licensor will not unreasonably withhold such consent.
(c) During the term of this Agreement, the Licensor will maintain the
registration of the Trademark in the Territory in full force and effect.
7. Royalties
(a) subject to the provisions of Paragraph 8, Licensee will pay to
Licensor a royalty of five (5%) percent of Licensee's Net Sales.
(b) Products will be deemed to have been sold on the earliest of the
following dates: (i) when invoiced or (ii) when delivered, shipped or mailed or
(iii) when payment has been received.
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<PAGE> 13
(c) Licensee will prepare itemized, complete and accurate books of
account with respect to all Products sold under this Agreement, and will
maintain them for a period of not less than two and one-half years after the
period to which they relate.
(d) Licensee will render to Licensor an accounting, certified by a
financial officer of Licensee, specifying exactly how royalties were computed
including how Net Sales were calculated (e.g. by enumerating all deductions
used). This accounting must be received by Licensor on or before the forty-fifth
(45th) day next following the last day of each Calendar Quarter (a "Due Date").
(e) On or before each Due Date, Licensee will pay Licensor all
royalties owed from sales during the previous Contract Quarter.
(f) In the event Licensee fails to make any payment due on the Due Date,
Licensee shall pay Licensor interest on the unpaid amount from the Due Date
until payment is received by Licensor at the annual rate of two (2%) percent
above the prime rate reported by the Wall Street Journal on the Due Date.
(g) From time to time, Licensor may review or may designate, at its
expense, a certified public accountant to review the books of account and all
other documents and
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<PAGE> 14
records of Licensee covering all transactions relating to the License granted
hereby, for a period of not more than ten (10) Contract Quarters immediately
preceding the date of review, to determine whether proper accounting and
payments hereunder have been made. Any such review will take place upon
reasonable notice to Licensee and within regular business hours. Acceptance or
receipt of payment by Licensor will not preclude it from questioning the
correctness of any statement or royalty payment. Any review of Licensee's books
of account will be made under the strictest confidentiality. No material
obtained by Licensor or its designated auditor may be used or disclosed for
purposes other than enforcing compliance with the terms of this Agreement
without the prior written consent of Licensee, unless ordered to do so by a
court or other tribunal having jurisdiction over Licensor, in which case
Licensor will give reasonable notice to Licensee.
8. Minimum sales
(a) The Licensee will maintain minimum Net Sales during each Contract
Year as follows:
<TABLE>
<S> <C>
1991 During the first Contract Year - $0.8 million
1992 During the second Contract Year - $2.0 million
1993 During the third contract Year - $2.5 million
1994 During the fourth Contract Year - $3.0 million
1995+ During any subsequent Contract Year - $4.0 million
</TABLE>
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<PAGE> 15
In the event Licensee fails to maintain eighty (80) percent of such
minimum Net Sales in the first and second Contract Years combined on an
aggregate basis or in any subsequent Contract Year, Licensor may terminate this
Agreement (whether or not the minimum royalty payments have been made) by giving
the Licensee sixty (60) days notice at any time during the sixty (60) day period
after the later of the Due Date of the statement of Net Sales for the last
Contract Quarter of the deficient Contract Year or the date such statement is
actually received by Licensor.
(b) As a minimum annual royalty payment to which the amounts paid will
be a credit, in accordance with Paragraph 7, the Licensee will pay to the
Licensor the following amounts:
<TABLE>
<S> <C>
1991 First Contract Year - $40,000
1992 Second Contract Year - $100,000
1993 Third Contract Year - $125,000
1994 Fourth Contract Year - $150,000
1995+ Any subsequent Contract Year - $200,000
</TABLE>
The minimum annual royalty will be paid in four (4) equal installments on the
Due Date next following each Contract Quarter of such Contract Year, provided,
however, that with respect to the first Contract Year, the minimum annual
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<PAGE> 16
royalty will be paid in two (2) equal installments on the Due Date next
following each Contract Quarter in the first Contract Year.
(c) Any excess of minimum royalties as set forth in Paragraph 8 over
earned royalties as set forth in Paragraph 7 of this Agreement for any Contract
Quarter will be set off and credited against earned royalties to the extent they
exceed minimum royalties in the subsequent Contract Quarters of the same
Contract Year. Similarly, any excess of earned royalties over the applicable
minimum royalty for each Contract Quarter will be set off and credited against
minimum royalties in the subsequent Contract Quarters of the same Contract Year,
it being understood that no set off or credit will carry over from one Contract
Year to another and minimum royalties will not be returnable.
9. Promotional Activities
Licensee will use its reasonable good faith efforts to fully promote the
sale of the Products in the Territory, and maintain the high standards of
Licensor as to advertising and all other promotional material. No advertising or
promotional material may be used by Licensee until it has been submitted to and
approved by Licensor, in writing, in advance. Any disapproval by Licensor will
be accompanied by comments. All advertising and promotional costs are to be
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<PAGE> 17
borne by Licensee. Licensor's approval will not be unreasonably withheld and, if
no objection is raised by Licensor within ten (10) business days of receipt of
the material, Licensor will be deemed to have approved them. In addition,
Licensee will expend at least one and one-half (1-1/2%) percent of Net Sales
for general advertising and promotional activity.
10. Term
Unless sooner terminated as herein provided, this Agreement will
commence as of the Effective Date and terminate on December 31, 1994; provided,
however, that the termination date of this Agreement shall be extended without
further action by either party (i) for one additional three calendar year period
and (ii) thereafter for additional one calendar year periods, unless, in any
case, either party gives notice to the other party not less than one hundred
twenty (120) calendar days prior to the commencement of any such additional
period of its determination not to further extend the term.
11. Termination
(a) Either Licensor or Licensee may terminate this Agreement, if it
gives written notice to the other party to the effect that that party has
committed a breach of a material provision of this Agreement and the party
receiving
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<PAGE> 18
said notice fails to cure that breach within thirty (30) days of such receipt,
provided that if and while Licensor or Licensee, as the case may be, is
diligently pursuing a cure to any such breach which is possible to cure, this
Agreement nay not be so terminated until ninety (90) days after receipt of such
notice.
(b) Either Licensor or Licensee may terminate this Agreement without
cause as provided in Paragraph 10 hereof.
(c) Licensor may terminate this Agreement by giving written notice to
Licensee effective on receipt, for damage to the commercial impression of the
Trademark, if Licensee (i) becomes insolvent, (ii) files a petition in
bankruptcy or insolvency, (iii) files any petition or answer seeking
reorganization of Licensee's business under any law relating to insolvency or
bankruptcy, (iv) makes an assignment for the benefit of creditors, or (v) fails
within thirty (30) days to secure the dismissal of any receiver, trustee or
liquidator appointed for any of its property.
(d) Licensor may terminate this Agreement by giving written notice to
Licensee, effective on receipt, (i) if Licensee fails, within fifteen (15) days
of its receipt of written notice from Licensor, to pay any monies owed to
Licensor pursuant to this Agreement, or (ii) if any
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<PAGE> 19
competitor of Licensor or Licensor's Affiliated Business Organizations in the
fragrance or toiletries businesses, becomes an Affiliate of Licensee.
(e) Upon termination of this Agreement, Licensee will immediately and
completely discontinue use of the Trademarks, provided, however, that Licensee
may sell existing stock if it complies with subparagraph (f) of this Paragraph
11.
(f) For a period not to exceed three hundred-thirty (330) days
immediately following termination of this Agreement (the "Sell-Off Period"),
Licensee may complete any work in process and sell any Products so completed and
any completed Products it had in stock on the date of termination. It is
understood that Licensee will pay Licensor all royalties due from such sales as
though this Agreement were still in effect. Within 10 business days after the
end of the Sell-off Period, an officer of the Licensee will deliver to the
Licensor a certification that all Products in the possession or under the
control of the Licensee have been destroyed or given to charity.
(g) Termination for any reason will not prejudice the rights of either
party to collect monies owed it by the other party hereunder or to prosecute
claims for damages against the other party.
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<PAGE> 20
12. Indemnification
(a) Licensee agrees to indemnify and to hold harmless the Licensor
Indemnified Parties from any Costs, and will defend the Licensor Indemnified
Parties against any Claims, (a) arising out of or in connection with the acts
(whether of omission or commission) of Licensee or any of its Affiliates, agents
or employees under this Agreement, and (b) for copyright infringement, patent
infringement or unfair competition caused by or arising out of the manufacture,
use, marketing, sale or distribution of the Products, except, in each case,
where it is determined that Licensor is directly responsible therefor by reason
of & breach of any representation, warranty, covenant or agreement of Licensor
herein. The Licensor Indemnified Parties shall have the independent right to
defend any Claim at the expense of Licensee.
(b) Licensor agrees to indemnity and to hold harmless Licensee,
Licensee's Affiliated Business Entities, and their respective stockholders,
directors, officers, employees and agents (the "Licensee Indemnified Parties")
from any Costs, and will defend the Licensee Indemnified Parties against any
Claims arising out of a breach of any representation, warranty, covenant or
agreement of Licensor
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<PAGE> 21
herein. The Licensee Indemnified Parties shall have the independent right to
defend any claim at the expense of Licensor.
13. Exoneration from Responsibility for Manufacturing Errors
Neither Licensor, its Affiliated Business Organizations nor their
respective stockholders, directors, officers, employees or agents will have any
responsibility for the operation of the manufacturing facilities of Licensee
contemplated under this Agreement, whether upon the recommendation of Licensor
or otherwise.
14. Restriction on Licensor Products
Licensor and its Affiliated Business Organizations will not supply
products bearing the Trademark, including, without limitation, cosmetics,
toiletries and fragrances, to parties other than Licensee, when such products
are intended for use by such parties in promoting the sale in the Territory of
goods competitive with the Products covered by this Agreement. Licensor will,
and will cause its Affiliated Business Organizations to, provide Licensee during
the term hereof with reasonable amounts of their products bearing the Trademark
for promotional purposes at prices no higher than their respective normal
wholesale prices.
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<PAGE> 22
15. Arbitration
Any controversy or dispute arising out of or in connection with the
Agreement, its interpretation, performance, or termination may be submitted to
arbitration by either party and if so submitted by either party, will be finally
settled by arbitration conducted in accordance with the rules of the American
Arbitration Association then in effect. Any such arbitration will take place 'in
the City of New York. A decision of the arbitrator(s) will be binding and
conclusive upon the parties, their successors and assignees, and the parties
will comply with such decision in good faith. Judgment upon the decision of the
arbitrator(s) may be entered in any court having jurisdiction the party to be
charged. Notwithstanding the foregoing, parties each reserves the right to seek
provisional remedies (including, without limitation, temporary restraining
orders and attachments) in the courts and each hereby consents to jurisdiction
in the State and Federal Courts of New York for such purpose.
16. Construction
This Agreement will be governed by and construed in accordance with the
laws of the State of New York, without giving effect to conflict of laws
principles.
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<PAGE> 23
17. Independent Contractor
Nothing contained in this Agreement will constitute Licensor or Licensee
the agent or legal representative of the other for any purpose whatsoever.
Licensor and Licensee are each independent contractors with the rights with
respect to the other party granted hereunder and no others.
18. Assignment
Neither this Agreement nor the License or other rights granted hereunder
may be assigned, sublicensed or transferred in whole or in part by Licensee
without Licensor's prior written consent (which consent may be granted or
withheld in the sole discretion of Licensor) and any such purported assignment,
sublicense or transfer will be void. Upon the occurrence of a change in control
of Licensee, a substantial change in Licensee's management, or a transfer of all
or a controlling portion of the stock or other equity interest of Licensee,
Licensor shall have the right to terminate this Agreement without notice. Except
as expressly provided herein, this Agreement will be binding upon and inure to
the benefit of the parties hereto, their successors and assigns. Licensor may
assign the right to receive royalties payable to it under this Agreement.
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<PAGE> 24
19. Notices
All notices, requests, demands and other communications which are
required or may be given under this Agreement will he in writing and will be
deemed to have been given if delivered personally or sent by certified mail,
return receipt requested, postage prepaid, or by Federal Express, Express Mail,
or similar overnight delivery or courier service and addressed:
If to Licensor to;
Mr. Gay A. Mayer
English Leather, Inc.
P.O. Box 928
Union Street Extension
Northvale, New Jersey 07647
With a copy to;
Allan R. Williams
Shea & Gould
1251 Avenue of the Americas
New York, New York 10020
If to Licensee:
Mr. Solomon A. Sutton
Bag Bazaar, Ltd.
1 East 33rd Street
New York, New York 10016
With a copy to: Jonathan Tillem
Phillips, Nizer, Benjamin,
Krim & Ballon
31 West 52nd Street
New York, New York 10019
or to such other addresses as may be furnished, from time to time, in writing,
by the parties hereto.
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<PAGE> 25
20. Miscellaneous
(a) This Agreement contains the entire agreement of the parties hereto
with respect to the subject matter hereof, supersedes all prior oral and written
understandings and arrangements relating thereto, and no provision of this
Agreement may be modified, amended, extended or discharged except in writing
signed by the parties hereto.
(b) The failure of either party to enforce any right hereunder will not
be deemed a waiver of any other right, whether of a similar nature or otherwise.
(c) If any provision of this Agreement is declared void by any court or
administrative body of competent jurisdiction, the validity of all other
provisions which may nonetheless by given effect, will not be affected thereby.
(d) Any waiver by Licensor of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of Licensor to insist upon strict adherence to any term
of this Agreement on one or more occasions shall not be considered a waiver or
deprive Licensor of the right thereafter to insist upon strict adherence to that
term or any other term of this Agreement.
Any waiver must be in writing.
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<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ENGLISH LEATHER, INC.
By: /s/ Gay A. Mayer
-------------------------
Gay A. Mayer , President
ATTEST :
/s/ Margaret A. Powers
- -------------------------------
Margaret A. Powers, Secretary
(SEAL]
BAG BAZAAR, LTD.
By: /s/ Solomon A. Sutton
---------------------------
Solomon A. Sutton, President
ATTEST :
/s/ [Signature Illegible]
- --------------------------
Secretary
(SEAL]
The undersigned hereby guarantees
the performance of the obligations
of English Leather, Inc. under
this Agreement.
MEM Company, Inc.
By: /s/ Gay A. Mayer
--------------------------
Gay A. Mayer, President
-25-
<PAGE> 1
EXHIBIT 10.150
LICENSE AGREEMENT
AGREEMENT made as of this 14th day of July 1987 between
COSCELEBRE, INC., a New York corporation having its principal place of business
at 415 Madison Avenue, New York, New York 10017, formerly known as HELENA
RUBINSTEIN, INC. ("Licensor"); and MEM COMPANY, INC., a New York Corporation
having its principal place of business at Northvale, New Jersey 07647
("Licensee").
WITNESSETH:
WHEREAS, Licensor is the owner throughout the Territory (as
hereinafter defined) of the trademark "HEAVEN SENT" and has the sole right to
manufacture, promote, sell, use and distribute cosmetic products bearing such
trademark; and
WHEREAS, Licensee is a manufacturer and distributor of cosmetic
products and wishes to produce and sell cosmetics bearing the trademark "HEAVEN
SENT"in the Territory, and Licensor is willing to grant a license for such
purpose on the following terms and conditions.
NOW, THEREFORE, in consideration of the mutual covenants and
premises contained herein, it is agreed:
1. Definitions. When used in this agreement, unless the context
otherwise requires:
(a) The term "Licensed Trademark" means the trade name and
trademark "HEAVEN SENT" together with the registrations and applications for
registration thereof attached hereto as Schedule A;
(b) The term "Territory" means the country or countries listed
in Schedule A ("Original Countries"), and those additional countries to which in
the future this License Agreement shall apply by amendment to this agreement
("Amendment Countries") as set forth in Paragraph 2(e).
1461-103-A-01 4/9/87
<PAGE> 2
(c) The term "Licensed Products" means those products set
forth in Schedule "B" as it may be amended from time to time bearing the
Licensed Trademark, the components, essential oils, and raw materials used in
the manufacture and packaging thereof;
(d) The term "Net Sales" means the aggregate net selling price
by Licensee of the Licensed Products, to an independent third party who is not,
directly or indirectly, a subsidiary, affiliate of, or one whose profits are
directly or indirectly for the use and benefit of Licensee, less returns,
discounts, allowances and applicable taxes on such sales;
(e) The term "Contract Year" means a twelve month period
commencing January 1 and ending on the next following December 31, except that
the first Contract Year hereunder shall commence with the execution and delivery
of this agreement and end December 31, of the year of such execution and
delivery.
2. Grant.
(a) Licensor hereby grants to Licensee (i) the sole and
exclusive right and perpetual license to use the Licensed Trademark solely on,
and in connection with the sale and distribution of, Products in the Territory
and (ii) the right and perpetual license to use the Licensed Trademarks solely
on, and in connection with the manufacture of, Products in the Territory. Prior
to the execution of this agreement, Licensor has terminated all license
agreements (without liability to Licensee) with respect to use of the Licensed
Trademarks on, and in connection with the sale and distribution of Products in
the Territory, except with regard to India, New Zeland and Trinidad and Tobago
to which Licensor shall use its best efforts. Licensee shall not use any of the
Licensed Trademarks as or as part of its corporate or business name or the name
of any business entity which is controlled by Licensee, nor shall Licensee use
the name of the Licensor in conjunction with the Licensed Trademarks whether on
the
-2-
<PAGE> 3
Products or in connection with any advertising, promotional materials or
otherwise of the Licensed Products.
(b) Licensee shall have the right to sublicense the manufacture,
sale and distribution of Licensed Products conveyed under this agreement in the
Territory provided, however, that this provision shall in no way restrict
Licensee or its affiliates from manufacturing and marketing the Licensed
Products in those countries covered under existing separate licensing
agreements. Licensor agrees to execute promptly upon presentation to it of
applicable documents to the extent required by the law of any country set forth
in Schedule A, with respect to this license for filing if required by said
country far exercising the rights granted Licensee herein.
(c) Licensee shall not affix or use the Licensed Trademark on
any cosmetic or toiletry other than the Licensed Products without Licensor's
prior written consent.
(d) Licensee shall use its best efforts to exploit the rights
herein granted throughout the Territory and to manufacture and sell the maximum
number of Licensed Products consistent with good business practice.
(e) Licensor shall promptly apply to register the Licensed
Trademark in such additional countries as are not covered by any existing
license agreement for Heaven Sent as Licensee shall request in writing and at
Licensee's sole cost and expense. Any such additional countries shall be
included in this agreement by Amendment and shall become an "Amendment Country".
Licensee covenants and agrees that unless and until such registration issues in
the name of Coscelebre and this agreement is amended to cover such country,
Licensee shalt not manufacture or sell or knowingly sell for resale, any
products bearing the Licensed Trademark in any such country. Promptly upon
issuance of such registration, Licensor and Licensee will enter into an
amendment to this agreement to add the issuing country to the Territory.
-3-
<PAGE> 4
3. Ownership of Marks. Licensee recognizes Licensor's ownership of the
Licensed Trademark and the goodwill associated with it and covenants it will
make no claim which is adverse to Licensor's right, title or interest therein
unless Licensor purports to terminate this agreement. All use by Licensee of the
Licensed Trademarks shall inure to Licensor's benefit, and Licensee will make no
use thereof except as permitted by this agreement.
4. Trademark Notice. Licensee covenants that it will cause to appear on
all Licensed Products, or on the labels, labelling or packaging thereof, and on
all material originating with it and used to promote the sale of Licensed
Products in the Territory, such trademark notices as may be required by law to
protect the Licensor's ownership of the Licensed Trademark.
5. Quality Control. Licensee covenants that Licensed Products
manufactured for or by it and sold in the Territory shall be of a high standard
and quality so as to reflect favorably upon the business of both Licensor and
Licensee and the good will associated therewith. To effectuate the foregoing:
(a) Prior to the time that Licensee shall sell or offer for
sale, in the regular course of business, any Licensed Product in the Territory,
Licensee shall submit to Licensor, for its approval, samples thereof as well as
samples of all materials used to sell or to promote the sale of Licensed
Products including, but not limited to, labels, labelling, packaging materials,
advertising and other promotional materials. Thereafter, Licensee shall not make
any change in such Licensed Product or in such materials used to sell or promote
the sale of Licensed Products without first submitting such changes to Licensor
and obtaining its approval.
(b) Licensor shall have the right, at all times and upon
reasonable advance notice to Licensee, to inspect the manufacturing operations
of Licensee where Licensed Products are made, and Licensee shall submit to
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<PAGE> 5
Licensor, without charge, at reasonable intervals throughout the term of this
agreement, a reasonable number of samples of Licensed Products in order that
Licensor may satisfy itself that such Licensed Products conform to the samples
thereof approved by Licensor.
(c) No approval required of Licensor under this paragraph
shall be unreasonably withheld or delayed, and any samples of a Licensed Product
or materials used to sell or promote the sale of Licensed Products which have
not been disapproved in writing within ten business days after receipt thereof
shall be deemed to have been approved.
(d) Licensee may only change the formula of any of the
Licensed Products or add Licensed Products not listed on Schedule B with
Licensor's prior written approval.
6. Royalties.
As full consideration for the license and all rights granted under this
agreement, Licensee shall pay:
(a) a Percentage Royalty in each Contract Year during the term
of this agreement equal to 7 1/2% of the Net Sales payable as provided in
paragraph 7 below as follows: 71.43% of the Percentage Royalty to Alleghany
Pharmacal Corporation, a New York corporation ("Pharmacal"), and 28.57% of such
percentage royalty to Licensor. However with respect to Net Sales in any
Amendment Countries, MEM shall be credited with Two Thousand Five Hundred
Dollars ($2,500) against any Percentage Royalty due with respect to such Net
Sales. Any sales made by Licensee to wholesale dealers or retail accounts in any
country covered by another licensing agreement or sublicensing agreement with
Licensor and/or Pharmacal for ultimate sale in the Territory shall be Net Sales
subject to the royalty payable under this agreement and not under such other
licensing agreement or sublicensing agreement;
-5-
<PAGE> 6
(b) upon execution and delivery of this Agreement, a one time
payment computed by taking the sum of three thousand five hundred ($3,500)
dollars multiplied by the number of Original Countries listed in Schedule A, and
upon execution and delivery of each amendment to this agreement adding any
Amendment Country to the Territory two thousand five hundred dollars ($2,500),
in each case payable as follows: 28.57% to Pharmacal and 71.43% to Licensor.
(c) For the purposes of this paragraph and agreement, the
countries of India, New Zealand and Trinidad and Tobago shall be defined as
Original Countries whenever they are added to the Territory.
7. Payment and Reporting of Royalties.
(a) The Percentage Royalty payable under Paragraph 6 above,
shall be paid annually within forty-five days following the last day of the
Contract Year computed on the basis of the Net Sales during such Contract Year
at the rate specified in Paragraph 6 above.
(b) Licensee shall make written reports to Licensor (with a
copy to Pharmacal) at the time each percentage royalty payment is due, showing
in detail the number, description and aggregate Net Sales during the preceding
contract year. Such written report shall be furnished to Licensor (and
Pharmacal) whether or not any Licensed Products have been sold during the period
with respect to which such report is due.
(c) Licensee also shall submit a written report to Licensor
(with a copy to Pharmacal) within thirty days after the date of any termination
of this agreement, stating the number, description and aggregate Net Sales of
all Licensed Products sold and upon which a percentage royalty not previously
reported to Licensor is payable.
8. Records. Licensee will maintain records showing the Licensed
Products sold by it under this agreement, such records to be in sufficient
detail to
-6-
<PAGE> 7
enable the royalties payable to Licensor and Pharmacal to be determined.
Licensee will also permit its books and records to be examined, from time to
time (but not more frequently than once every six months) and upon reasonable
advance notice, to the extent necessary for Licensor and Pharmacal to verify the
reports provided for in paragraph 7, such examination to be made at the expense
of the party examining the books and records, provided Licensee shall not be
obligated to retain records or permit inspection of its books with respect to
sales of Licensed Products for a period of more than two years after the date of
such sale.
9. Licensor's Representations and Warranties. Licensor represents
and warrants:
(a) The execution and delivery of this agreement and the
performance by Licensor of the transactions contemplated hereby, hove been duly
authorized by all appropriate corporate action;
(b) The grant of the rights and license hereby granted does
not and will not constitute a breach or violation of any other agreement or
understanding, written or oral, to which it is a party;
(c) Licensor is the sole owner of the Licensed Trademark, free
of any liens and encumbrances; the Licensed Trademark is valid and in force in
the Original Countries and will be in any Amendment Country upon execution of
the related amendment; the use by Licensee of the Licensed Trademark as
contemplated in this agreement will not infringe upon or violate the rights of
any other person, firm or corporation.
(d) There are no proceedings, claims or actions pending or, to
the knowledge of Licensor, threatened, relating to the Licensed Trademark;
(e) Licensor is not itself presently manufacturing in the
Territory or having manufactured on its behalf by any third party any cosmetic
product bearing the Licensed Trademark;
-7-
<PAGE> 8
(f) Licensor has no inventory of any products bearing the
Licensed Trademark in the Territory or intended for sale in the Territory;
(g) No third party has the right to ship products bearing the
Licensed Trademark into the Territory or to sell or distribute products bearing
the Licensed Trademark in the Territory; and
(h) There is no agreement or understanding, written or oral,
between Licensor and its affiliates on the one hand and Pharmacal and its
affiliates on the other hand relating to the manufacture, distribution or sale
of products bearing the Licensed Trademark in the Territory, other than an
agreement providing solely for the payments to be made to Pharmacal by Licensee
pursuant to paragraph 6 of this agreement.
10. Licensor's Covenants and Agreements. Licensor covenants and
agrees:
(a) Licensor will not, itself or through any third party,
manufacture, use, promote or sell any cosmetic product in the Territory bearing
any of the Licensed Trademark and Licensor will use its best efforts and
cooperate with Licensee to prevent any third party from doing so;
(b) Licensor will refer to Licensee any request or inquiry
received from a third party for products bearing the Licensed Trademark intended
to be exported outside the Territory; and
(c) Licensor shall indemnify Licensee and hold it harmless
from and against all claims, actions, suits and proceedings and all loss,
liability, damages, costs and expenses incurred in connection therewith
(including reasonable attorneys' fees) for which Licensee may become liable or
incur or be compelled to pay and arising out of a breach of any of the foregoing
representations and warranties. If Licensee is threatened with any claim,
action, suit or proceeding based upon an allegation that Licensor has breached
any of the
-8-
<PAGE> 9
representations and warranties set forth in paragraph 9 above, Licensee shall,
in lieu of paying any royalties or other sum due or to become due to Licensor
(including amounts to be paid to Pharmacal) under this agreement, deposit such
royalty or sum in a segregated bank account until such time as such claim,
action, suit or proceeding has been settled or finally determined, whereupon
Licensee shall deliver to Licensor (and Pharmacal) under this agreement, all
funds held in such bank account, less any amounts required to reimburse Licensee
in accordance with the indemnity provided in this subparagraph 10(c). If the
funds held in such bank account are not sufficient to fully reimburse Licensee
as herein provided, Licensee shall retain sufficient royalties to compensate
itself to the extent of such additional sums as may be required to fully
indemnify Licensee in accordance with the terms and provisions of this
subparagraph 10(e).
11. Licensee's Representations and Warranties. Licensee represents
and warrants:
(a) The execution and delivery of this agreement and the
performance by Licensee of the transactions contemplated hereby have been fully
authorized by all appropriate corporate action;
(b) The performance by Licensee of any of the terms and
conditions of this agreement on its part to be performed will not constitute a
breach or violation of any other agreement or understanding, written or oral, to
which it is a party; and
(c) The Licensed Products, and the manufacture and sale
thereof by Licensee, shall comply, in all material respects, with all applicable
laws and governmental regulations.
12. Licensee's Covenants and Agreements. Licensee covenants and
agrees:
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<PAGE> 10
Licensee shall indemnify Licensor and hold it harmless from and against
all claims, actions, suits and proceedings and all loss, liability, damages,
costs and expenses incurred in connection therewith (including reasonable
attorneys' fees) for which Licensor may become liable or incur or be compelled
to pay and arising out of a breach of any of the foregoing representations and
warranties.
13. Licensee's Product Liability Insurance. Licensee covenants and
agrees that it shall, throughout the term of this agreement, obtain and keep in
full force and effect, product liability insurance with respect to the Licensed
Products manufactured or sold in the Territory with policy limits of not less
than $500,000 for each occurrence in the aggregate for bodily injury and
property damage in a combined single limit. Each such policy of insurance shall
name Licensor and Licensee as insureds, and, to the extent obtainable, will
constitute an agreement by the insurer that it will not cancel such policy
except after ten days' prior written notice to Licensor. Licensee shall deliver
to Licensor on request, a certificate of the insurer or other reasonable
evidence showing that the insurance required hereunder has been obtained and is
in full force and effect.
14. Maintenance and Protection of Licensor's Trademarks. Licensor
covenants and agrees, through the term of this agreement, not to commit any act
or otherwise impair its ownership of the Licensed Trademark so it may be used in
connection with the manufacture and sale of Licensed Products as contemplated by
this agreement. Licensor further covenants and agrees it will use its best
efforts to protect the Licensed Trademark from infringement by any other person,
firm or corporation in the Territory and in connection therewith, will prosecute
promptly and diligently all actions and proceedings which may be necessary or
appropriate. Licensee shall have the right, but not the obligation, at its own
cost and expense, to participate in all such actions and proceedings by counsel
of its choice. All sums recovered as a result of any such action or proceeding
shall,
-10-
<PAGE> 11
after the deduction of the reasonable expenses actually incurred by Licensor in
connection therewith, be divided equally between Licensor and Licensee. No
settlement of any such action or proceeding shall be made by Licensor without
obtaining Licensee's prior approval, and if Licensee should object to such
settlement, such settlement shall not be made by Licensor if Licensee assumes
the prosecution of such action or proceeding and all expenses thereof. Any sums
thereafter recovered shall be divided equally between Licensor and Licensee
after deduction of the reasonable expenses actually incurred by Licensee in
connection therewith. If Licensor fails to perform any of the covenants or
agreements set forth in this agreement, Licensee may, but shall not be obligated
to perform such covenants and agreements and deduct all costs and expenses
incurred by it in connection therewith from the payment of any royalty or other
sums which may become due and owing to Licensor (including amounts to be paid to
Pharmacal) under this agreement, and Licensor hereby appoints Licensee as its
attorney-in-fact to execute and deliver any and all documents and take any and
all action which it may deem necessary or appropriate to perform the aforesaid
covenants and agreements upon Licensor's behalf.
15. Term of License. This agreement and the license hereby granted shall
become effective immediately upon the execution and delivery hereof and the
payment of the pre-paid royalty with respect to Original Countries provided in
paragraph 6(b) of this Agreement and unless terminated as hereinafter provided,
shall be perpetual. Notwithstanding any other provisions of this agreement to
the contrary, this agreement may be terminated:
(a) By either party if the other fails punctually and faithfully to
observe and perform any of the terms, covenants and conditions on its part to be
performed under this agreement and such failure continues for a period of sixty
(60) days after notice thereof to such other party; or
-11-
<PAGE> 12
(b) By either party forthwith if the other party becomes insolvent,
makes an assignment for the benefit of creditors or commits any act amounting to
a business failure or proceedings in bankruptcy or reorganization or for an
appointment of a receiver or trustee for or over such party's property ore
instituted by or against such party in any court having jurisdiction thereof,
and such proceedings be not vacated, set aside or stayed within ninety days
thereof, or if such party attempts to extend or enter into a general compromise
of its liabilities; or
(c) By Licensee, with regard to any country in the Territory on thirty
days' written notice to Licensor, given within ten days after the end of any
Contract Year.
(d) By either party upon written notice to the other party with regard
to any country in the Territory in the event there is no commercially
significant business in Licensed Products in such country for a period of five
years.
The rights of termination as herein provided shall be in addition to all
other rights and remedies which either party may have to enforce this agreement
or to secure damages for the breach thereof, and the exercise of any right of
termination as herein provided by either party shall not relieve the other of
any of its obligations under this agreement accruing prior to the effective date
of termination, including but not limited to, the obligation to pay royalties or
to render reports with respect thereto.
16. Rights upon Termination.
(a) Upon termination of this agreement, in any part of or all of the
Territory, Licensee shall have the right to sell or otherwise dispose of any
Licensed Product and any raw materials and components relating thereto which it
may have on hand or in production on the date of such termination, provided all
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<PAGE> 13
such sales or dispositions shall be completed within one year of the date of
termination. All such sales and dispositions shall be subject to the applicable
royalty and reporting provisions as herein provided. Except as required in
connection with such sales and dispositions, Licensee will in the terminated
portion of the Territory discontinue and cease using the Licensed Trademark and
cancel, as promptly as possible after termination, all promotional activities
relating thereto.
17. Status of Parties. The status of the parties under this agreement
shall be that of independent contractors and nothing herein contained shall
constitute a partnership or joint venture between them. Neither party shall have
the right to enter into any agreements on behalf of the other nor shall it
represent to any person, firm or corporation that it has such right or
authority.
18. Benefit and Assignment.
(a) This agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns. No person, firm
or corporation other than the parties and their successors and permitted assigns
shall derive any rights or benefits under this agreement.
(b) Licensee may not assign this agreement without Licensor's prior
written consent. Licensor's consent shall not be withheld in the event this
agreement is assigned to a subsidiary or division of Licensee or as part of a
sale of all or substantially all of Licensee's assets.
(c) Licensor or Pharmacal may, from time to time, assign this agreement,
their rights hereunder and their portion at the royalties or any other sums at
any time due or to become due, or at any time owing or payable, by Licensee to
Licensor or Pharmacal under paragraph 6 of the provisions hereof. Any such
assignment may either be absolute or as collateral security for indebtedness of
Licensor or Pharmacal. No such assignee for collateral purposes
-13-
<PAGE> 14
shall be obligated to perform any duty, covenant or condition required to be
performed by Licensor under this agreement, and each of Licensor and Licensee,
by its execution hereof, hereby acknowledges and agrees that notwithstanding any
such assignment, each and all such covenants, agreements, representations and
warranties of Licensor shall survive any such assignment and shall be and remain
the sole liability of Licensor and of every person, firm or corporation
succeeding to all or substantially all of the business assets or good will of
Licensor. Without limiting the foregoing, each of Licensor and Licensee further
acknowledges and agrees that from and after receipt by Licensee of written
notice of assignment from Licensor or Pharmacal and its assignee;
i. If so directed in writing by Licensor or Pharmacal, all
royalties and other sums which are the subject matter of the assignment
shall be paid to the assignee thereof at the place of payment designated
in the notice; and
ii. The assignee shall have the sole right to exercise all
rights, privileges or remedies (either in its own name or in the name of
the Licensor or Pharmacal) which by the terms of this agreement or by
applicable low are permitted or provided to be exercised by Licensor or
Pharmacal. Licensee shall be entitled to rely on any notice of
assignment given by Licensor or Pharmacal and its assignee without
verifying the authority under which it is given.
19. Arbitration. All claims, controversies and disputes arising
hereunder shall be resolved and settled by arbitration in the City and County of
New York pursuant to the rules in force of the American Arbitration Association,
and judgment upon the award may be entered in any court having jurisdiction.
20. Notices. Every notice permitted or required under this agree-
ment shall be in writing, and shall be deemed duly given when mailed by
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<PAGE> 15
registered or certified mail to any party at the address set forth below, until
such address is changed by the giving of notice thereof in like manner. All
payments to be made to any party under this agreement shall be made at the
addresses set forth below.
If to Licensor: Coscelebre, Inc.
415 Madison Avenue
New York, New York 10017
Att: Bruce Mishkin, Esq.
If to Pharmacal: Alleghany Pharmacal Corporation
277 Northern Blvd.
Great Neck, N.Y. 11021
Att: David Geller
If to Licensee: MEM Company, Inc.
Northvale, New Jersey 07647
Att: Robert Burch
21. Applicable Law. Regardless of the place of execution and delivery at
this agreement, this agreement shall be governed by and construed according to
the laws of the State of New York.
22. Waivers. The failure at either party to insist upon the strict
performance of the terms, conditions and provisions of this agreement shall not
be a waiver of future compliance or a waiver of any other provisions hereof. No
waiver of either party of any provision hereof shall be deemed to have been made
unless expressed in writing and signed by a duly authorized officer of such
party.
23. Entire Agreement. This agreement contains the entire understanding
of the parties with respect to the subject matter hereof. There are no
representations, warranties, covenants or undertakings other than those
expressly set forth herein. No modifications of any of the terms of this
agreement shall be valid unless expressed in writing and signed by a duly
authorized officer.
24. Further Documents and Actions. The parties shall execute and deliver
any and all further documents and take any and all further actions which either
of them may deem necessary or appropriate to effectuate the intents and purposes
of this agreement.
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<PAGE> 16
25. Paragraph Headings. The headings of the paragraphs herein are for
the convenience of the parties only and are not to be considered part of this
agreement in construing the same.
26. Counterparts. This agreement may be executed in one or more
counterparts, each of which shall be considered an original.
IN WITNESS HEREOF, the parties hove duly executed this agreement as of
the date first above written.
COSCELEBRE, INC.
By:/s/ Fredrick Purcles
------------------------------
MEM COMPANY, INC.
By:/s/ Robert Burch
------------------------------
Executive V.P.
CONSENTED AND AGREED TO:
ALLEGHANY PHARMACAL CORPORATION
By:/s/ David Geller
--------------------------------
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<PAGE> 17
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On the 14th day of July, 1987, before me personally came Fredrick
Purcles to me known, who being by me sworn, did depose and say that he resides
at No. 415 Madison Ave., NYC, that he is the President of Coscelebre, Inc., the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the board of directors
of said corporation, and that he signed his name thereto by like order.
/s/ Bruce L. Mishkin
---------------------------
Notary Public
BRUCE L. MISHKIN
Notary Public, State of New York
No. 31-797-1660
Qualified in New York County
Commission Expires May 31, 1988
STATE OF NEW YORK )
ss. :
COUNTY OF NEW YORK )
On the 14th day of July, 1987, before me personally came Robert Birch
to me known, who being by me sworn, did depose and say that he resides at
Hanworth, New Jersey, that he is the Executive V. P. of MEM Company, Inc. the
corporation described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the board of directors
of said corporation, and that he signed his name thereto by like order.
/s/ Bruce L. Mishkin
---------------------------
Notary Public
BRUCE L. MISHKIN
Notary Public, State of New York
No. 31-797-1660
Qualified in New York County
Commission Expires May 31, 1988
STATE OF NEW YORK )
ss.:
COUNTY OF NEW YORK )
On the 14th day of July, 1987, before me personally came David Geller
to me known, who being by me duly sworn did depose and say that he resides at
No. 535 5th Ave., NY, NY 10017, that he is the President of Alleghany Pharmacal
Corporation, the corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
board of directors of said corporation, and that he signed his name thereto by
like order.
/s/ Bruce L. Mishkin
---------------------------
Notary Public
BRUCE L. MISHKIN
Notary Public, State of New York
No. 31-797-1660
Qualified in New York County
Commission Expires May 31, 1988
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<PAGE> 18
SCHEDULE A
----------
HEAVEN SENT REGISTRATIONS & APPLICATIONS
----------------------------------------
<TABLE>
<CAPTION>
APP. # REG. # REG./RENEWAL
COUNTRY CLASS & DATE & DATE EXP. DATE
- ------- ----- ------ ------ -------------
(R) = Renewal in process
<S> <C> <C> <C> <C>
CHILE 3 308983
7/9/45 5/23/96
COLOMBIA 3 17949
5/25/45 5/25/85(R)
COSTA RICA 6 10336 8/27/87
EL SALVADOR 85,86,125 14287
11/29/60 11/29/86(R)
GUATEMALA 3 16957
5/19/66 5/18/96
HONDURAS 3 15126 6/7/88
5 24973 8/1/88
INDONESIA 3 146584 6/10/90
JAPAN 4 732947 2/10/87
<S> <C> <C> <C>
MEXICO 6 New Application Filed in 1986
<S> <C> <C> <C> <C>
0 NICARAGUA 7 New Application Filed in 1986
1 TRINIDAD & 48 B10814 7/25/92
TOBAGO
2 USSR 3 65937 1/8/89
</TABLE>
<PAGE> 19
HEAVEN SENT REGISTRATIONS & APPLICATIONS
----------------------------------------
- --------------------------------------------------------------------------------
APP. # REG. # REG./RENEWAL
COUNTRY CLASS & DATE & DATE EXP. DATE
- --------------------------------------------------------------------------------
3 URUGUAY 10 154056 5/31/89
4 IRELAND 3 A09105
11/15/76 11/15/97
5 FRANCE 3 1179617 6/30/91
6 NEW ZEALAND 3 46611 7/8/97
7 AUSTRALIA 3 A162257 9/6/95
8 INDIA 3 Oct.'78 341392
<PAGE> 20
SCHEDULE B
Products
HEAVEN SENT
Eau de Parfum
EDP Spray (natural or fluorocarbon)
EDP Spray Flacon (natural or fluorocarbon)
EDP Spray Decanter (natural or fluorocarbon)
Bath Powder (Shaker)
Dusting Powder
Soap
Bath Oil Beads
Sachet
Pomander (ceramic container or other ceramic novelties)
<PAGE> 1
1
Exhibit 10.151
Agreement made as of this 1st day of January, 1981 between
HELENA RUBINSTEIN, INC., a New York corporation, having its principal place of
business at 300 Park Avenue, New York, New York 10022 ("Licensor") and ALLIANCE
TRADING COMPANY INCORPORATED, a Panamanian corporation, having its principal
place of business at Avenue Federico Boyd E Calle 51, Edificio Braniff, Panama
City, Panama ("Licensee").
W I T N E S S E T H:
WHEREAS, Licensor owns the trade name and mark HEAVEN SENT,
throughout the countries of the Western Hemisphere, which it uses on, and in
connection with the manufacture and sale of cosmetics; and
WHEREAS, Licensee desires to obtain, and Licensor is willing
to grant, a license to use the trade name and mark HEAVEN SENT, throughout the
Western Hemisphere on certain cosmetic products on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual promises herein contained, the parties agree as follows:
1. Definitions. When used in this agreement, unless the
context otherwise requires:
(a) the term "Licensed Trademark" means the trade
name and mark "HEAVEN SENT," together with all registrations thereof appearing
on Schedule A, annexed hereto;
<PAGE> 2
2
(b) the term "Territory" means all the countries
located in the Western Hemisphere including Puerto Rico, the United States
Virgin Islands and the Mexican Free Trading Zone, but excluding Canada, the
continental United States, Alaska, Hawaii, Mexico other than the Free Trading
Zone, Chile, Colombia, Uruguay, Guatemala, Costa Rica, Nicaragua, El Salvador,
and Honduras;
(c) the term "Products" means the fragrance cosmetic
products listed on Schedule B annexed hereto, designed or intended to be poured,
sprinkled or spread upon the human body to promote the beauty and appearance of
the user;
(d) the term "Licensed Products" means Products
bearing the Licensed Trademark;
(e) the term "Contract Year" means a twelve-month
period commencing January 1 and terminating the following December 31st;
(f) the term "net selling price" shall mean gross
sales less the sum of: returns, allowances, excise tax and sales tax;
(g) the term "free trading zone" means the portion in
Mexican territory of the duty free area located on the Mexican-United States
border.
2. Grant. (a) Licensor hereby grants to Licensee the sole and
exclusive right and license and to use the Licensed Trademark solely on, and in
connection with the manufacture of the Products throughout the world and sale of
the Products in the Territory. Licensee shall not use the Licensed Trademark as
or part of its corporate or business name or the name of any business entity
which is controlled by Licensee, nor shall Licensee use Licensor's name in
conjunction with the Licensed Trademark whether on the Products or in connection
with any
<PAGE> 3
3
advertising, promotional materials or otherwise of the Licensed Products other
than in a legend on the Licensed Products stating "Manufactured and distributed
under license from Helena Rubinstein."
(b) Licensee shall have no right to sub-license any
of the rights in the Licensed Trademark conveyed under this agreement.
(c) Licensee shall not affix or use the Licensed
Trademark on any cosmetic or toiletry other than the Products without Licensor's
prior written consent.
(d) Licensee shall use its best efforts to exploit
the rights herein granted throughout the Territory and to manufacture and sell
the maximum number of Licensed Products consistent with good business practice.
(e) Licensor shall forward to Licensee customer
lists, manufacturing processes, research and development activities relating to
the Products, chemical studies and data reports regarding safety and efficacy of
the Products which have been reduced to writing and which presently exist.
(f) Licensor will supply Licensee with mechanicals,
tools, dies, plates and exclusive molds presently being used in the manufacture
and fabrication of the Products.
(g) Licensor will furnish Licensee with copies of all
current brochures, catalogs, publicity releases and all pertinent advertising
copy and materials, as well as current radio, print and television commercials
relating to the Products.
<PAGE> 4
4
3. Ownership of Marks. Licensee recognizes Licensor's
ownership of the Licensed Trademark and covenants it will make no claim which is
adverse to Licensor's right, title or interest therein. All use by Licensee of
the Licensed Trademark shall inure to the benefit of Licensor, and Licensee will
make no use thereof except as permitted by this agreement.
4. Trademark Notice. Licensee covenants it will cause to
appear on all Licensed Products, or on the labels, labeling or packaging
thereof, and on all material originating with it and used to promote the sale of
Licensed Products in the Territory, such trademark notices as may be required by
law to protect Licensor's ownership of the Licensed Trademark.
5. Quality Control. Licensee covenants that Licensed Products
manufactured for or by it and sold in the Territory shall be of a high standard
and quality so as to reflect favorably upon the business of both Licensor and
Licensee and the good will associated therewith. To effectuate the foregoing:
(a) Prior to the time that Licensee shall sell or
offer for sale, in the regular course of business, any Licensed Products in the
Territory, Licensee shall submit to Licensor, for its approval, samples thereof
as well as samples of all materials used to sell of to promote the sale of
Licensed Products including, but not limited to, labels, labeling, packaging
materials, advertising and other promotional materials. Thereafter, Licensee
shall not make any change in such Licensed Products or in such materials used to
sell or promote the sale of Licensed Products without first submitting such
changes to Licensor and obtaining its approval.
<PAGE> 5
5
(b) Licensor shall have the right, at all times and
upon reasonable advance notice to Licensee, to inspect the manufacturing
operations of Licensee where Licensed Products are made, and Licensee shall
submit to Licensor, without charge, at reasonable intervals throughout the term
of this agreement, a reasonable number of samples of Licensed Products in order
that Licensor may satisfy itself that such Licensed Products conform to the
samples thereof approved by Licensor.
(c) No approval required of Licensor under this
paragraph shall be unreasonably withheld or delayed, and any sample of a
Licensed Product or materials used to sell or promote the sale of Licensed
Products which have not been disapproved within ten (10) business days after
receipt thereof shall be deemed to have been approved.
(d) Licensor may not change the formula of any of the
Products or add Products not listed on Schedule B without Licensor's prior
written approval.
6. Royalties. As full consideration for the license and all
rights herein granted, Licensee shall pay to Licensor, and Licensor shall
accept, the following royalties:
(a) a percentage royalty for the contract year
commencing January 1, 1981 and for each subsequent contract year throughout the
term of this agreement of five percent (5%) of the aggregate net selling prices
of the Licensed Products; and
(b) a minimum guaranteed royalty of $25,000 with
respect to the first contract year payable in advance on signing this agreement.
<PAGE> 6
6
7. Payment and Reporting of Royalties. (a) The percentage
royalty payable hereunder shall be paid quarterly, within thirty (30) days
following the last day of March, June, September and December computed on the
basis of the aggregate net selling prices of the Licensed Products sold during
such calendar quarter at the rates specified in paragraph 6(a) above. In the
first contract year, the percentage royalty shall be computed on the basis of
the aggregate net selling prices of the Licensed Products sold during such year
at the rates specified in paragraph 6(a) above, with a credit for the royalties
already paid to Licensor with respect to such year under paragraphs 6(a) above.
(b) Licensee shall make written reports to Licensor
at the time each percentage royalty payment is due, showing in detail the
number, description and aggregate net selling prices of Licensed Products sold
during the preceding three (3) calendar months. Such written report shall be
furnished to Licensor whether or not any Licensed Products have been sold during
the period with respect to which such report is due.
(c) Licensee also agrees to make a written report to
Licensor within thirty (30) days after the date of any termination of this
agreement, stating the number, description and aggregate net selling prices of
all Licensed Products sold and upon which a percentage royalty not previously
reported to Licensor is payable.
(d) Licensee shall promptly apply to appropriate
government authorities for approval to remit royalties to Licensor. Any
remittance not approved by the date due hereunder shall be deposited locally by
Licensee in Licensor's name at a bank designated by Licensor. All royalties
shall be remitted free of taxes and
<PAGE> 7
7
charges except for income taxes required to be withheld at source and Licensee
shall file appropriate tax returns on behalf of Licensor.
(e) All payments due Licensor hereunder shall be made
in United States dollars in New York and computed at the official rate of
exchange in effect on the last day of the period to which the remittance
relates.
8. Minimal Annual Sales. Commencing with the contract year
beginning January 1, 1982, Licensee covenants and warrants to Licensor that
during each contract year its minimum annual sales of the Licensed Products in
the Territory shall not be less than $1,000,000. If Licensee's annual sales
during any contract year are less than the applicable minimum stated above,
Licensor shall have the right and option to terminate this agreement upon
fourteen (14) days notice in writing to Licensee. If prior to the end of this
fourteen (14) day notice period, Licensee pays to Licensor the difference
between the percentage royalty on the minimum sales for the applicable year and
the aggregate percentage royalty paid or payable on the actual sales of Licensed
Products in that year, Licensor's election to terminate the agreement as
provided herein shall be void and without force or effect.
9. Records. Licensee will maintain records showing the
Licensed Products sold by it under this agreement, such records to be in
sufficient detail to enable the royalties payable to Licensor to be determined.
Licensee will also permit its books and records to be examined, from time to
time and upon reasonable advance notice, to the extent necessary to verify the
reports provided for in paragraphs 7 and 8, such examination to be made at the
expense of Licensor by a representative of Licensor, provided Licensee shall not
be obligated to retain records or permit
<PAGE> 8
8
inspection of its books with respect to sales of Licensed Products for a period
of more than two (2) years after the date of such sale.
10. Licensor's Representations, Warranties and Indemnity.
Licensor represents and warrants:
(a) The execution and delivery of this agreement and
the performance by Licensor of the transactions contemplated hereby have been
duly authorized by all appropriate corporate action;
(b) The grant of the rights and license hereby
granted does not and will not constitute a breach or violation of any other
agreement or understanding, written or oral, to which it is a party;
(c) Licensor is the sole proprietor of the Licensed
Trademark and the use by Licensee of the Licensed Trademark as contemplated in
this agreement will not infringe upon or violate the rights of any other person,
firm or corporation;
(d) There are no proceedings, claims or actions
pending, or to the knowledge of Licensor threatened, related to the Licensed
Trademark.
Licensor shall indemnify Licensee and hold it harmless form and against all
claims, action, suits and proceedings and all loss, liability, damages, costs
and expenses incurred in connection therewith (including reasonable attorneys'
fees) for which Licensee may become liable or incur or be compelled to pay and
arising out of a breach of any of the foregoing representations and warranties.
If Licensee is threatened with any claim, action, suit or proceeding based upon
an allegation that Licensor has breached the representation and warranty set
forth in sub-paragraph (c)
<PAGE> 9
9
above, Licensee shall, in lieu of paying any royalties or other sum due or to
become due to Licensor under this agreement, deposit such royalty or sum in a
segregated bank account until such time as such claim, action, suit or
proceeding has been settled or finally determined, whereupon Licensee shall
deliver to Licensor under this agreement all funds held in such bank account
less any amounts required to reimburse Licensee in accordance with the indemnity
provided in this paragraph 10. If the funds held in such bank account are not
sufficient to fully reimburse Licensee as herein provided, Licensor shall pay to
Licensee such additional sums as may be required to fully indemnify Licensee in
accordance with the terms and provisions of this paragraph 10.
11. Licensee's Representations, Warranties and Indemnity.
Licensee represents and warrants:
(a) The execution and delivery of this agreement and
the performance by Licensee of the transactions contemplated hereby have been
duly authorized by appropriate corporation action.
(b) The performance by Licensee of any of the terms
and conditions of this agreement on its part to be performed will not constitute
a breach or violation of any other agreement or understanding, written or oral,
to which it is a party.
(c) The Licensed Products, and the manufacture and
sale thereof by Licensee, shall comply with all applicable laws and governmental
regulations.
<PAGE> 10
10
Licensee shall indemnify Licensor and hold it harmless from and against all
claims, actions, suits and proceedings and all loss, liability, damages, costs
and expenses incurred in connection therewith (including reasonable attorneys'
fees) for which Licensor may become liable or incur or be compelled to pay and
arising out of a breach of any of the foregoing representations and warranties.
12. Licensee's Product Liability Insurance. Licensee covenants
and agrees it shall, throughout the term of this agreement, obtain and keep in
full force and effect product liability insurance with respect to the Licensed
Products manufactured or sold in the Territory with policy limits of not less
than $1,000,000 for each person, $1,000,000 for each occurrence and $500,000
property damage. Each such policy of insurance shall name both Licensor and
Licensee as an insured and, to the extent obtainable, will contain an agreement
by the insurer that it will not cancel such policy except after ten days prior
written notice to Licensor. Licensee shall deliver to Licensor on request a
certificate of the insurer or other reasonable evidence showing that the
insurance required hereunder has been obtained and is in full force and effect.
13. Maintenance and Protection of Licensor's Trademarks.
Licensor covenants and agrees, throughout the term of this agreement and at its
sole cost and expense, to use it best efforts in the Territory to register,
maintain and keep in full force and effect the Licensed Trademark so they may be
used in connection with the manufacture and sale of Products as contemplated by
this agreement. Licensor further covenants and agrees it will use its best
efforts to protect the Licensed Trademark from infringement by any other person,
firm or corporation in the
<PAGE> 11
11
Territory and in connection therewith to prosecute promptly and diligently all
actions and proceedings which may be necessary or appropriate. Licensee shall
have the right, but not the obligation, at its own cost and expense, to
participate in all such actions and proceedings by counsel of its choice. All
sums recovered as a result of any such action or proceeding shall, after the
deduction of the reasonable expenses actually incurred by Licensor in connection
therewith, be divided equally between Licensor and Licensee. No settlement of
any such action or proceeding shall be made by Licensor without obtaining
Licensee's prior approval, and if Licensee should object to such settlement,
such settlement shall not be made if Licensee assumes the prosecution of such
action or proceeding and all expenses thereof. Any sums thereafter recovered
shall be divided equally between Licensor and Licensee after deduction of the
reasonable expenses actually incurred by Licensee in connection therewith. If
Licensor fails to perform any of the covenants or agreements set forth in this
paragraph, Licensee may, but shall not be obligated to, perform such covenants
and agreements and deduct all costs and expenses incurred by it in connection
therewith from the payment of any royalty or other sums which may become due and
owing to Licensor under this agreement, and Licensor hereby appoints Licensee as
its attorney-in-fact to execute and deliver any and all documents and take any
and all action which it may deem necessary or appropriate to perform the
aforesaid covenants and agreements upon Licensor's default.
14. Term of License. This agreement and the license hereby
granted shall become effective immediately upon the execution and delivery
hereof and unless
<PAGE> 12
12
terminated as hereinafter provided, shall be perpetual. Notwithstanding any
other provisions of this agreement to the contrary, this agreement may be
terminated:
(a) By either party if the other fails punctually and
faithfully to observe and perform any of the terms, covenants and conditions on
its part to be performed under this agreement and such failure continues for a
period of sixty (60) days after notice thereof to such other party; or
(b) By either party forthwith if the other party
becomes insolvent, makes an assignment for the benefit of creditors or commits
any act amounting to a business failure or proceedings in bankruptcy or
reorganization or for an appointment of a receiver or trustee for or over such
party's property are instituted by or against such party in any court having
jurisdiction thereof, and such proceedings be not vacated, set aside or stayed
within ninety (90) days thereof, or if such party attempts to extend or enter
into a general compromise of its liabilities.
The rights of termination as herein provided shall be in addition to all other
rights and remedies which either party may have to enforce this agreement or to
secure damages for the breach thereof, and the exercise of any right of
termination as herein provided by either party shall not relieve the other of
any of its obligations under this agreement accruing prior to the effective date
of termination, including, but not limited to, the obligation to pay royalties
or to render reports with respect thereto.
15. Rights Upon Expiration or Termination. Upon termination or
expiration of this agreement, Licensee shall have the right to sell or otherwise
dispose of any Licensed Products or any inventory relating thereto which it may
have on hand
<PAGE> 13
13
or in production on the date of such termination or expiration, provided all
such sales or dispositions shall be completed within one (1) year after the date
of such termination or expiration. All such sales and dispositions shall be
subject to the applicable royalty and reporting provisions as herein provided.
Except as required in connection with such sales and dispositions, Licensee
will, on termination or expiration of this agreement, discontinue and cease
using the Licensed Trademarks and cancel as promptly as possible all promotional
activities relating thereto.
16. Status of Parties. The status of the parties under this
agreement shall be that of independent contractors and nothing herein contained
shall constitute a partnership or joint venture between them. Neither party
shall have the right to enter into any agreements on behalf of the other nor
shall it represent to any person, firm or corporation that it has such right or
authority.
17. Benefit and Assignment. (a) This agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns. No person, firm or corporation other than the
parties and their successors and permitted assigns shall derive any rights or
benefits under this agreement.
(b) Licensee may not assign this agreement without
Licensor's prior written consent. Licensor's consent shall not be withheld in
the event this agreement is assigned as part of a sale of all or substantially
all of Licensee's assets.
(c) Licensor may, at any time and from time to time,
assign this agreement, its rights hereunder and the royalties or any other sums
at any time due or to become due, or at any time owing or payable, by Licensee
to Licensor
<PAGE> 14
14
under any of the provisions hereof. Any such assignment may either be absolute
or as collateral security for indebtedness of Licensor. No such assignee for
collateral purposes shall be obligated to perform any duty, covenant or
condition required to be performed by the Licensor under this agreement and
Licensee, by its execution hereof, hereby acknowledges and agrees that
notwithstanding any such assignment, each and all such covenants, agreements,
representations and warranties of Licensor shall survive any such assignment and
shall be and remain the sole liability of Licensor and of every person, firm or
corporation succeeding to all or substantially all of the business assets or
good will of Licensor. Without limiting the foregoing, Licensee further
acknowledges and agrees that from and after receipt by it of written notice of
assignment from Licensor and its assignee:
(i) if so directed, all royalties and other sums
which are the subject matter of the assignment shall be paid to the
assignee thereof at the place of payment designated in the notice;
(ii) if such assignment was made for collateral
purposes, the rights of any such assignee in and to the royalties and
other sums payable by the Licensee under any provisions of this
agreement shall be absolute and unconditional and shall not be subject
to any abatement whatsoever or any defense, setoff, counterclaim or
recoupment whatsoever by reason of any indebtedness or liability
howsoever and whenever arising of the Licensor to the Licensee; and
(iii) the assignee shall have the sole right to
exercise all rights, privileges or remedies (either in its own name or
in the name of the Licensor)
<PAGE> 15
15
which by the terms of this agreement or by applicable law are permitted
or provided to be exercised by Licensor. Licensee shall be entitled to
relay on any notice of assignment given by Licensor and is assignee
without verifying the authority under which it is given.
18. Notices. Every notice permitted or required under this
agreement shall be in writing, and shall be deemed duly given when mailed by
registered or certified mail to either party at such party's address as set
forth above, until such address is changed by the giving of notice thereof in
like manner.
19. Applicable Law. Regardless of the place of execution and
delivery of this agreement, this agreement shall be governed by and construed
according to the laws of the State of New York.
20. Waivers. The failure of either party to insist upon the
strict performance of the terms, conditions and provisions of this agreement
shall not be a waiver of future compliance or a waiver of any other provisions
hereof. No waiver by either party of any provision hereof shall be deemed to
have been made unless expressed in writing and signed by a duly authorized
officer of such party.
21. Entire Agreement. This agreement contains the entire
understanding of the parties with respect to the subject matter hereof. There
are no representations, promises, warranties, covenants or undertakings other
than those expressly set forth herein. No modification of any of the terms of
this agreement shall be valid unless expressed in writing and signed by a duly
authorized officer.
22. Further Documents and Actions. The parties shall execute
and deliver any and all further documents and take any and all further actions
which either
<PAGE> 16
16
of them may deem necessary or appropriate to effectuate the intents and purposes
of this agreement.
23. Paragraph Headings. The headings of the paragraphs herein
are for the convenience of the parties only and are not to be considered part of
this agreement in construing the same.
24. Counterparts. This agreement may be executed in one or
more counterparts, each of which shall be considered an original.
IN WITNESS WHEREOF, the parties have duly executed this
agreement as of the date first above written.
HELENA RUBINSTEIN, INC.
By: /s/ Illegible
____________________________
(name) (title)
ALLIANCE TRADING COMPANY INC.
By:
____________________________
(name) (title)
[Notarization Illegible]
<PAGE> 17
SCHEDULE A
Trademark Registrations and Applications
<TABLE>
<CAPTION>
Country Registration No. Original Registration Date
------- ---------------- --------------------------
<S> <C> <C> <C>
ARGENTINA Cl. 16 770.203/5 July 13, 1963
BRAZIL Cl. 3 1232/0610.876 July 10, 1975
Cl. 20 1232/0610.877 July 10, 1975
Design Cl. 3 1272/0610.878 July 10, 1975
Cl. 20 1272/0610.879 July 10, 1975
DOMINICAN Cl. 50 27.315 January 10, 1978
REPUBLIC
ECUADOR Cl. 3 1139 August 17, 1979
MEXICO Cl. 6 128.247 September 9, 1965
PERU Cl. 3 6085 July 18, 1956
*/PUERTO Cl. 6 21.269 March 7, 1978
RICO
UNITED Cl. 51 422.561 July 30, 1946
STATES
VENEZUELA Cl. 6 15.822 June 22, 1945
Application
PARAGUAY Cl. 16 Nov. 1979
</TABLE>
- --------
1/ Usage limited to sale in Puerto Rico and U.S. Virgin Islands only.
<PAGE> 18
REPUBLIC OF PANAMA )
PROVINCE OF PANAMA )
CITY OF PANAMA )
EMBASSY OF THE UNITED )
STATES OF AMERICA )
I, Lincoln Benedicto Consul of the United States of America in
the Republic of Panama, duly commissioned and qualified, do hereby certify that
Gustavo Escobar Pereira
whose true signature and official seal are respectively subscribed and affixed
to the foregoing certificate, was of the 13th day of January, 1981 the day of
the date thereof, 4th Notary Public at Panama
Republic of Panama, duly commissioned and qualified to whose official acts,
faith and credit are due.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the
Embassy at Panama, Republic of Panama this 13th day of January, 1981.
/s/ Lincoln Benedicto
_______________________
Lincoln Benedict
Consul of the United States of America
<PAGE> 19
1
AMENDATORY AGREEMENT made as of the 15th day of June, 1981
between HELENA RUBINSTEIN, INC., a New York corporation, having its principal
place of business at 300 Park Avenue, New York, New York 10022 ("Licensor") and
ALLIANCE TRADING COMPANY INCORPORATED, a Panamanian corporation, having its
principal place of business at Avenue Federico Boyd E Calle 51, Edificio
Braniff, Panama City, Panama ("Licensee").
W I T N E S S E T H:
WHEREAS, by an agreement dated as of January 1, 1981 (the
"Agreement"), Licensor granted to Licensee the exclusive right and license to
use the trademark HEAVEN SENT in connection with the Products throughout the
Territory; and
WHEREAS, the parties to the Agreement desire to make the
license granted under the Agreement non-exclusive solely with respect to the
sale of the Products in the Mexican Free Trading Zone;
NOW, THEREFORE, in consideration of the premises and the
mutual promises herein contained, the parties agree as follows:
(1.) Paragraph 2 (a) of the Agreement shall be amended to read
as follows:
"2. Grant. (a) Licensor hereby grants to
Licensee the sole and exclusive right and license to
use the Licensed Trademark solely on, and in
connection with the manufacture of the Products
throughout the world and sale of the Products in the
Territory. Provided, however, the license granted
herein with respect to the Mexican Free Trading Zone
shall be non-
<PAGE> 20
exclusive only insofar as Helena Rubinstein de
Mexico, S.A. shall also have the right and license to
sell the Products in the Mexican Free Trading Zone.
Licensee shall not use the Licensed Trademark as or
part of its corporate or business name or the name of
any business entity which is controlled by Licensee,
nor shall Licensee use Licensor's name in conjunction
with the Licensed Trademark whether on the Products
or in connection with any advertising, promotional
materials or otherwise of the Licensed Products other
than in a legend on the Licensed Products stating
"Manufactured and distributed under license from
Helena Rubinstein"."
(2.) Except as modified above, the Agreement is in all
respects ratified and confirmed.
(3.) All capitalized terms used herein (without specific
definition) shall have the same meaning as given in the Agreement.
IN WITNESS WHEREOF, the parties have duly executed this
agreement as of the date first above written.
HELENA RUBINSTEIN, INC.
[Notarization Illegible] By: /s/ Illegible
-------------------------
ALLIANCE TRADING COMPANY INC.
By: /s/ Illegible
-------------------------
<PAGE> 21
2
REPUBLIC OF PANAMA )
PROVINCE OF PANAMA )
CITY OF PANAMA )
EMBASSY OF THE UNITED )
STATES OF AMERICA )
I, J. Royal Roseberry III, Vice Consul of the United States of
America in the Republic of Panama, duly commissioned and qualified, do hereby
certify that Gustavo Escobar Pereira
whose true signature and official seal are respectively subscribed and affixed
to the foregoing certificate, was of the 30th day of June, 1981 the day of the
date thereof, 4th Notary Public at Panama
Republic of Panama, duly commissioned and qualified to whose official acts,
faith and credit are due.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the
Embassy at Panama, Republic of Panama this 1st day of July, 1981.
/s/ J. Royal Roseberry III
Vice Consul of the United States of America
<PAGE> 1
EXHIBIT 10.152
AGREEMENT made as of this 12th day of March, 1982, between ALLEGHANY
PHARMACAL CORPORATION, a New York corporation, having its principal place of
business at 535 Fifth Avenue, New York, New York 10017 ("Licensor") and MEM
COMPANY, INC., a New York corporation, having its principal place of business at
Northvale, New Jersey 07647 ("Licensee").
WITNESSETH:
WHEREAS, Licensor is the holder of the exclusive right throughout the
Territory (as hereinafter defined), to manufacture, promote, sell, use and
distribute cosmetic products bearing the trademark "HEAVEN SENT" under a license
agreement (the "License") dated as of September 30, 1980 with the trademark
owner, Helena Rubinstein, Inc. ("Trademark Owner") and, with the consent of the
Trademark Owner, may sub-license its rights therein; and
WHEREAS, Licensee is a manufacturer and distributor of cosmetic
products and wishes to produce and sell cosmetics bearing the trademark "HEAVEN
SENT" in the Territory, and Licensor is willing to grant a sub-license of its
right under the License on the following terms and conditions.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, it is agreed:
1. Definitions. When used in this agreement, unless
-1-
<PAGE> 2
the context otherwise requires:
(a) The term "Licensed Trademark" means the trade name and trademark
"HEAVEN SENT", together with the registration thereof attached hereto as Annex
A;
(b) The term "Territory" means the United States of America and all its
territories and possessions, excluding the Commonwealth of Puerto Rico;
(c) The term "Products" means the cosmetics and toiletries listed on
Schedule B attached hereto, as it may be amended from time to time, designed or
intended to be poured, sprinkled or spread upon the human body to promote the
beauty and appearance of the user;
(d) The term "Licensed Products" means Products bearing the Licensed
Trademark;
(e) The term "Contract Year" means a twelve month period commencing
with the execution and delivery of this agreement, and each anniversary thereof:
(f) The term "net selling price" shall mean gross sales less the sum of
returns, allowances, excise tax and sales tax.
-2-
<PAGE> 3
2. Grant.
(a) Licensor hereby grants to Licensee the sole and exclusive right and
license to use the Licensed Trademark solely on, and in connection with the
manufacture and sale of, Products in the Territory. Licensee shall not use the
Licensed Trademark as or part of its corporate or business name or the name of
any business entity which is controlled by Licensee, nor shall Licensee use the
name of the Trademark Owner in conjunction with the Licensed Trademark whether
on the Products or in connection with any advertising, promotional materials or
otherwise of the Licensed Products other than in a legend on the Licensed
Products stating "Manufactured and distributed under license from Helena
Rubinstein."
(b) Licensee shall have no right to sub-license any of the rights in
the Licensed Trademark conveyed under this agreement.
(c) Licensee shall not affix or use the Licensed Trademark on any
cosmetic or toiletry other than the Products without Licensor's prior written
consent.
(d) Licensee shall use its best efforts to exploit the rights herein
granted throughout the Territory and to manufacture and sell the maximum number
of Licensed Products consistent with good business practice.
-3-
<PAGE> 4
3. Ownership of Marks. Licensee recognizes the Trademark Owner's
ownership and Licensor's license of the Licensed Trademark and covenants it will
make no claim which is adverse to their right, title or interest therein, unless
the Trademark Owner purports to terminate the License. All use by Licensee of
the Licensed Trademark shall inure to their benefit, and Licensee will make no
use thereof except as permitted by this Agreement.
4. Trademark Notice. Licensee covenants that it will cause to appear on
all Licensed Products, or on the labels, labelling or packaging thereof, and on
all material originating with it and used to promote the sale of Licensed
Products in the Territory, such trademark notices as may be required by law to
protect the Trademark Owner's ownership of and Licensee's interest in the
Licensed Product.
5. Quality Control. Licensee covenants that Licensed Products
manufactured for or by it and sold in the Territory shall be of a high standard
and quality so as to reflect favorably upon the business of both Licensor and
Licensee and the good will associated therewith. To effectuate the foregoing:
(a) Prior to the time that Licensee shall sell or offer for sale, in
the regular course of business, any Licensed Product in the Territory, Licensee
shall submit to Licensor, for its approval, samples thereof as well as samples
of all
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materials used to sell or to promote the sale of Licensed Products including,
but not limited to, labels, labelling, packaging materials, advertising and
other promotional materials, Thereafter, Licensee shall not make any change in
such Licensed Product or in such materials used to sell or promote the sale of
Licensed Products without first submitting such changes to Licensor and
obtaining its approval.
(b) Licensor shall have the right, at all times and upon reasonable
advance notice to Licensee, to inspect the manufacturing operations of Licensee
where Licensed Products are made, and Licensee shall submit to Licensor, without
charge, at reasonable intervals throughout the term of this agreement, a
reasonable number of samples of Licensed Products in order that Licensor may
satisfy itself that such Licensed Products conform to the samples thereof
approved by Licensor.
(c) No approval required of Licensor under this paragraph shall be
unreasonably withheld or delayed, and any sample of a Licensed Product or
materials used to sell or promote the sale of Licensed Products which have not
been disapproved within ten business days after receipt thereof shall be deemed
to have been approved.
(d) Licensee may only change the formula of any of the Licensed
Products or add Licensed Products not listed on
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<PAGE> 6
Annex B with Licensor's prior written approval.
6. Royalties. As full consideration for the license and all rights
granted under this agreement, Licensee shall pay Licensor, and Licensor shall
accept:
(a) The sum of $1,500,000 upon execution and delivery of this agreement
as a non-refundable advance royalty, to be credited against royalty payments of
$150,000 per year for the first ten years of the License, which shall be in
addition to the percentage royalty payments provided for in paragraph 6(b);
provided, however, that the $1,500,000 shall be held in escrow by Shea & Gould
pursuant to a separate escrow agreement; and
(b) A percentage royalty in each Contract Year throughout the term of
this agreement on the net aggregate selling prices of Licensed Products of:
(i) 10% in the first, second and third Contract Years of this
Agreement;
(ii) 7 1/2% in the fourth, fifth and sixth Contract Years of this
agreement; and
(iii) 5% in each Contract Year thereafter.
At any time during the term of this agreement, after having paid to
Licensor the aggregate royalties equal to $7,000,000 including the advance
royalty provided for in paragraph 6(a), Licensee may pay to Licensor a lump sum
of $500,000, and
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thereupon, its sales of the Licensed Products for the duration of the term of
this agreement shall be royalty free. Alleghany will report all sums provided
for payment under paragraph 6 as ordinary income.
(c) Commencing with the Contract Year beginning March 1, 1983, Licensee
covenants and warrants to Licensor the percentage royalty payable to Licensor in
each Contract Year on its net aggregate sales of Licensed Products in the
Territory computed at the applicable rate specified in paragraph 6(b) above,
shall not be less than $500,000. If, for any Contract Year, the actual
percentage royalty paid by Licensee is less than the minimum amount stated
above, Licensor shall have the right and option, but not the obligation, to
terminate this agreement upon fourteen days' written notice to Licensee,
provided, however, that prior to giving such notice, Licensor will meet and
discuss with Licensee, in good faith, arrangements under which the License may
be continued. If, prior to the end of the fourteen day notice period, Licensee
pays to Licensor the difference between $500,000 and the percentage royalty paid
or payable on the actual aggregate net sales of Licensed Products with respect
to that Contract Year, Licensor's election to terminate this agreement as
provided herein shall be voided and without force or effect. Termination of this
agreement shall be Licensor's sole remedy for the failure by Licensee to pay the
minimum royalty.
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7. Payment and Reporting of Royalties.
(a) (i) The percentage royalty payable under paragraph 6(b) above,
shall be paid quarterly to Licensor within thirty days following the last day of
March, June, September and December computed on the basis of the aggregate net
selling prices of the Licensed Products sold during such calendar quarter at the
rates specified in paragraph 6(b) above.
(ii) At Licensor's option, it may direct Licensee to make payment of
part or all of the royalties payable hereunder directly to the Trademark Owner.
Upon notice from the Trademark Owner that Licensor is delinquent in making
payments required under the License, Licensee shall pay the royalties due
hereunder to Licensor, directly to the Trademark Owner. The Trademark Owner
shall account to Licensor within ten days of the receipt of such payment for any
moneys due Licensor under this agreement. The receipt of the Trademark Owner
shall be conclusive evidence of such payments and the satisfaction of Licensee's
obligations under paragraph 6(b) above.
(b) Licensee shall make written reports to Licensor with a copy to the
Trademark Owner at the time each percentage royalty payment is due, showing in
detail the number, description and aggregate net selling prices of Licensed
Products sold during the preceding three calendar months. Such written report
shall be furnished to Licensor and the Trademark Owner whether or not any
Licensed Products have been sold during the period
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<PAGE> 9
with respect to which such report is due.
(c) Licensee also agrees to make a written report to Licensor with a
copy of it to the Trademark Owner within thirty days after the date of any
termination of this agreement, stating the number, description and aggregate net
selling prices of all Licensed Products sold and upon which a percentage royalty
not previously reported to Licensor is payable.
8. Records. Licensee will maintain records showing the Licensed
Products sold by it under this agreement, such records to be in sufficient
detail to enable the royalties payable to Licensor to be determined. Licensee
will also permit its books and records to be examined, from time to time and
upon reasonable advance notice, to the extent necessary to verify the reports
provided for in paragraph 7, such examination to be made at the expense of
Licensor by a representative of Licensor, provided Licensee shall not be
obligated to retain records or permit inspection of its books with respect to
sales of Licensed Products for a period of more than two years after the date of
such sale.
9. Licensor's Representations, Warranties and Indemnity. Licensor
represents and warrants:
(a) The execution and delivery of this agreement and the performance by
Licensor of the transactions contemplated hereby, have been duly authorized by
all appropriate corporate action;
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(b) The grant of the rights and license hereby granted does not and
will not constitute a breach or violation of any other agreement or
understanding, written or oral, to which it is a party;
(c) Licensor is the sole licensee of the Licensed Trademark in the
Territory and the use by Licensee of the Licensed Trademark as contemplated in
this agreement will not infringe upon or violate the rights of any other person,
firm or corporation.
(d) There are no proceedings, claims or actions pending, or to the
knowledge of Licensor, threatened, relating to the Licensed Trademark.
Licensor shall indemnify Licensee and hold it harmless from and against
all claims, actions, suits and proceedings and all loss, liability, damages,
costs and expenses incurred in connection therewith (including reasonable
attorneys' fees) for which Licensee may become liable or incur or be compelled
to pay and arising out of a breach of any of the foregoing representations and
warranties. If Licensee is threatened with any claim, action, suit or proceeding
based upon an allegation that Licensor has breached the representation and
warranty set forth in subparagraph (c) above, Licensee shall, in lieu of paying
any royalties or other sum due or to become due to Licensor under this
agreement, deposit such royalty or
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sum in a segregated bank account until such time as such claim, action, suit or
proceeding has been settled or finally determined, whereupon Licensee shall
deliver to Licensor under this agreement, all funds held in such bank account,
less any amounts required to reimburse Licensee in accordance with the indemnity
provided in this paragraph 9. If the funds held in such bank account are not
sufficient to fully reimburse Licensee as herein provided, Licensor shall pay to
Licensee such additional sums as may be required to fully indemnify Licensee in
accordance with the terms and provisions of this paragraph 9.
10. Licensee's Representations, Warranties and Indemnity. Licensee
represents and warrants:
(a) The execution and delivery of this agreement and the performance by
Licensee of the transactions contemplated hereby have been duly authorized by
all appropriate corporate action;
(b) The performance by Licensee of any of the terms and conditions of
this agreement on its part to be performed will not constitute a breach or
violation of any other agreement or understanding, written or oral, to which it
is a party;
(c) The Licensed Products, and the manufacture and sale thereof by
Licensee, shall comply, in all material respects,
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with all applicable laws and governmental regulations.
Licensee shall indemnify Licensor and hold it harmless from and against
all claims, actions, suits and proceedings and all loss, liability, damages,
costs and expenses incurred in connection therewith (including reasonable
attorneys' fees) for which Licensor may become liable or incur or be compelled
to pay and arising out of a breach of any of the foregoing representations and
warranties.
11. Licensee's Product Liability Insurance. Licensee covenants and
agrees that it shall, throughout the term of this agreement, obtain and keep in
full force and effect, product liability insurance with respect to the Licensed
Products manufactured or sold in the Territory with policy limits of not less
than $500,000 for each occurrence in the aggregate for bodily injury and
property damage in a combined single limit. Each such policy of insurance shall
name Licensor, the Trademark Owner and Licensee as insureds, and, to the extent
obtainable, will constitute an agreement by the insurer that it will not cancel
such policy except after ten days' prior written notice to Licensor. Licensee
shall deliver to Licensor on request, a certificate of the insurer or other
reasonable evidence showing that the insurance required hereunder has been
obtained and is in full force and effect. Alleghany will maintain its product
liability insurance for inventory of Licensed Products manufactured and produced
by Alleghany.
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<PAGE> 13
12. Maintenance and Protection of Licensor's Trademarks. Licensor
covenants and agrees, through the terms of this agreement, not to commit any act
or otherwise impair its license of the Licensed Trademarks so they may be used
in connection with the manufacture and sale of Licensed Products as contemplated
by this agreement. Licensor further covenants and agrees it will use its best
efforts to protect the Licensed Trademarks from infringement by any other
person, firm or corporation in the Territory and in connection therewith, will
cause the Trademark Owner to prosecute promptly and diligently all actions and
proceedings which may be necessary or appropriate. Licensee shall have the
right, but not the obligation, at its own cost and expense, to participate in
all such actions and proceedings by counsel of its choice. All sums recovered as
a result of any such action or proceeding shall, after the deduction of the
reasonable expenses actually incurred by Licensor or the Trademark Owner in
connection therewith, be divided equally between Licensor or the Trademark Owner
as the case may be, and Licensee. No settlement of any such action or proceeding
shall be made by Licensor or the Trademark Owner without obtaining Licensee's
prior approval, and if Licensee should object to such settlement, such
settlement shall not be made by Licensor or the Trademark Owner, as the case may
be, if Licensee assumes the prosecution of such action or proceeding and all
expenses thereof. Any sums
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thereafter recovered shall be divided equally between Licensor or the Trademark
Owner and Licensee after deduction of the reasonable expenses actually incurred
by Licensee in connection therewith. If Licensor fails to perform any of the
covenants or agreements set forth in this agreement, Licensee may, but shall not
be obligated to perform such covenants and agreements and deduct all costs and
expenses incurred by it in connection therewith from the payment of any royalty
or other sums which may become due and owing to Licensor under this agreement,
and Licensor hereby appoints Licensee as its attorney-in-fact to execute and
deliver any and all documents and take any and all action which it may deem
necessary or appropriate to perform the aforesaid covenants and agreements upon
Licensor's behalf.
13. Term of License. This agreement and the License hereby granted
shall become effective immediately upon the execution and delivery hereof and
unless terminated as hereinafter provided, shall be perpetual. Notwithstanding
any other provisions of this agreement to the contrary, this agreement may be
terminated:
(a) By either party if the other fails punctually and faithfully to
observe and perform any of the terms, covenants and conditions on its part to be
performed under this agreement and such failure continues for a period of
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<PAGE> 15
sixty days after notice thereof to such other party; or
(b) By either party forthwith if the other party becomes insolvent,
makes an assignment for the benefit of creditors or commits any act amounting to
a business failure or proceedings in bankruptcy or reorganization or for an
appointment of a receiver or trustee for or over such party's property are
instituted by or against such party in any court having jurisdiction thereof,
and such proceedings be not vacated, set aside or stayed within ninety days
thereof, or if such party attempts to extend or enter into a general compromise
of its liabilities; or
(c) By Licensee, on thirty days' written notice to Licensor, given
within ten days after the end of any Contract Year.
The rights of termination as herein provided shall be in addition to
all other rights and remedies which either party may have to enforce this
agreement or to secure damages for the breach thereof, and the exercise of any
right of termination as herein provided by either party shall not relieve the
other of any of its obligations under this agreement accruing prior to the
effective date of termination, including but not limited to, the obligation to
pay royalties or to render reports with respect thereto.
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<PAGE> 16
14. Rights upon Termination.
(a) Upon termination of this agreement, Licensor shall purchase from
Licensee its inventory of finished goods, raw materials and components of each
of the Licensed Products, provided, however, that Licensor shall not be
obligated to purchase such inventory if the termination is made by Licensee
pursuant to paragraph 13(a), 13(b) or 13(c) above. If Licensor elects to
purchase such inventory, it shall so notify Licensee within seven days after
termination of this agreement.
(b) If Licensor elects or is obligated to purchase inventory pursuant
to paragraph 14(a), the following shall be the terms of such purchase: Within
fourteen days after the termination of this agreement, Licensee shall deliver to
Licensor the entire inventory of finished goods, raw materials and components
used in fabricating the Licensed Products in its possession or subject to its
control. Delivery shall be f.o.b. Licensor's warehouse or the plant of any
outside supplier or contractor holding components or raw materials on Licensee's
behalf. After delivery to Licensor's warehouse, the inventory shall be insured
by Licensor at the same value as before its delivery, with Licensee as the named
insured. Within five days after the delivery of the inventory, representatives
of Licensor and Licensee shall take a physical inventory to determine which of
the finished goods, raw materials and components used in
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fabricating the Licensed Products are useable. No later than ten days after the
physical inventory is completed, Licensee shall provide Licensor a schedule
showing the cost of each item (the "Schedule").
(i) As used herein, the term "cost" shall mean Licensee's cost of
materials, direct and indirect labor and manufacturing overhead.
(ii) As used herein, the term "useable" shall mean:
A. With respect to raw materials and components, a condition allowing
their use in the fabrication of finished product without material refurbishing;
B. With respect to finished goods, a condition permitting shipment
without requiring refurbishing at an expense in excess of 15% of the cost
appearing on the Schedule, but subject to the limitation that any finished
goods, raw materials and components which are not capable of being sold or
exhausted within twelve months after the termination of this agreement shall not
be deemed to be useable. Any inventory that is not deemed useable and not
acquired pursuant to this agreement, shall be returned to Licensee f.o.b.
Licensor's premises.
(c)(i) Within five days after receiving the
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<PAGE> 18
Schedule, Licensee and Licensor shall agree on the valuation of the items
appearing on the Schedule. If the parties fail to reach an agreed valuation,
Licensee shall be free to dispose of the inventory as provided in paragraphs
14(c)(iii) and (iv) below.
(ii) Licensee shall sell to Licensor and Licensor shall purchase from
Licensee, each of the items appearing on the Schedule. Title shall pass with
respect to finished goods when such products are shipped by Licensor to its
accounts and with respect to raw materials and components when used by Licensor
in the fabrication of finished products.
(iii) Within ten days after the end of each month commencing with the
delivery of the inventory, Licensor shall prepare and submit to Licensee a
schedule showing the inventory drawn down by Licensor that month, together with
a check in payment of each item. The purchase price of any finished goods
remaining unshipped and any raw materials or components not fabricated into
finished goods within twelve months after delivery of the inventory shall be
paid by Licensor ten days after the end of said twelve month period.
(iv) If Licensor is not required or chooses not to repurchase
Licensee's inventory of Licensed Products, as the case may be, Licensee shall
have the right to sell or otherwise
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<PAGE> 19
dispose of any Licensed Product and any raw materials and components relating
thereto which it may have on hand or in production on the date of such
termination, provided all such sales or dispositions shall be completed within
one year of the date of termination. All such sales and dispositions shall be
subject to the applicable royalty and reporting provisions as herein provided.
Except as required in connection with such sales and dispositions, Licensee will
discontinue and cease using the Licensed Trademark and cancel as promptly as
possible after termination, all promotional activities relating thereto.
15. Status of Parties. The status of the parties under this agreement
shall be that of independent contractors and nothing herein contained shall
constitute a partnership or joint venture between them. Neither party shall have
the right to enter into any agreements on behalf of the other nor shall it
represent to any person, firm or corporation that it has such right or
authority.
16. Benefit and Assignment.
(a) This agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and permitted assigns. No person,
firm or corporation other than the parties and their successors and permitted
assigns shall derive any rights or benefits under this agreement.
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<PAGE> 20
(b) Licensee may not assign this agreement without Licensor's prior
written consent. Licensor's consent shall not be withheld in the event this
agreement is assigned as part of a sale of all or substantially all of
Licensee's assets.
(c) If Licensor assigns this agreement to the Trademark Owner, the
Trademark Owner may, thereafter and from time to time, assign this agreement,
its rights hereunder and the royalties or any other sums at any time due or to
become due, or at any time owing or payable, by Licensee to the Trademark Owner
under paragraph 6(b) of the provisions hereof. Any such assignment may either be
absolute or as collateral security for indebtedness of the Trademark Owner. No
such assignee for collateral purposes shall be obligated to perform any duty,
covenant or condition required to be performed by the Trademark Owner under this
agreement and Licensee, by its execution hereof, hereby acknowledges and agrees
that notwithstanding any such assignment, each and all such covenants,
agreements, representations and warranties of the Trademark Owner, if any, shall
survive any such assignment and shall be and remain the sole liability of the
Trademark Owner and of every person, firm or corporation succeeding to all or
substantially all of the business assets or good will of the Trademark Owner.
Without limiting the foregoing, Licensee further acknowledges and agrees that
from and after receipt by
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it of written notice of assignment from the Trademark Owner and its assignee:
(i) If so directed in writing by the Trademark Owner, all royalties and
other sums which are the subject matter of the assignment shall be paid to the
assignee thereof at the place of payment designated in the notice;
(ii) If such assignment was made for collateral purposes, the rights of
any such assignee in and to the royalties and other sums payable by the Licensee
under any provisions of this agreement shall be absolute and unconditional and
shall not be subject to any abatement whatsoever or any defense, setoff,
counterclaim or recoupment whatsoever by reason of any indebtedness or liability
howsoever or whenever arising of the Trademark Owner to the Licensor or to the
Licensee, and,
(iii) The assignee shall have the sole right to exercise all rights,
privileges or remedies (either in its own name or in the name of the Trademark
Owner) which by the terms of this agreement or by applicable law are permitted
or provided to be exercised by the Trademark Owner. Licensee shall be entitled
to rely on any notice of assignment given by the Trademark Owner and its
assignee without verifying the authority under which it is given.
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<PAGE> 22
17. Notices. Every notice permitted or required under this agreement
shall be in writing, and shall be deemed duly given when mailed by registered or
certified mail to any party at the address set forth below, until such address
is changed by the giving of notice thereof in like manner.
If to Trademark Owner: Coscelebre, Inc.
415 Madison Ave
NY, NY 10017
Att: Bruce Mishkin, Esq.
If to Licensor: Alleghany Pharmacal Corporation
277 Northern Blvd.
Great Neck, N.Y. 11021
If to Licensee: MEM Company, Inc.
Northvale, New Jersey 07647
Att: Gay A. Mayer, President
18. Applicable Law. Regardless of the place of execution and delivery
of this agreement, this agreement shall be governed by and construed according
to the laws of the State of New York.
19. Waivers. The failure of either party to insist upon the strict
performance of the terms, conditions and provisions of this agreement shall not
be a waiver of future compliance or a waiver of any other provisions hereof. No
waiver by either party of any provision hereof shall be deemed to have been made
unless expressed in writing and signed by a duly authorized officer of such
party.
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<PAGE> 23
20. Entire Agreement. This agreement contains the entire understanding
of the parties with respect to the subject matter hereof. There are no
representations, warranties, covenants or undertakings other than those
expressly set forth herein. No modification of any of the terms of this
agreement shall be valid unless expressed in writing and signed by a duly
authorized officer.
21. Further Documents and Actions. The parties shall execute and
deliver any and all further documents and take any and all further actions which
either of them may deem necessary or appropriate to effectuate the intents and
purposes of this agreement.
22. Paragraph Headings. The headings of the paragraphs herein are for
the convenience of the parties only and are not to be considered part of this
agreement in construing the same.
23. Counterparts. This agreement may be executed in one or more
counterparts, each of which shall be considered an original.
IN WITNESS WHEREOF, the parties have duly executed
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<PAGE> 24
this agreement as of the date first above written.
MEM COMPANY, INC.
By /s/ [signature illegible]
-------------------------------
Vice President
ALLEGHANY PHARMACAL CORPORATION
By /s/ [signature illegible]
-------------------------------
For value received, the undersigned Trademark Owner hereby consents and
agrees to be bound by the foregoing sub-license.
HELENA RUBINSTEIN, INC.
By /s/ [signature illegible]
-------------------------------
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<PAGE> 25
ADDENDUM TO LICENSE AGREEMENT DATED July 14, 1987
The parties acknowledge that despite Licensor's best efforts, as of the
date of this Agreement, the Territory shall not include New Zealand. Licensor
represents it shall continue to use its best efforts to cancel the existing
license of the Licensed Trademark in New Zealand and thereby include it within
the Territory.
COSCELEBRE, Inc.
by: /s/ [signature illegible]
-------------------------------
MEM COMPANY, Inc.
by: /s/ [signature illegible]
-------------------------------
Executive V. P.
ALLEGHANY PHARMACAL CORPORATION
by: /s/ David Gellen
-------------------------------
<PAGE> 1
EXHIBIT 10.153
AGREEMENT
THIS AGREEMENT made as of the 1st day of December, 1991 by and among
TOM FIELDS, LTD., a New York Corporation, with offices in New Jersey and a
mailing address of Union Street Extension, Northvale, New Jersey 07647
(interchangeably "Licensor" or "TFL"), which is a wholly owned subsidiary of MEM
Company, Inc.; and RED BOX TOY FACTORY LTD., a Hong Kong corporation with
offices at 1216 Peninsula Centre, Tsimshatsui East, Kowloon, Hong Kong
(interchangeably "Licensee" or "Red Box HK"),
WITNESSETH:
WHEREAS, TFL is the owner of the trademark "TINKERBELL" for numerous
products of interest to young girls; and
WHEREAS, Red Box HK is capable of manufacturing or causing to be
manufactured many toys of interest to children including vanity cases for young
girls; and
WHEREAS, TFL is willing to license its trademarks to Red Box HK for use
on and in connection with the sale of fashion beauty kits as well as the
numerous other items specified herein;
NOW, THEREFORE, in consideration of the covenants of each
1
<PAGE> 2
of the parties hereto to each other party the receipt and sufficiency of which
are hereby acknowledged, TFL and Red Box HK agree as follows:
1. Sale of Red Box Vanity Cases By TFL.
Should any sales representative of TFL secure an order from a customer
against that customer's letter of credit in Hong Kong payable to Red Box HK
against delivery by Red Box HK to that customer's freight forwarder in Hong
Kong, Red Box HK will pay TFL, five percent (5%) of its Net Sales to that
customer.
2. Definitions
(a) The term "Affiliated Business Organizations", "Affiliated Company"
or "Affiliates" will mean any person, corporation, or other legal organization
that directly or indirectly, through one or more intermediaries, controls or is
controlled by or is under common control with the company named.
(b) The terms "Claim" or "Claims" will comprehend any means employed by
anyone, whether in or out of court, to obtain legal (e.g. monetary ) or
equitable (e.g. injunctive) relief from Licensor.
(c) The term "Contract Quarter" will mean any of the successive three
(3) month periods next following and including the first Contract Quarter which
will begin on December 1, 1991 and end on February 29, 1992.
(d) The term "Contract Year" will mean each successive yearlong period
this agreement is in force beginning with the period December 1, 1991 - November
30, 1992 (e.g. the fourth
2
<PAGE> 3
Contract Year would be the period December 1, 1994 - November 30, 1995).
(e) The term "Control" (including the terms "Controlling", "Controlled
By" and "Under Common Control With"), as used herein will mean possessing,
directly or indirectly, the power to direct or cause the direction of the
management and policies of any person, firm or corporation, whether through
ownership of voting securities, by contract or otherwise.
(f) The term "Costs" will mean any money expended by Licensor on
account of a Claim, whether for damages, reasonable legal fees, litigation
expenses or otherwise.
(g) The term "Due Date" will mean the last business day of the month
next following any Calendar Quarter.
(h) The "Effective Date" is the date first above written.
(i) The term "License" will mean the exclusive and non-transferable
license to use the Trademarks in relation to the Products (and not to any other
products) within the Territory.
(j) The term "Net Sales" will mean the amount of money charged and
billed by Licensee to Unrelated Customers purchasing the Products ("Standard
Charges") after deducting (i) actual trade discounts (unless deducted before
calculating Standard Charges), (ii) returns, (iii) taxes (shown on Licensee's
invoices and payable by purchasers), and (iv) transportation and postage charges
(to the extent prepaid by the Licensee and billed on its invoices as a separate
item). It is understood, however, that the following
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<PAGE> 4
items may not be deducted from Standard Charges in calculating Net Sales: (aa)
cash discounts, (bb) advertising allowances, or (cc) promotional allowances.
(k) The term "Products" will mean the items on Schedule A annexed
hereto and made a part hereof. It is understood that TFL and Red Box HK may wish
to license and manufacture, respectively, certain other products for sale in
1993. These include musical jewelry boxes, hand bags, stationery sets, tea sets,
toy jewelry, lap trays and dress-up sets. Upon written notice, and absent its
objection within 10 business days of receipt of such notice, to TFL, Red Box may
add these items to Schedule A as of December 1, 1992. If it objects, TFL must do
so in writing and the items it objects to will not be incorporated in Schedule
A.
(l) The term "Territory" will mean the United States of America.
(m) The term "Trademarks" will mean:
(i) the registered trademark "TINKERBELL", and
(ii) the registered design frequently accompanying the
trademark "TINKERBELL".
(n) The term "Unrelated Customers" means all customers purchasing the
Products which are not Affiliated Business Organizations.
3. Representation by Licensee
(a) Red Box HK represents to the Licensor that the present financial
structure and present facilities are such that they are now, and will be
throughout the term of this Agreement, in
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<PAGE> 5
a favorable position to manufacture, distribute, advertise and sell the Products
within the Territory under the license hereinafter granted with respect to the
Trademarks.
(b) Red Box HK represents to Licensor that no Affiliated Business
Organization of it is a competitor of Licensor.
(c) Red Box HK represents that it will not sell or sponsor the sale of
a line of toiletries and cosmetics in the Territory which is competitive with
any line of TFL's.
4. Grant of License to Use of the Trademark
(a) Licensor hereby grants to Licensee during the term of this
agreement, and subject to its terms and conditions as hereinafter set forth, the
License.
(b) Licensee's policy (in using the Trademarks) of sale, distribution
and use will not reflect adversely upon Licensor's Trademarks. For example,
Licensee will only sell to organizations having established outlets so as to
exclude sales to flea markets and sidewalk vendors. Licensee will provide, on an
annual basis , to Licensor, a customer list of those organizations purchasing or
otherwise receiving Products from Licensee with the net volume shown for each
customer. This customer list will be held by Licensor under the same terms and
conditions of confidentiality as set forth in paragraph 9(g) of this agreement.
(c) If the Products are not brought to market within the Territory
within twelve months of the Effective Date, the Licensor may terminate the
License by sending written notice to the
5
<PAGE> 6
Licensee, effective upon receipt.
(d) Prior to any use by the Licensee of the Trademarks it must submit
to the Licensor for its approval, designs, materials, packages, labels,
promotional materials and advertising by means of which it intends to market,
sell or distribute any and all Products on which the Trademarks appear. Upon
receipt, Licensor will review same. If Licensor makes no written comments
containing reasonable objections within 15 business days of such receipt, then
Licensee may deem all such submitted material approved. Licensee will amend to
the satisfaction of Licensor any such materials which are not approved by
Licensor.
(e) In conjunction with each and every use of the Trademarks, Licensee
will cause to appear adjacent to it, appropriate statutory notice of
registration or application for registration ((R) or TM as the case may be).
Licensee will also cause to appear on or within all advertising, promotional
display, or other printed material bearing the Trademark, the following or a
notice to the same effect: "TINKERBELL" is a registered trademark of Tom Fields,
Ltd., Northvale, New Jersey, and is being used under a license from Tom Fields,
Ltd.".
(f) Licensee hereby indemnifies and holds Licensor harmless from any
Costs and undertakes to defend Licensor against any Claims arising out of the
activities of Licensee under the License (including but not limited to the
manufacture, use, marketing, sale, and distribution of the Products)
attributable to alleged defects in the Products.
6
<PAGE> 7
5. Preparation by Licensee
(a) Licensee is an independent contractor and will, at its own expense,
adapt such of its facilities, purchase such raw materials, hire such personnel,
arrange for such transportation and delivery, as are necessary to commence the
manufacture and sale of the Products. Licensee will at its sole expense, comply
with all Federal, State and local laws and regulations relating to the
manufacture and sale of the Products, including, but not limited to, all
labeling requirements.
(b) Licensee will maintain, at its sole expense, products liability
insurance covering both Licensor and Licensee for bodily injury and property
damage liability in at least the Combined Single Limit of U.S. $1,000,000.00.
Licensee will deliver to Licensor, promptly after execution of this agreement, a
certificate issued by a nationally reputable insurance company evidencing such
coverage and providing that such insurance may not be canceled, except on thirty
(30) days written notice to Licensor and Licensee. If Licensee fails to maintain
such insurance, Licensor may obtain it and charge the cost thereof to Licensee
or may treat such failure as a breach of material provisions of this agreement.
6. Inspection
(a) Licensee will at all times permit Licensor, by representatives
designated by Licensor, to inspect the design and manufacture of the Products
manufactured by Licensee for sale by it under the Trademarks. At all times,
Licensee will comply with
7
<PAGE> 8
the reasonable quality control procedures furnished or approved, from time to
time, in writing by Licensor.
(b) Licensee will submit to Licensor three (3) specimens of each of the
Products prior to its being offered for sale. Licensor will review each such
item and indicate its approval or disapproval with comments. If the Licensor
fails to comment within 15 business days of receipt of a specimen, the Product
represented by the specimen will be deemed to have been approved. In addition,
the Licensor may, from time to time, request samples of the Products.
7. Title to the Trademarks
(a) Licensee recognizes Licensor's title to the Trademarks and the good
will associated with them and their importance to Licensor, and will not at any
time do or suffer to be done any act or thing which will in any way impair the
rights of Licensor in and to the Trademarks. It is understood that Licensee will
not acquire nor will it claim title to the Trademarks by virtue of the license
granted to Licensee herein, or Licensee's use of the Trademarks.
(b) In the event any infringement of the rights of Licensor to any of
the Trademarks in the Territory comes to the notice of Licensee during the term
of this agreement, Licensee will promptly notify Licensor, in writing, and will
join with Licensor, upon Licensor's written request and at Licensor's expense in
taking such steps, if any, as Licensor deems advisable to protect its rights.
Licensee will take no action independent of
8
<PAGE> 9
Licensor without the express written consent of Licensor.
(c) During the term of this agreement, the Licensor will maintain the
registration of the Trademarks in the Territory, in full force and effect, free
and clear of any and all cancellation petitions, interferences or objections.
8. Royalties
(a) Licensee will pay to Licensor a royalty of five (5%) percent of
Licensee's Net Sales.
(b) Products will be deemed to have been sold on the earliest of the
following dates: (i) when invoiced, (ii) when delivered, shipped or mailed or
(iii) when payment has been received.
(c) Licensee will maintain itemized, complete and accurate books of
account with respect to all Products sold under this agreement.
(d) Licensee will render to Licensor an accounting, certified by a
financial officer of Licensee, specifying exactly how royalties were computed
including how Net Sales were calculated (i.e. by enumerating all deductions
used). This accounting must be rendered on or before each Due Date.
(e) On or before each Due Date, Licensee will pay Licensor all
royalties owed from sales during the previous Contract Quarter.
(f) In the event Licensee fails to make any payment due on a Due Date,
Licensor may charge Licensee interest on the unpaid amount at the annual rate of
two (2%) percent above the prime rate
9
<PAGE> 10
reported by the Wall Street Journal on that Due Date.
(g) Licensor may review or may designate, at its expense, a certified
public accountant to review the accounts of Licensee, for a period of not more
than four (4) Contract Quarters immediately preceding the date of review to
determine whether proper accounting and payments have been made. Any such review
will take place upon reasonable notice to Licensee and within regular business
hours. Acceptance or receipt of payment by Licensor will not preclude it from
questioning the correctness of any statement or royalty payment. Any review of
Licensee's accounts will be made under the strictest confidentiality. No
material obtained by Licensor or its designated auditor may be used or disclosed
for purposes other than enforcing compliance with the terms of this agreement
without the prior written consent of Licensee, unless ordered to do so by a
court or other tribunal having jurisdiction over Licensor, in which case
Licensor will give reasonable notice to Licensee.
9. Promotional Activities
Licensee will use its best efforts to fully promote the sale of the
Products in the Territory, and maintain the high standards of Licensor as to
advertising and all other promotional material. No advertising or promotional
material may be used by Licensee until it has been submitted to and approved by
Licensor, in writing, in advance. All advertising and promotional costs are to
be borne by Licensee. Licensor's approval will not be unreasonably withheld and,
if no objection is raised by Licensor
10
<PAGE> 11
within fifteen (15) business days of receipt of the material, Licensor will be
deemed to have approved them. In addition, Licensee will expend at least two
(2%) percent of Net Sales for general advertising and promotional activity as
directed by Licensor.
10. Term
Unless sooner terminated as hereinafter provided, this agreement will
commence as of the Effective Date and terminate at the end of the fifth Contract
Year. Either party, however, has the right to terminate this agreement after
three (3) years by notifying the other party, in writing, at least six (6)
months prior to the end of the third Contract Year, of its desire to terminate
this agreement.
11. Termination
(a) Either Licensor or Licensee may terminate this agreement, if it
gives written notice to the other party to the effect that that party has
committed a breach of a material provision of this agreement and the party
receiving said notice fails to cure that breach within thirty (30) days of such
receipt.
(b) Licensor may terminate this agreement by giving written notice to
Licensee effective on receipt, for damage to the commercial impression of the
Trademarks, if Licensee (i) becomes insolvent, (ii) files a petition in
bankruptcy or insolvency, (iii) files any petition or answer seeking
reorganization of Licensee's business under any law relating to insolvency or
bankruptcy, (iv) makes an assignment for the benefit of creditors, or (v) fails
11
<PAGE> 12
within thirty (30) days to secure the dismissal of any receiver, trustee or
liquidator appointed for any of its property.
(c) Licensor may terminate this agreement by giving written notice to
Licensee effective on receipt (i) if Licensee fails, within 30 days of its
accrual, to pay any monies owed to Licensor pursuant to this agreement, (ii) if
any competitor of Licensor becomes an Affiliate of Licensee, or (iii) if
Licensee fails to bring the Products to market as required by Subparagraph 5(c).
(d) If Licensee becomes Controlled by any persons or other legal
entities other than those controlling them or either of them as if the Effective
Date (individually or collectively the "New Owner"), the entity experiencing the
change will notify TFL within fifteen (15) business days, identifying the new
Controlling person or persons and providing verifiable information as to the New
Owner's financial standing. If within a similar period, TFL does not approve of
the New Owner, which approval will not be unreasonably withheld, this agreement
will terminate automatically at the end of such period.
(e) Upon termination of this agreement, Licensee will immediately and
completely discontinue use of the Trademarks, provided, however, that Licensee
may sell existing stock if it complies with subparagraph (f) of this paragraph.
(f) For a period not to exceed 120 days immediately following
termination of this agreement, Licensee may sell any completed Products it had
in stock on the date of termination. It
12
<PAGE> 13
is understood that Licensee will pay Licensor all royalties due from such sales
as though this agreement were still in effect. Within 10 business days after the
end of this 120-day period, an officer of the Licensee will deliver to the
Licensor a certification that all products in the possession or under the
control of the Licensee have been destroyed or given to charity.
(g) Termination for any reason will not prejudice the rights of either
party to collect monies owed it by the other party hereunder or to prosecute
claims for damages against the other party.
12. Indemnification
Licensee hereby indemnities Licensor and holds it harmless from any
Costs and will defend Licensor against any Claims arising out of or in
connection with Licensee's performance under this agreement, and for copyright
infringement, patent infringement or unfair competition caused by or arising out
of the manufacture or sale of the Products. Licensor will similarly defend and
indemnify Licensee for claims of trademark infringement.
13. Exoneration from Responsibility for Manufacturing Errors
Neither Licensor nor its employees will have any responsibility for the
operation of the manufacturing facilities of Licensee contemplated under this
agreement, whether upon the recommendation of Licensor or otherwise.
14. Arbitration
Any controversy or dispute arising out of or in connection with the
Agreement, whether relating to its
13
<PAGE> 14
interpretation, performance, or termination may be submitted to arbitration by
any party and it so submitted , will be finally settled by arbitration conducted
in accordance with the rules of the American Arbitration Association then in
effect. Any such arbitration will take place in New Jersey. The decision of a
single arbitrator will be binding and conclusive upon the parties, their
successors and assignees, and the parties will comply with such decision in good
faith. Judgment upon the decision of the arbitrator may be entered in any court
having jurisdiction over the party to be charged. The parties may each seek and
the arbitrator may grant in additional to legal remedies equitable remedies
(including, without limitation, temporary restraining orders, injunctions,
preliminary or permanent and attachments) and each hereby consents to
jurisdiction over its legal person in the State and Federal Courts of New Jersey
for the purpose of enforcing such orders .
15. Construction
This agreement will be construed in accordance with the internal laws
of the State of New Jersey.
16. Independent Contractors
Nothing contained in this agreement will constitute Licensee the agents
or legal representatives of Licensor for any purpose whatsoever. Licensee is an
independent contractors with the rights granted hereunder and no others.
17. Assignment
This agreement may not be assigned in whole or in part by
14
<PAGE> 15
or Licensee without Licensor's prior written consent and any such purported
assignment will be void. Except as expressly provided herein, this agreement
will be binding upon and inure to the benefit of the parties hereto, their
successors and assigns.
18. Notices
All notices, requests, demands and other communications which are
required or may be given under this agreement will be in writing and will be
deemed to have been given if delivered personally or sent by certified mail,
return receipt requested, postage prepaid and addressed:
If to Licensor to:
Mr. Gay A. Mayer
MEM Company, Inc.
P.O. Box 928
Northvale, New Jersey 07647
and to:
Mr. Martin Greenfield
Tom Fields Ltd.
122 Union Street
Northvale, New Jersey 07647
with a copy to:
Dennis J. Helms, Esq.
Mathews, Woodbridge & Collins
Suite 306
100 Thanet Circle
Princeton, New Jersey 08540-3662
If to Licensee:
Mr. Mark Goldstein
Red Box Toy (USA) Inc.
401 Covert Court
Neshanic Station, New Jersey 08853
15
<PAGE> 16
with a copy to:
Mr. David Yip
Red Box Toy Factory Ltd.
1216 Peninsula Centre
Tsimshatsui East
Kowloon, Hong Kong
and a copy to:
Dennis J. Helms, Esq.
Mathews, Woodbridge & Collins
Suite 306
100 Thanet Circle
Princeton, New Jersey 08540-3662
or to such other addresses as may be furnished, from time to time, in writing,
by the parties hereto.
19. Miscellaneous
(a) This agreement contains all of the understandings of the parties
hereto and no provision of this agreement may be modified except in writing
signed by the parties hereto.
(b) The failure of any party to enforce any right hereunder will not be
deemed a waiver of any other right, whether of a similar nature or otherwise.
(c) If any provision of this agreement is declared void by any
arbitrator, court or administrative body of competent jurisdiction, the validity
of all other provisions which may nonetheless by given effect will not be
affected thereby.
IN WITNESS WHEREOF, the parties hereto have executed this
16
<PAGE> 17
agreement as of the day and year first above written.
ATTEST: TOM FIELDS LTD.
By: /s/ Martin K. Greenfield
- -------------------------- ----------------------------------
Martin K. Greenfield
Secretary President
[SEAL]
ATTEST: RED BOX TOY FACTORY LTD.
/s/ [signature illegible] By: /s/Yun Kuen Yip
- -------------------------- ----------------------------------
Yun Kuen Yip
Secretary Managing Director
[SEAL]
17
<PAGE> 18
SCHEDULE A
1. Nail Dryer
2. Nail Dryer and Organizer
3. Nail Dryer and Accessories
4. Tote
5. Executive Set
6. Curler Set
7. Soft Vinyl Organizer
8. Hair Styling Set with B/O Hair Dryer
9. Magic Wand
10. Doll Case
18
<PAGE> 1
------------------------------------------------------------------------------
COLLECTIVE BARGAINING AGREEMENT
BETWEEN
DANA PERFUMES CORP.
AND
OIL, CHEMICAL & ATOMIC WORKERS INTERNATIONAL UNION
AFL-CIO
AND
ITS LOCAL UNION NO. 8-782
FEBRUARY 24, 1996
TO
FEBRUARY 26, 1999
------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I INTENT AND PURPOSE....................................1
ARTICLE II RECOGNITION...........................................1
ARTICLE III UNION SECURITY........................................2
ARTICLE IV CHECKOFF..............................................3
ARTICLE V REPRESENTATION........................................4
ARTICLE VI ADJUSTMENT OF GRIEVANCES..............................5
ARTICLE VII OBLIGATION OF THE PARTIES.............................7
ARTICLE VIII SENIORITY.............................................7
ARTICLE IX HOURS AND OVERTIME...................................15
ARTICLE X SHIFT DIFFERENTIAL...................................17
ARTICLE XI HOLIDAYS.............................................18
ARTICLE XII VACATIONS............................................19
ARTICLE XIII DISCHARGE OR DISCIPLINE..............................23
ARTICLE XIV NO STRIKE - NO LOCKOUT...............................23
ARTICLE XV RIGHTS OF MANAGEMENT.................................23
ARTICLE XVI SAFETY AND SANITATION................................23
ARTICLE XVII LEAVES OF ABSENCE....................................24
ARTICLE XVIII WAGES................................................25
ARTICLE XIX REPORTING PAY AND CALL IN PAY........................26
ARTICLE XX INSURANCE............................................26
i
<PAGE> 3
Page
----
ARTICLE XXI NOTICE...............................................29
ARTICLE XXII BULLETIN BOARD AND UNIFORMS..........................29
ARTICLE XXIII PENSION PLAN.........................................30
ARTICLE XXIV MODIFICATION OR CHANGE IN AGREEMENT..................30
ARTICLE XXV SICK LEAVE...........................................31
ARTICLE XXVI JURY DUTY............................................31
ARTICLE XXVII 401K PLAN............................................32
ARTICLE XXVIII SEVERANCE PAY........................................32
ARTICLE XXIX TERM OF AGREEMENT....................................32
SCHEDULE "A"....................................................35
SCHEDULE "B"....................................................36
SCHEDULE "C"....................................................38
EXHIBIT A .....................................................39
COMPANY WORK RULES..............................................47
ii
<PAGE> 4
Exhibit 10.155
COLLECTIVE BARGAINING AGREEMENT
THIS COLLECTIVE BARGAINING AGREEMENT entered into this 1st day
of March, 1996, by and between DANA PERFUMES CORP., its successors and assigns,
a Delaware corporation having its plant at Crestwood Industrial Park,
Mountaintop, Pennsylvania, hereinafter referred to as "Employer," and OIL,
CHEMICAL & ATOMIC WORKERS INTERNATIONAL UNION, AFL-CIO and its LOCAL UNION
8-782, hereinafter collectively referred to as "Union."
W I T N E S S E T H :
WHEREAS, THE UNION IS THE EXCLUSIVE BARGAINING AGENT FOR ALL
PRODUCTION AND MAINTENANCE EMPLOYEES EMPLOYED AT THE EMPLOYER'S PLANT AT
CRESTWOOD INDUSTRIAL PARK, MOUNTAINTOP, PENNSYLVANIA, EXCLUDING GUARDS, CLERICAL
EMPLOYEES, EXECUTIVES AND SUPERVISORS, AS DEFINED IN THE ACT;
NOW, THEREFORE, THE EMPLOYER AND THE UNION DO HEREBY AGREE TO
THE FOLLOWING:
ARTICLE I
INTENT AND PURPOSE
It is the objective of the parties to this Agreement that the
obligation of the Employer for the successful operation of its business and the
fulfillment of its responsibilities to its employees be carried on without
interference arising from differences between the parties.
Therefore, it is their intent to set forth herein their
agreement with respect to rates of pay, hours of work, and conditions of
employment to be observed by the Employer, the Union, and the employees covered
by this Agreement; to provide procedures for a fair and equitable adjustment of
grievances; to stabilize employment by preventing lockouts, interruptions of
work, work stoppages, strikes, boycotts, or other interferences with the
operations of the Employer during the lifetime of this Agreement; to develop
plant efficiency and growth; and to promote harmonious relations between the
Employer, its employees, and the Union.
<PAGE> 5
2
ARTICLE II
RECOGNITION
SECTION 1. The Employer recognizes the Union as the sole and
exclusive bargaining agent in all matters relating to rates of pay, wages,
hours, and conditions of employment for all of its production, shipping
warehousing, and maintenance employees, excluding executives, professional and
clerical employees, chemists, experimental, developmental, and laboratory
employees, guards and all supervisors as defined by the National Labor Relations
Act, as amended, at its plant at Crestwood Industrial Park, Mountaintop,
Pennsylvania, or any expansion thereof within a radius of fifteen miles. It is
understood that said unit is separate and distinct from any other operation of
this or any affiliated company elsewhere.
SECTION 2. Supervisory employees shall not be permitted to
perform work covered by the terms of this Agreement except in the following
types of situations: (1) when qualified employees are not available, (2) in the
instruction of employees, (3) when relieving employees for urgent or special
work, (4) when relieving employees during relief periods in order to continue
normal production flow, (5) when testing new equipment, processes, products or
methods of manufacture, and (6) in emergencies.
SECTION 3. It is the continuing and recognized policy of the
Company and the Union that the provisions of this Agreement shall be applied
fairly in accordance with those federal and state employment laws relating to
race, color, religious creed, sex, age and national origin, and there shall be
no discrimination by the Company or the Union on account of such factors.
Whenever the term "his" is used throughout this Agreement, it shall refer
interchangeably in compliance with the aforesaid policy to male or female.
ARTICLE III
UNION SECURITY
SECTION 1. All employees in the bargaining unit as described
above shall, as a condition of employment, become and remain members of the
Union in good standing 30 calendar days after their employment commences.
SECTION 2. Members in "good standing" is defined as a Union
Member who has paid his dues and initiation fees.
SECTION 3. Temporary employees' hiring period not to exceed
120 working days, except for students currently enrolled in High School or
College, who are exempt from any limitations. The term "employee" shall be
defined as persons in the
<PAGE> 6
3
bargaining unit as described in Article II herein but excluding casual or
temporary employees, or employees hired for a specific period, which period
shall not exceed 120 working days. The Employer shall notify the Union as well
as the employees when employment is on a temporary basis. In the event the
Company intends to retain any of such employees on a permanent basis, it will
notify the Union of such intention on or before the 90th working day of said
employee's employment and such temporary employment shall be deemed the
probationary period of such employee. If the employee becomes permanent, he
shall be given seniority from his first day of last hire. This right to hire
temporary employees shall not be used to displace regular employees and the
120-day period shall be the aggregate of all days worked during the six months
following his last hire.
SECTION 4. Temporary employees shall not be rehired as such
within six (6) months of the day of their last separation. Should they, however,
be hired as permanent employees withing the six (6) month period following their
last separation, time spent as a temporary employee during the preceding six (6)
month period shall be deemed probationary service. Seniority of such employee,
however, shall commence with the day of his hire as a permanent employee.
SECTION 5. Temporary and probationary employees shall, after
30 calendar days of employment, be obligated to pay the Union an agency fee
equal to the monthly dues of Union members.
ARTICLE IV
CHECKOFF
SECTION 1. Upon receipt of a signed written authorization from
its employees, the Employer will deduct from the employee's wages the Union
initiation fee, agency fee, or monthly dues provided for in said authorization,
as follows:
(a) For those employees hired on a permanent basis, the
Employer will deduct the amount of the initiation fee from the first pay due
said employee after said employee has completed his sixty (60) calendar day
probationary period as provided in Article III herein.
(b) For those employees hired on a temporary basis, the
Employer will deduct the amount of the initiation fee from the first pay due
said employee after said employee has attained permanent status as provided in
Article III herein.
(c) The Employer will deduct the monthly Union dues for
employees so authorizing their deduction in the second pay period of each month.
<PAGE> 7
4
(d) The Employer will deduct the monthly Union agency fee for
all employees so authorizing their deduction in the second pay period of each
month.
(e) Amounts deducted, as provided for above, shall promptly be
remitted to the Secretary of the Union.
SECTION 2. The checkoff authorization shall be irrevocable for a period
of one (1) year of the termination date of the contract then in effect, which
ever occurs sooner. In the event it automatically renews itself, it shall be for
further periods of one (1) year or the termination date, of the contract then in
effect, which ever occurs sooner; provided, the employee shall have the right to
revoke the checkoff authorization not more than twenty days and not less than
ten days prior to the expiration of any irrevocable period by giving written
notice to the Company and the Union within such period. The form of the
authorization shall be in accordance with the existing Federal and State Labor
Laws and substantially as set forth in Exhibit "A" hereto attached.
SECTION 3. The Union will indemnify and save the Employer harmless
against any and all suits or other forms of liability which shall arise upon or
by reason of action taken by the Employer for the purpose of complying with this
Article.
ARTICLE V
REPRESENTATION
SECTION 1. There shall be a negotiating committee consisting of not
more than six (6) persons, one of whom shall be the President of the Union, two
of whom shall be members of the production department, one of whom shall be from
the maintenance department or receiving-warehousing department, one of whom
shall be from the shipping department and one of whom shall be from the second
shift.
SECTION 2. There shall be a grievance committee for the Union selected
by it, consisting of not more than four (4) members in the bargaining unit.
SECTION 3. The Union agrees for itself and its members that time spent
in the processing of grievances will be bona fide for the processing of
legitimate and not frivolous grievances and not for the purpose of harassing or
impeding operations of the Employer. Moreover, it agrees that time spent in the
processing of grievances will be at a time which is mutually convenient to the
Employer and the grievance committee.
SECTION 4. The Employer and the Union agree that neither will
discriminate against any employee because of his Union membership or because of
his Union activities, provided such activities are not in violation of any part
of this
<PAGE> 8
5
Agreement; nor shall any officer or member of the Union attempt to coerce or
intimidate a member or employee of the Company.
SECTION 5. Each department shall have a steward selected by
the employees in that department. Any grievance advanced by an employee may be
taken to his department steward as hereinafter provided who will, to the best of
his ability, attempt to settle such complaint with the immediate supervisor of
the employee advancing the grievance. The department steward shall have no
authority to act on grievances outside of his own department.
ARTICLE VI
ADJUSTMENT OF GRIEVANCES
SECTION 1. Should any grievance or dispute arise between the
Employer and the Union or any of its members, as to the interpretation of or
compliance with the provisions of this Agreement, there shall be no work
stoppage, shutdown, strike, suspension or interruption of work on the part of
the Union or lockout on the part of the Employer on account of such grievance or
dispute, but an earnest effort shall be made to settle such matter promptly in
accordance with the procedure set forth in the Article as follows:
STEP ONE: Within two working days after the occurrence of the
facts alleged to constitute a grievance, the aggrieved employee may present and
discuss his grievance with his supervisor. Said employee may be accompanied by
his department stewards if he so desires and said employee may discuss the
grievance during working hours.
STEP TWO: If no settlement is reached in Step One above, the
aggrieved employee may refer the grievance in writing to his department
superintendent within three days from the date on which his complaint was
rejected by his supervisor. Such appeal must be in writing, submitted on forms
as agreed upon by the parties hereto, and shall be dated and signed by the
employee and his department steward. The written grievance shall set forth the
complete statement of the material facts and specific section or sections of
this Agreement allegedly violated and the relief sought. Such appealed grievance
shall be discussed at a mutually convenient time between the department
superintendent or his designated representatives. Such meeting shall be held
within five days from the date of filing the appeal. Either party may call
witnesses. The answer of the Employer shall be in writing and shall be three
workdays from the date of the meeting.
<PAGE> 9
6
STEP THREE: If no settlement is reached in Step Two above, the
President of the Union may serve written notice of appeal upon the PLANT MANAGER
of the Employer within five workdays after the Employer's answer in the above
Step has been supplied. Within ten workdays of said appeal the plant manager and
his designated representatives shall confer with members of the grievance
committee at a mutually convenient time and place which may be attended by the
International Union Representative, the aggrieved employee, and his department
steward. The total number of Union representatives and the aggrieved employee
shall not exceed five. the answer of the Employer shall be made within five
workdays after said meeting and shall be in writing.
STEP FOUR: In the event such grievance by the employee is not
settled in a manner satisfactory to the Union or the Company in the above Step,
then either party shall have the right to submit such grievance to arbitration
for final and binding decision. The party deciding to do so shall notify the
other party in writing of its intentions to arbitrate within ten workdays after
the decision in the above Step. The parties may mutually agree in writing to
extend said period.
SECTION 2. SELECTION OF ARBITRATOR. In the event a grievance
is referred to arbitration, the parties shall endeavor to mutually agree upon an
arbitrator. Should they fail to do so within five days of the notice of intent
to arbitrate as above, then either party may request the appointment of an
arbitrator pursuant to the rules of the F.M.C. Service then appertaining.
SECTION 3. ARBITRATOR'S DUTIES. Except to the extent as
provided in Article XVIII, Section 3, the arbitrator shall have no authority to
add to, subtract from, or in any way change or modify the terms of this
Agreement, including the rates of pay herein established, or to decide issues
that are not the subject matter of this Agreement. His fee and expenses shall be
shared equally between the parties to this Agreement. He shall render his
decision within twenty-one calendar days after the close of the hearing.
SECTION 4. The arbitrator shall not have the authority to
decide whether there was in fact a wildcat strike, slowdown, interruption or
picketing in violation of Article XIV of this contract and any remedies or
actions by the Employer for a violation of Article XIV may be determined by an
action in the appropriate court of law or by proceedings before the National
Labor Relations Board; provided, however, that should any strike or work
stoppage occur without the Union's consent, it will endeavor in good faith upon
receipt of written notice from the Employer to bring about the immediate return
to work of its members who have stopped working, and compliance by the Union in
good faith with this provision shall relieve it from damages for any
unauthorized strike. In addition, the arbitrator shall not have the authority to
decide disputes that are not submitted during the life of this contract or
matters that are not presented by the Union as a party or by the Employer as
hereinafter provided.
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SECTION 5. The parties recognize that many operations in
manufacture and distribution of the Company's products are performed by
contractors and by other companies and that its right to have such production or
distribution performed elsewhere shall not be curtailed and shall not be subject
to arbitration.
SECTION 6. The Employer shall have the right to present
grievances to the Union. The procedure for the presentation of said grievances
shall begin with Step Three above, and shall be adopted for said purpose.
SECTION 7. Grievances not appealed after the last answer shall
be deemed settled on the basis of such answer. If there is not compliance by the
Employer within the allotted time at any of the Steps of the grievance
procedure, the employee may in that event proceed to the next Step in the
grievance procedure.
ARTICLE VII
OBLIGATION OF THE PARTIES
SECTION 1. The Union, its officers, representatives, members,
and all employees represented by it, bind themselves to observe the provisions
of this Agreement.
SECTION 2. The Company, its officers, and representatives,
also bind themselves to observe the provisions of this Agreement.
ARTICLE VIII
SENIORITY
SECTION 1. Seniority shall be defined as an employee's length
of continuous service from the last date of hiring with the Employer and shall
be calculated upon a plant-wide basis. In determining an employee's length of
continuous service for seniority purposes, said employee shall receive one
credit for each workweek of continuous service consisting of five (5) hour daily
shifts and 1.6 credits for each workweek of continuous service consisting of
eight (8) hour daily shifts. The accumulation of such credits shall constitute
the employee's seniority. Credits for employees while on layoff, leave of
absence, or other time off not constituting a break in continuous service as
hereinafter defined, shall be based upon the daily shift to which the employee
was regularly assigned prior to layoff, leave of absence, etc. In the event two
or more employees shall have the same accumulation of seniority credits, the
employee with the earliest date of continuous service shall be considered more
senior. In the event
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two or more employees shall have the same accumulation of seniority credits and
the same date of continuous service hire, the employees shall be ranked in
accordance with the alphabetical order of their last names.
SECTION 2. CONTINUOUS SERVICE. Continuous service shall be
calculated from the date of first employment with the Employer, or re-employment
following a break in continuous service. Continuous service shall be broken by:
(a) Quit.
(b) Discharge for just cause.
(c) Absence from work for a period of 72 hours
without permission unless such absence is due to a bona fide illness or injury
and the employee has notified the plant switchboard or the employee's department
superintendent of such sickness or injury promptly.
(d) Failure to report to work within twenty-four
hours after the expiration of a leave of absence granted by the Employer.
(e) Failure to return to work within five (5) days
after delivery by mail of a written notice by the Employer to the employee's
last address appearing on its records, unless the employee gives a reasonable
excuse for failure to report to work, provided that no claim for retroactivity
shall arise if the Employer calls in another employee temporarily. It shall be
the duty of the employees to furnish to the Employer their last known address
and telephone number.
(f) Absence due either to layoff or disability for a
continuous period of more than eighteen months, except that absence due entirely
to a compensable injury received in the course of an employee's employment by
the Employer and recognized by its insurance carrier or the Workman's
Compensation Bureau as compensable, shall not, to the extent of the period for
which such statutory compensation is payable, be included in the computation of
the said 18-month period. The Employer shall be relieved of all and any
liability under this section in the event of a decision of the Workman's
Compensation Bureau holding an employee ineligible is subsequently reversed,
overruled, or changes so as to allow compensation.
SECTION 3. The following shall be recognized departments:
a. Production
b. Shipping
c. Maintenance
d. Receiving and Warehousing
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SECTION 4. POSTING OF SENIORITY LIST. The Employer shall post
a seniority list within 30 days after the signing of this Agreement and will
keep such list reasonably up-to-date. When the seniority of an employee is
terminated by the Employer, written notice thereof shall be given to the
employee involved and the Union. If any employee disputes his position on the
seniority list, he shall register his protest in writing within five (5) working
days after said list has been posted. The matter will then be settled by both
the Employer and the Union or submitted to arbitration in accordance with the
provisions of this Agreement. In the event an employee does not protest his
position on the seniority list within five (5) working days after it has been
posted, he shall be deemed to have accepted his position as stated by the
Company, unless there is a clerical error in which event it shall be promptly
corrected upon discovery. An employee on vacation at the time that the seniority
list is posted shall have five (5) working days upon his return from vacation to
make a protest concerning the seniority list. Simultaneously with the posting of
the seniority list, a copy shall be tendered to the Secretary of the Union.
SECTION 5. PROBATIONARY EMPLOYEES. All new employees hereafter
employed and those hired after a break in continuous service shall be regarded
as probationary employees for the first 60 calendar days after their employment
commences and they shall receive no continuous service credit during this
probationary period. Whether they shall be laid off or discharged during this
probationary period is to be exclusively determined by the Employer. At the
expiration of the probationary period, such employee shall then be placed on the
seniority list retroactive to the date of his last hire.
SECTION 6. TEMPORARY EMPLOYEES. Casual or temporary employees
shall not be placed on the seniority list and they may be laid off or discharged
in the exclusive discretion of the Employer. Said employees may be hired to fill
positions in wage grade (1) or wage grade (5) as more particularly set forth in
Schedule "B" attached hereto and made a part hereof and shall be ineligible to
fill positions in wage grades greater than the wage grade in which they are
hired unless there are no permanent employees who desire said positions.
SECTION 7. (a) Seniority shall be recognized for the purposes
of layoffs, recalls and job vacancies. It shall be applied on a plant-wide basis
according to the physical fitness, ability and efficiency of the employee to
perform the job, it being understood that length of service shall be the
governing factor when physical fitness, ability, and efficiency to perform the
job are relatively equal. Because of the Company's responsibility for the
operation of the plant, it shall judge a person's physical fitness, ability and
efficiency for the job, it being understood that the Company, in exercising its
judgment, shall not act in an arbitrary and capricious fashion. Any employee
feeling aggrieved by the Company's decision in this regard may submit the
question of whether or not the Company acted in an arbitrary and capricious
fashion in exercising its
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judgment under the terms of this Section 7(a) to arbitration pursuant to the
grievance procedure contained in Article VI herein.
(b) In the event of any layoff in a department,
probationary and temporary employees will be laid off first. In temporary
layoffs, that is, layoffs of five work days or less, because of material or
mechanical failures, Act of God, or other circumstances beyond the control of
the Employer, regular employees need not be laid off according to seniority
provisions in this Section. In case of a layoff in excess of five workdays, the
seniority provisions of this Article shall be observed. The Company shall
provide a minimum of three workdays' notice for a layoff in excess of five
workdays. After a layoff has been posted, at the beginning of the third day the
Personnel Office will canvas the employees being laid off and have them verify
whether they choose to bump or accept a layoff. Said notice shall be posted on
the bulletin board and a copy given to the Secretary of the Local Union. Said
notice shall also be given to those employees whose jobs are being shut down.
(c) In case of a layoff in excess of five workdays,
except as provided in Section 7(d) herein, the Company will displace, bump, or
lay off an employee in the order of plant-wide seniority, taking into
consideration the physical fitness, ability and efficiency of the employee to
perform the job as indicated above. The employee who is displaced, bumped, or
laid off shall be entitled to bump a less senior employee once as follows:
STEP ONE: A less senior employee in any job classification on
any shift in the same rate grade, or
STEP TWO: A less senior employee in any job classification on
any shift in a lower rate grade, or
STEP THREE: A less senior employee in any job classification
on any shift in a higher rate classification, provided that the laid-off
employee has previously held the higher classification for a period or 90 days
within the past three (3) years, and if he can perform -- in the judgment of
management -- all of the duties of the job at the time of the bumping procedure,
the time limits shall not apply to jobs rated grade 5 and below.
An employee who has bumped shall immediately receive the basic
hourly rate for the job to which he was bumped.
If there shall be a layoff of
"Special-picker-packer-checkers," or "Export-Special-picker-packer-checkers,"
Special-picker-packer-checkers shall be laid off first by seniority.
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(d) The provisions of Section 7(c) of this Article
shall not permit an employee who is not within the following classifications to
bump into said classifications:
1. Maintenance Mechanic
2. Technical Mechanic
3. Batch Mixer, all classes
4. Export-Special-picker-packer-checker
Bumping within the above-listed classifications shall be
governed by Section 7(e) of this Article.
(e) Providing they have greater seniority, only a
Batch Mixer Class A may bump a Batch Mixer Class B.
A Special-picker-packer-checker may not bump an
Export-Special- picker-packer-checker.
Except its otherwise provided in this Section 7(e), employees
in the classifications listed in Section 7(d) of this Article shall be entitled
to bump in accordance with Section 7(c) of this Article.
(f) In all cases of layoffs, promotions, transfers,
recalls, job vacancies, or demotions, an employee's physical fitness, ability
and efficiency to perform the job and for which he can be readily trained may be
determined by the Company by the administration of tests. Such tests shall be
reasonable, fairly related to the job, and in those cases where two or more
employees have attained a passing grade, the employee with the greater seniority
shall be given the job. The Company will permit the Chief Steward and/or the
President of the Union to review test results, but it is agreed that such
results shall be kept confidential and revealed only to the employees who took
the test.
(g) Except as provided by law, there shall be no
discrimination in pay between male and female employees for equal work on jobs
providing there is equality in quantity and quality of work and the performance
of which requires equal skill, effort, responsibility, and which is performed
under similar working conditions.
SECTION 8. TRANSFERS. (a) To assure a more permanent
employment and efficiency of plant operations, and meet the fluctuations and
requirements of business, it is agreed that in the discretion of the Employer,
the duties of the employees in the various classifications shall be
interchangeable with each other and the Employer shall be free to transfer and
assign employees from one department and job to another as required by operating
needs. If two persons are available to go to a special assignment, seniority
shall prevail.
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(b) Except as provided in Section 8(c) below, an
employee transferred from one job to another with a higher rate should be paid a
minimum of four (4) hours at the higher rate. Any hours in excess of four (4)
hours shall also be paid at the higher rate until that person is transferred
back to his regular job. An employee transferred to a job with a lower rate
shall continue to receive the higher rate.
(c) An employee transferred to work on returns and
reconditioning merchandise or an employee transferred to work in conjunction
with the Production Line Coordinator who does not perform the complete job
duties and responsibilities of the Returns and Reconditioning Clerk or
Production Line Coordinator, as the case may be, shall receive the following
applicable rate:
(i) If the rate for the employee's regularly
assigned job is higher than the rate for the Returns and Reconditioning
Clerk, if assigned to work on returns and reconditioning merchandise,
or the Production Line Coordinator, if assigned to work in conjunction
with said employee, said assigned employee shall receive the rate of
his regularly assigned job.
(ii) If the rate for the employee's regularly
assigned job is lower than the rate for the Returns and Reconditioning
Clerk, if assigned to work on returns and reconditioning merchandise,
or the Production Line Coordinator, if assigned in conjunction with
said employee, said assigned employee shall receive a rate for said
work equal to the rate of his regularly assigned job plus fifty (50%)
percent of difference between the rate of his regular assigned job and
the rate of the Returns and Reconditioning Clerk, or Production Line
Coordinator, whichever is applicable.
(d) Transfers of Group Leaders within a department --
when a Group Leader is transferred within his/her own department to a different
job classification for the purpose of filling in for someone who is absent or on
vacation, that person will carry the rate of the higher of the new
classification or his/her permanent classification, plus his/her Group Leader
pay.
For the purposes of these transfers only, the following shall
be considered separate departments: Production, Receiving, Maintenance, Return
Goods, Shipping, Maceration, and Production Maintenance.
SECTION 9. SUPER-SENIORITY. With respect to layoffs and
recalls only, the President, Financial Secretary, shall have the highest
seniority during their tenure of office, provided he or she has at least one
year's seniority with this Company.
SECTION 10. VACANCIES AND NEW JOBS. A vacancy is defined as a
job opening in an existing job classification where an employee's employment
relationship in
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the job with the Employer is terminated for any reason whatsoever. The Union
shall have the right to submit to arbitration the question of the reasonableness
of the qualifications established by the Company. A new job is defined as a job
opening resulting from the creation of a new workstation. The decision whether
or not to fill a vacancy shall be at the sole discretion of the Employer.
The vacancy or new job shall be posted by the Employer for
three working days and shall contain the department, job title, job duties,
qualifications, and rate of pay. All employees desiring to bid for such jobs
shall place their names on the forms provided and deposit same in the locked box
in the place of posting within said three days and the Employer shall award the
job in accordance with the factors hereinbefore set forth in this Article. An
employee awarded a job must perform said job for the minimum trial period as set
forth in Schedule "A" attached hereto and made a part hereof.
If no employees bid for the job vacancy or the new job, or
there are no acceptable applications, the Employer shall have the right to fill
the job by assignment, if agreeable to the employee, or the hiring of an
employee from outside the plant.
An employee who successfully bids for a new job or vacancy
shall not be allowed to bid for another job or vacancy carrying a lower rate for
two (2) years. Said employees shall not be allowed to bid for a job or vacancy
of equal rate of pay in another department for one (1) year, and within said
employee's department, another job or vacancy of equal rate pay for one (1)
year.
An employee who successfully bids a vacancy or a new job shall
have a trial period as set forth in Schedule "A" attached hereto and made a part
thereof, to obtain average, consistent, normal production. If he or she does not
maintain such consistent, average, normal production, then such employee shall
be returned to his or her former job and Employer shall have the right to fill
the job by assignment, if agreeable to the assigned employee, or hire an
employee from outside the plant. An employee who successfully fills a vacancy or
a new job in another department shall, after the maximum trial period as
provided in Schedule "A," transfer all of his plant seniority.
A "temporary vacancy" shall be defined as a vacancy which is
scheduled by the Company to exist for one hundred twenty (120) calendar days or
less, and involves a job classification in a wage grade which carries a higher
rate of pay than wage grade (5). In the event that a temporary vacancy arises,
it shall be offered, in the normal bidding process contained herein, to
permanent employees plant-wide, all of which must be in a grade or
classification lower than the grade or classification of the vacancy. If no
permanent employees bid for the job, then the Company shall be free to fill the
vacancy by transferring a permanent employee, transferring a temporary employee,
or hiring a new employee.
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SECTION 11. TERMINATION OF SENIORITY. An employee shall lose
all seniority and he or she shall be considered a new employee if ever
re-employed, for any one of the following reasons:
1. Failure to become a member of the Union in
accordance with the provisions of Article III, Section 1.
2. Justifiable discharge.
3. Absence from work for a period of 72 hours without
permission unless such an absence is due to a bona fide illness or injury and
employee has promptly notified the Employer of such disability.
4. Voluntary quitting.
5. Accepting employment while on leave of absence, or
violating the terms of his leave of absence.
6. In the event a layoff continues for a period in
excess of eighteen months.
7. If after being laid off the employee does not
return to work, as notified, within five days after delivery by mail of written
notice to his address appearing on the Employer's records, unless he is unable
to return within said period because of a bona fide illness or injury supported
by a doctor's certificate, if required by the Employer, in which case his recall
period shall be extended for the period of his illness or injury, not to exceed
a period of six months.
8. If he or she gives a false reason for obtaining a
leave of absence.
It shall be the responsibility of each employee at all times
to keep the Employer informed of his or her latest address and telephone number.
SECTION 12. SENIORITY-SUPERVISORY. When an employee is
selected by the Employer to be a supervisory or clerical employee outside the
bargaining unit, a supervisory employee shall have nine months and a clerical
employee three months during which the employee may voluntarily return or be
returned by the Employer to the bargaining unit. During this period, seniority
shall accumulate and the employee so selected will be subject to a checkoff of
dues. After the period has expired, such employee shall lose all his seniority
rights under the contract and he or she shall be discharged from Union
membership and the obligation to such person on the part of the Union shall
cease.
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SECTION 13. If an employee is required to perform military
service under the laws of the United States of America, or voluntarily enters
into such military service to perform his duty in lieu of draft, his seniority
shall continue to accumulate for the duration of his required tour of duty. Any
employee reenlisting after performing his original duty call as aforesaid shall
lose all seniority rights under this Agreement.
SECTION 14. It is understood and agreed that the deletion of
the mandatory requirement of a doctor's certificate in Article VIII, Section
2(c), in Article VIII, Section 11(3), is not intended to diminish the
obligations of the employee otherwise specified in those sections. It is further
understood that a doctor's certificate will be required when, in the opinion of
the medical personnel of the Company, there is a threat to the safety and health
of the employee returning to work or to other employees. It is further
understood and agreed that the Company will exercise its right to establish and
enforce reasonable rules of attendance.
SECTION 15. RECALL. In the event of a recall after a layoff as
described in Paragraph 7(c) herein, the Company shall offer the opportunity for
recall in the order of greatest plant-wide seniority first among those employees
who are on layoff and those who are not in their regular classification as a
result of exercising the right to bump on layoff taking into consideration the
physical fitness, ability and efficiency of the employee to perform the job.
ARTICLE IX
HOURS AND OVERTIME
SECTION 1. Eight hours, exclusive of lunch periods, shall
constitute a normal day's work. Forty hours shall constitute a normal workweek
made up of five consecutive days, Monday through Friday inclusive, except for
maintenance, utility and porter classifications whose normal workweek shall be
any five consecutive days. The lunch period shall consist of 30 minutes, which
shall be without pay.
SECTION 2. Time and one-half the regular rate shall apply on
all work performed by the employee in excess of forty hours in any one week and
eight hours in any one day. No employee, however, will be paid overtime twice
for the same hours of work. Except for such employees whose regular workweek
includes Saturday and/or Sunday, the Employer will pay time and one-half the
regular rate of pay for work on Saturday and two times the regular rate of pay
for work on Sunday, provided that the employee working on Saturday has not
absented himself from work scheduled during the workweek for reasons other than
an industrial accident occurring in the plant, or a bona fide sickness, or leave
of absence as set forth in this Agreement.
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SECTION 3. A "workday" is deemed as a twenty-four hour period
beginning with each employee's starting time. A "workweek" begins with the first
shift on Monday morning and ends on the last shift beginning Sunday evening. An
employee shall be considered a first-shift employee if a majority of his
regularly scheduled working hours fall during the regularly scheduled first
shift. A second-shift employee shall be one for whom a majority of his regularly
scheduled working hours shall fall during the regularly scheduled second shift.
A third-shift employee shall be one for whom a majority of his regularly
scheduled working hours shall fall during a regularly scheduled third shift.
SECTION 4. All work performed on the recognized holidays
hereinafter provided shall be compensated for on the basis of time and one-half
the regular rate in addition to the holiday pay.
SECTION 5. In the event an employee is required to work beyond
his or her normal workday, all hours worked in excess of nine hours in one day
shall be at the option of the employee. In the event an employee is required to
work overtime hours on Saturday, he or she shall have not less than one day's
notice except for maintenance, utility and porter employees. Overtime worked on
Sundays and holidays shall be at the option of the employee except for
maintenance, utility and porter employees. As far as is possible, overtime on
Saturdays shall be on a voluntary basis; provided, however, that if the
complement of employees cannot be filled on a voluntary basis, the Company shall
have the right to require the performance of said overtime by the least senior
qualified employees who are capable of doing the particular work involved.
SECTION 6. When there is overtime work, insofar as it is
practicable, it shall be divided as equally as possible among the permanent
employees in the same classification. Temporary or casual employees shall not
perform overtime work in a department if there is an available permanent
employee in that department capable of performing the work.
SECTION 7. OVERTIME IN A SPECIFIC JOB CLASSIFICATION. (a) A
department which has overtime work in a specific job classification will offer
the overtime in accordance with the following:
1. Firstly, to employees currently working
in that job classification in that department;
2. If the Employer needs additional
employees, it will solicit all other employees within that department,
in order of plant seniority;
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3. If the Employer needs additional
employees, it shall then offer the overtime to the employees with the
most plant-wide seniority who is currently working in the specific job
classification in any other department;
4. If the Employer requires additional
employees, it shall then offer the overtime to all employees,
regardless of classification, taking into consideration plant-wide
seniority and distribution of overtime as equally as possible.
(b) It is understood that, in performing the job, the
employee shall receive the overtime pay rate of his regular classification or
the overtime rate of the job being performed, whichever is greater.
(c) If the Employer shall violate the provisions of
this Section 7, the remedy of the employee shall be for that employee to be
given the opportunity to perform the next available overtime assignment. We will
try to equalize the total hours of overtime by combining several assignments if
necessary.
ARTICLE X
SHIFT DIFFERENTIAL
SECTION 1. Eight-hour shift employees working on the second
shift as hereinafter provided shall receive a differential or premium of
Twenty-five ($.25) cents per hour for each hour worked on such shift. An
eight-hour shift employee working on the third or night shift as hereinbefore
provided shall receive a differential or premium of Thirty ($.30) cents per hour
for each hour worked on such shift.
SECTION 2. An employee scheduled for the first shift who
completes his regular eight-hour turn and continues to work into the second
shift period shall not receive the second shift differential premium but only
such premium rate for overtime as hereinbefore provided in Article IX of this
contract.
SECTION 3. An eight-hour shift employee regularly scheduled
for work on the second shift who completes his regular eight-hour turn and
continues to work into the third shift shall be paid the second shift
differential, namely, Twenty-five ($.25) cents for all hours worked on the third
shift. An eight-hour shift employee regularly scheduled for work on the third
shift who completes his regular eight-hour turn and continues to work into the
day shift shall be paid the third-shift differential, namely, Thirty ($.30)
cents per hour for all hours worked on the day shift under such circumstances.
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SECTION 4. The permanent eight-hour second- and third-shift
employees are to receive shift differential in their vacation pay, holiday pay
and sick pay.
If an employee is called in before the start of his normal
shift during the employee's normal workweek, all hours worked during that
workday both before and after the employee's normal shift time will be
compensated in accordance with the shift differential normally associated with
the employee's regular shift. If an employee is scheduled to work on other than
his regularly scheduled workday, the shift differential which shall apply will
be determined in accordance with this Section, namely, where the majority of the
employee's hours fall with respect to the normally scheduled shifts.
ARTICLE XI
HOLIDAYS
SECTION 1. The following holidays shall be observed and all
permanent employees shall receive one day's pay therefor at their straight time
rate, provided they meet the eligibility requirements provided herein:
1. New Year's Day
2. Floating Holiday
3. Good Friday
4. Memorial Day
5. July 4th
6. Labor Day
7. Thanksgiving Day
8. Friday after Thanksgiving
9. The regularly scheduled workday immediately prior to
Christmas Day
10. Christmas Day
11. The regularly scheduled workday immediately prior to
New Year's Day
NOTE: Employees must give at least 48 hours' notice when requesting the floating
holiday.
SECTION 2. To be entitled to holiday pay, the employee shall
be on the payroll in excess of 30 calendar days since his date of last hire and
shall have worked at least one day during a period of time measured by the
workweek immediately before the workweek in which the holiday falls and the
workweek immediately after the holiday falls, and he shall have worked his last
scheduled workday prior to and his next scheduled workday after such holiday,
unless absent for a bona fide sickness. If an employee is laid
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off during the holiday week, the requirement that he or she shall work the next
scheduled workday after the holiday shall be waived.
SECTION 3. If any of the foregoing holidays falls on a Sunday
it shall be observed on the following Monday. If any of the foregoing holidays
falls on a Saturday it may be observed on the preceding Friday or following
Monday at the option of the Employer, provided that the Union is given 21 days'
notice of said selection.
ARTICLE XII
VACATIONS
SECTION 1. An employee who meets the eligibility requirements
as set forth in this Article shall be entitled to a vacation for which a
vacation allowance shall be paid in accordance with the following schedule:
(a) An employee who has been employed less than one
(1) year and who is working during the pay period of June 30 shall be entitled
to one (1) day's vacation for each ten (10) weeks of continuous service prior to
June 30, provided he has earnings in each of said weeks, for which a vacation
allowance shall be paid of .4 percent of his annual earnings as defined in
Section 11 of this Article or the employee's straight time rate achieved at the
time of the vacation, whichever is greater, for each of said days of vacation.
(b) Upon completion of one (1) year of continuous
service but less than two (2) years of continuous service with the Company on
June 30th, an employee will become entitled to a vacation for which a vacation
allowance will be paid as follows:
(1) One (1) week's vacation for which a
vacation allowance shall be paid of two (2%) percent of his annual
earnings as defined in Section 11 of this Article or the employee's
regular workweek hours multiplied by the employee's straight time rate
achieved at the time of the vacation, whichever is greater, and
(2) One day's vacation for each ten (10)
weeks of continuous service in excess of one year prior to June 30th
for which a vacation allowance shall be paid of .4 percent of his
annual earnings as defined in Section 11 of this Article or employee's
regular shift hours multiplied by the employee's straight time rate as
achieved at the time of the vacation, whichever is greater, for each of
such additional days; provided, however, that the vacation time for
which an allowance shall be paid shall not exceed the vacation time and
allowance provided for in Section 1(c) of this Article.
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(c) Upon completion of two (2) years of continuous
service with the Company on June 30th, an employee will be entitled to two (2)
weeks' vacation for which a vacation allowance shall be paid or four (4%)
percent of his annual earnings as defined in Section 11 of this Article or two
times the employee's regular workweek hours multiplied by the employee's
straight time rate achieved at the time of the vacation, whichever is greater,
and he shall be entitled to such vacation for which a vacation allowance shall
be paid during each calendar year thereafter until the calendar year in which he
becomes eligible for three (3) weeks' vacation.
(d) Upon completion of five (5) years of continuous
service with the Company on June 30th, an employee will become entitled to three
(3) weeks' vacation for which a vacation allowance shall be paid of six (6%)
percent of his annual earnings as defined in Section 11 of this Article or three
times the employee's regular workweek hours multiplied by the employee's
straight time rate achieved at the time of the vacation, whichever is greater.
(e) Upon completion of 15 years of continuous service
with the Company on June 30th, an employee shall be entitled to four (4) weeks'
vacation for which a vacation allowance shall be paid of eight (8%) percent of
his annual earnings as defined in Section 11 of this Article or at four times
the employee's regular workweek hours multiplied by the employee's straight time
rate achieved at the time of the vacation, whichever is greater.
For those employees who have reached their 14th year by June
30th, but will not reach their 15th anniversary date with the Company until
sometime during the next 12 months, a vacation allowance shall be paid at the
rate of six (6%) percent or three weeks as stated in Section 1(d), plus one (1)
day's vacation for each ten (10) weeks of continuous service in excess of 14
years prior to June 30th (calculate from June 30th back to anniversary date),
for which a vacation allowance shall be paid of .4 percent of his annual
earnings as defined in Section 11 of this Article, or employee's regular shift
hours multiplied by the employee's straight time rate as achieved at the time of
the vacation, whichever is greater, for each of such additional days; provided,
however, that the vacation time for which an allowance shall be paid shall not
exceed the vacation time and allowance provided for in Section 1(e) of this
Article.
(f) The Employer shall not be obligated to provide
the vacation period to which an employee is entitled in consecutive weeks,
except as provided in Section 4 of this Article.
SECTION 2. Each week's vacation shall consist of five (5)
consecutive days, unless the employee receives the written consent of the
Company to split the vacation.
<PAGE> 24
21
SECTION 3. The Union and the Employer agree that their mutual
objective is to afford maximum opportunity for all eligible employees to obtain
their vacations and secure the necessary rest. All employees eligible for a
vacation shall be required to take their vacations from work, except in the case
of extenuating circumstances.
SECTION 4. Except in the event of an emergency, the Company
may close the plant for a consecutive two-week period for the purpose of giving
employees their vacations. This period shall be known as the "Vacation Period"
and will be scheduled by the Company from the last two weeks in June through the
first two weeks in July. The Company shall give the Union notice of the time
when the vacation period shall occur by the preceding April 1. The Company may
schedule an additional week in December as a shutdown period, provided that the
Company notifies the Union on or before November 1. Vacations shall be scheduled
from July 1 to June 30 of the following year with preference being given to the
June 15th through August 15th period. The Company and the Union further agree
that, from time to time, the Company may schedule additional plant shutdowns.
When these shutdowns do occur, it is mutually agreed to that the employees will
not be required to use any of these additional weeks as vacation.
SECTION 5. With respect to those employees entitled to a
vacation in excess of two weeks, vacations will be so far as possible, be
granted at times both desirable to the employees and to the Employer,
longer-service employees being given preference as to choice between June 15th
and August 15th. However, the final right to allot vacation periods and the
right to change such allotments are exclusively reserved to the Employer in
order to insure the orderly operation of the plant. Notice of the vacation
schedule shall be given to the Union on or before May 1st of the then current
year.
SECTION 6. Except for employees with less than one (1) year of
continuous service and who are provided for in Section 1(a) above, all other
employees shall be eligible for a vacation in any calendar year during the term
of this Agreement if the employee shall:
(1) Have performed work during the 52-week period
prior to June 30th of each year, and
(2) Have the required number of years of continuous
service prior to June 30th of each year as set forth in Section 1
above, and
(3) Having met the above requirements, the employee
shall receive a prorated portion of his vacation entitlement based upon
ten (10%) percent of the vacation entitlement for each five (5) weeks
of continuous service, provided he has had earnings in each of said
five (5) weeks, and an employee who has completed 30 weeks of
continuous service and has had earnings in each of said weeks shall
receive 100% of his vacation entitlement.
<PAGE> 25
22
SECTION 7. If a paid holiday falls during the period an
employee is on vacation, he shall be paid for the holiday in addition to his
vacation pay and provided an additional day off.
SECTION 8. DETERMINING CONTINUOUS SERVICE. Continuous service
shall date from:
(a) The date of first employment with the Employer
at the plant, or
(b) Subsequent date of employment following a break
in continuous service, whichever of the above two dates is the later.
Such continuous service shall be defined as the length of the
employee's service with the Company as set forth in Article VIII of
this Agreement.
SECTION 9. Time lost as a result of compensable industrial
accidents with the Employer shall be deemed time worked for which earnings have
been received for the purposes of Section 6(3) of this Article. The Employer
shall be relieved under all and any liability under this Section in the event of
the Workman's Compensation Bureau holding an employee ineligible is subsequently
reversed, overruled, or changed so as to allow compensation.
SECTION 10. An employee who resigns his employment with the
Company or is discharged prior to June 30th of the current year shall be
entitled to a pro rata amount of the vacation time for which a vacation
allowance shall be paid to which he was entitled on the preceding June 30th.
Said pro rata amount shall be equivalent to one-tenth of said vacation for which
a vacation allowance shall be paid for each five (5) weeks of continuous service
since the last June 30th prior to the time of discharge or termination.
SECTION 11. "Annual Earnings" shall be defined as the earnings
of the employee as set forth in the Federal Income Tax Form W-2 for the
immediately preceding year.
SECTION 12. Vacation allowance shall be paid to an employee on
the last scheduled workday immediately preceding his vacation period.
SECTION 13. The vacation list will be drawn up and vacation
payrolls will be completed as close as possible to the start of vacation
periods; however, in order to complete both the regular weekly payroll and the
vacation payroll, this will be at least one week before the start of actual
vacations. Once these checks have been drawn, they must be paid.
<PAGE> 26
23
ARTICLE XIII
DISCHARGE OR DISCIPLINE
SECTION 1. No employee shall be disciplined, suspended, or
discharged except for just cause.
SECTION 2. The right of the Employer to discipline an employee
for violation of this Agreement shall be limited to the failure of such employee
to discharge his responsibilities as an employee and may not in any way be based
upon the failure of such employee to discharge his responsibilities as a
representative of the Union, except as herein to the contrary provided.
ARTICLE XIV
NO STRIKE - NO LOCKOUT
There shall be no strike, slowdown, work stoppage,
interruption of work, or lockout for the duration of this Agreement.
ARTICLE XV
RIGHTS OF MANAGEMENT
Except as limited by the specific terms of this Agreement, the
manage ment and operation of the Company and the direction of the working
forces, including but not limited to the right to hire, lay off, maintain
discipline, and discharge or suspend employees for just cause, and the right to
establish and enforce rules not inconsistent with this contract; to determine
the products to be manufactured, the means and processes of manufacturing,
including the purchase of products or processing of materials or elements
manufactured, processed, or worked on by other firms, persons or companies, are
vested solely in the Employer, it being understood that the Employer retains all
management rights including those inherent in this position not specifically
limited by this Agreement.
ARTICLE XVI
SAFETY AND SANITATION
SECTION 1. The Employer recognizes the importance of safety
provisions in the plant for the protection of health, life and limb of its
employees and the Employer
<PAGE> 27
24
agrees to comply with Federal and State laws and regulations pertaining to
safety and health. There shall be a safety committee of both the Employer and
the Union composed of not more than four persons for each which shall meet once
a month in order to improve safety measures in accordance with said laws.
The Union representative shall be appointed as follows: one
represen tative from the shipping department, one representative from the
production depart ment, one representative from the receiving-maintenance
department and one from second shift.
SECTION 2. The parties agree that all toilets, washrooms and
eating areas shall continue to be kept clean and properly heated and ventilated.
The Union officials shall at all times aid the Employer in enforcing measures
pertaining to safety, cleanliness and discipline and they agree to cooperate
with the Employer in the maintenance of a clean and orderly plant.
SECTION 3. The Employer will supply uniforms to all its
employees at its expense and it will launder them at no cost to the employee.
Each eight-hour employee shall receive at least five (5) sets of uniforms. Each
five-hour employee will receive at least three (3) sets of protective smocks. It
is expressly understood that such uniforms will not be removed from the
Employer's premises.
ARTICLE XVII
LEAVES OF ABSENCE
SECTION 1. Upon written request from an employee, the Employer
will grant a leave of absence without pay for reasons of illness for a period
not to exceed twelve (12) months if at the time of the request the employee has
less than five (5) years of seniority or eighteen (18) months if at the time of
the request, the employee has more than five (5) years but less than ten (10)
years' seniority, and not to exceed twenty-four (24) months if at the time of
the request, the employee has more than ten (10) years' seniority. Upon written
request from an employee, the Employer will grant a leave of absence without pay
for other good and substantial reasons for a period not to exceed three months.
During a leave of absence as aforementioned, the employee will accumulate
seniority provided the employee returns to work at the end of such leave of
absence. Any leave of absence granted by the Employer shall be under conditions
and terms specified by it and shall be issued in writing. Leaves of absence,
however, will not be granted for taking of employment elsewhere.
SECTION 2. An employee who becomes pregnant shall be entitled
to a leave of absence without pay for reasons of illness pursuant to the terms
of Section 1 of this Article.
<PAGE> 28
25
SECTION 3. FUNERAL LEAVE. All permanent employees who have
completed their probationary period and who are presently on the payroll and all
permanent employees hereafter employed and who are on the payroll for the
Company for one year or more shall be allowed a leave of absence with pay of
three days in the event of a death in the immediate family. "Immediate family"
is defined and shall be limited to mother, father, spouse, children, brother,
sister, mother-in-law, father-in-law, grandmother, grandfather, and legal
guardian of the employee wherever they have had their legal residence, and
brother and sister of the employee's spouse whose legal residence was in the
home of the employee.
SECTION 4. There shall be a 12-minute paid rest period in the
first half of each shift and a 12-minute rest period without pay in the second
half of each shift. There shall also be a six-minute paid wash-up period at the
end of each shift.
SECTION 5. A leave of absence without pay not to exceed two
weeks shall be granted to duly elected delegates of the Union in order that they
might attend Union conventions. This leave of absence shall be further limited
to no more than two employees at one time.
SECTION 6. Leaves of absence will comply with all appropriate
Federal, State and Local legislation.
ARTICLE XVIII
WAGES
SECTION 1. The standard hourly wage grades for the respective
jobs are set forth by number, title and grade in Schedule "B" attached hereto,
and the effective date and amounts thereof shall be those set forth in Schedule
"C" of this Agreement. As a matter of policy, all rates and rate changes which
occur as of Sunday, Monday, Tuesday or Wednesday of any payroll week shall be
effective as of Sunday of said payroll week while any change which occurs
Thursday, Friday or Saturday of such payroll week shall become effective on
Sunday of subsequent payroll week.
SECTION 2. It is agreed that the Employer shall have the right
to install a wage incentive plan in all departments where practical. Such
incentives, when created, shall be in accordance with recognized engineering
procedure and shall be established so as to enable the employee to earn not less
than his hourly rate of pay set forth hereunder and subject to the grievance
procedure set forth in this contract. It may be made applicable to individuals
or groups of individuals depending upon the nature of the work and the number of
employees involved in each department or group. In the event the
<PAGE> 29
26
Employer decides to exercise its right herein and install a wage incentive plan,
the Union agrees to assist the Employer.
SECTION 3. If the Employer shall, during the term of this
Agreement, set up new classifications or a now department within which there
shall be new classifications not referred to in this contract, then in such
event the Employer and the Union agree to meet promptly and attempt to negotiate
rates of pay therefor. In the event of a failure to reach an agreement the
matter shall be submitted to final and binding arbitration pursuant to the terms
of Step 4 of Article VI herein and the provisions of Article XIV shall be
applicable.
ARTICLE XIX
REPORTING PAY AND CALL IN PAY
SECTION 1. An employee who reports for work at the regular
hour at which his shift begins without having been notified not to do so shall
be assured four hours' work or in the alternative shall receive four hours' pay
at his regular hourly rate, unless the Employer is unable to provide work
because of an Act of God or other circumstances beyond the Employer's control.
The employee may be offered four hours of employment of other work in or about
the plant within his or her capacity to perform in lieu of receiving the
aforementioned reporting in pay.
SECTION 2. When an employee is called in after he has left the
Company's premises at a time other than his regular shift, he shall be assured a
minimum of four hours' pay at time and one-half his regular rate.
ARTICLE XX
INSURANCE
SECTION 1. The Employer agrees to arrange for an insurance
program for the life of this contract, containing the following provisions for
employees who are eligible and qualify therefor:
(a) A health insurance program consisting of or
comparable to Blue Cross All Service Comprehensive - Blue Shield Prevailing Fee
100 with major medical limits of $250,000.00, co-insurance 80/20% first
$2,000.00, 100% after to $250,000.00 for each full-time eight (8) hour shift
permanent employee and each short-shift employee, and said employee's spouse and
eligible dependents. The said health
<PAGE> 30
27
insurance program shall provide coverage for eligible dependent students of
employees until they reach age 23.
(b) A Dental Insurance Program consisting of or
comparable to basic coverage and supplemental basic coverage Rider A of the
Pennsylvania Blue Shield Prepaid Dental Care Program which shall be effective
for each full-time eight- hour shift permanent employee, his spouse and eligible
dependents. Short-shift permanent employees shall receive individual coverage
under the aforementioned Dental Insurance Program.
Effective April 1, 1996, employees will contribute 5% of the
cost of the Blue Cross/Blue Shield Medical and Dental program in the first year
of the agreement, 5% in the second year and 7.5% in the third year. Effective
April 1, 1996, the Company will offer an alternative HMO Health & Dental
Insurance Program paid for in full by the Company for the term of the contract.
The Company will pay medical benefits for a period of one
month after the month in which the employee is laid off. The covered benefits
shall be Blue Cross, Blue Shield, Major Medical and the Dental Programs only.
We will allow an employee that retires at age 62 to continue
his medical coverage with the Company to age 65, at group rates. This shall not
apply to anyone that retires before age 62. Premiums to be paid by the employee
to the Company before the 1st day of each month. All others are covered by
Cobra.
(c) A term life insurance program as follows:
<TABLE>
<CAPTION>
CLASSIFICATION OF AMOUNT
EMPLOYEE EFFECTIVE 3/1/96
<S> <C>
Less than 5 Yrs. $12,000.00
More than 5 Yrs. $15,000.00
</TABLE>
The increase in life insurance benefit for employees who
subsequently attain five (5) years or more of continuous service shall be
effective as of the first of the month following their fifth anniversary date of
employment. The Company will pay for $4,000.00 of life insurance for present
employees on the payroll as of March 2, 1987, who retire after March 1, 1988 and
have obtained the age of 62 or more. We will issue a letter to retirees stating
the life insurance company and value of the insurance at the time they retire.
<PAGE> 31
28
(d) Commencing the first day of the month following
at least thirty (30) days after the signing of this Agreement for eight (8) hour
shift permanent employee an accident or sickness disability insurance program
based on a reimbursement of 70% of the basic weekly salary of each employee for
forty (40) hours calculated at straight time hourly rates to a maximum
reimbursement from February 24, 1996 to February 23, 1997 of $215.00 per week
and effective February 24, 1997 of $225.00 per week till February 23, 1998 and
effective February 24, 1998 of $235.00 till February 23, 1999 for a period of
twenty-six (26) weeks. Claims for each reimbursement under this program shall be
effective on the eighth day after commencement of disability. The sickness and
accident disability insurance program provided in this clause shall not apply to
sickness and accident disability which is compensable under Workman's
Compensation Law.
(e) Each employee will be entitled to a maximum of
$130 towards the payment for eyeglasses or eye examinations during the period of
the Contract. (This amount will be cumulative, regardless of which Medical Plan
they have enrolled in.)
The employee applying for such reimbursement must present a
copy of the invoice showing that the eyeglasses are for the employee
himself/herself. This benefit cannot be used to buy sunglasses. Invoices must be
dated 3/l/96 or later.
SECTION 2. Said insurance program will be effective as to
newly hired permanent employees and those presently on probation on the first
day of the month following the completion of their 90th day of employment. All
life insurance covering employees who are laid off or who are on leave of
absence for other than illness will be terminated at the end of the month
following the month during which the layoff occurred or the leave of absence
began and will be reinstated on the first day of the month following the date of
the employee's return to work. The Employer will continue to make contributions
for life, health, and dental insurance coverage for employees who are on leave
of absence for reasons of illness until the termination of the leave of absence.
If permitted under and pursuant to the terms of the applicable insurance
contracts and the rules and regulations of the insurance carrier issuing said
contract, an employee may elect to continue coverage during absence from work in
accordance with the foregoing at his or her own expense.
SECTION 3. The parties clearly understand and agree that in
arranging for the insurance program as hereinbefore provided the Employer does
not assume any responsibility for the contractual obligations of the insurance
company or companies or any liability for any payments or benefits that may be
due under such insurance program; that all liability for payments that are due
or which may become due are solely the responsibility of the insurance carrier
or carriers and that the Employer assumes no liability in connection therewith
except the payment of the premium which may become due under this Article.
<PAGE> 32
29
Insurance shall continue in full force and effect except as
modified by Section 3 of this Agreement and by a letter executed by the parties
as follows:
Dana Perfumes Corporation,
After long contract negotiations, you have agreed to pay all
increases in health costs provided for in Article XX, Sections (a) and
(b) of our contract dated February 28, 1987, for the period of the
renewed labor contract.
We are aware that these increases may impose a heavy economic
burden on you and we are anxious to help and assist you in any way
possible to reduce such costs.
Accordingly, by means of a joint committee or otherwise, we
advise you that you will have our full cooperation in any way possible
to aid you in achieving lower health costs.
February 23, 1990
O.C.A.W. 8-782
by Lawrence W. Graham
Jacqueline McDermott
Andrea Miller
Leonard Fornett
John Roman
Arthur Cragle
ARTICLE XXI
NOTICE
Any notice required to be given to the Union from the Employer
shall be directed in writing by certified mail to the Secretary of the Local
Union at his last known address appearing on the records of the Employer, with a
copy to Roger W. Bradley, O.C.A.W. International Union, 2722 Merrilee Drive,
Suite 250, Fairfax, Virginia 22031, and any notice required of the Union to be
sent to the Employer will be directed in writing by certified mail to the
General Manager, Dana Perfumes Corp., Crestwood Industrial Park, Mountaintop,
Pennsylvania 18707, and a copy sent to the President of Dana Perfumes Corp., 635
Madison Avenue, New York, New York 10022.
<PAGE> 33
30
ARTICLE XXII
BULLETIN BOARD AND UNIFORMS
SECTION 1. The Employer will provide a bulletin board for the
use of the Union for Union business. The Union shall assume full responsibility
for the items it posts and all notices posted shall first be approved by the
President or the Secretary of the Union.
SECTION 2. The Employer shall provide female shipping
department employees with uniforms consisting of longsleeved smocks.
ARTICLE XXIV
PENSION PLAN
After termination of the old pension plan, we will cease
paying the fifteen cents per hour per employee into the plan, and begin paying
the present 401K plan fifteen cents per hour per covered employee for all
straight time hours worked as provided in the plan, provided it can be done
legally and properly. And if that cannot be done, then we will pay each employee
the amount due him annually in January of each year.
In the event a dispute arises as to the interpretation of or
compliance with this letter contract it shall be submitted to an arbitrator as
provided in the labor agreement between the parties in Section 2 of Article VI.
In no event shall the arbitrator have authority to increase the fifteen cents
cost of the Company.
AGREED TO AND APPROVED
O.C.A.W. 8-782 Andrea Miller
by Lawrence W. Graham Leonard Fornett
Negotiating Committee John Roman
by Jacqueline McDermott Arthur Cragle
Dana Perfumes Corp.
by George Gross
The Company agrees to convert the 15 cents per hour to the
credit of the Union employees (from the old pension plan), provided the Union
can have the 401K Plan adjusted to be able to legally receive the funds. If that
is not possible or if the Union
<PAGE> 34
31
finds another pension for the purpose and it is legal and feasible, then that
procedure will be followed. (Dated 2/26/93)
ARTICLE XXV
MODIFICATION OR CHANGE IN AGREEMENT
No agreement, alteration, understanding, variation, waiver or
modification of any of the terms or conditions or covenants contained in this
Agreement shall be made by any employee or group of employees with the Employer
and in no case shall it be binding upon the parties hereto unless such an
agreement is made and executed in writing between the parties hereto. The waiver
of any branch or condition of this Agreement by either party shall not
constitute a precedent in the future enforcement of all the terms and conditions
herein.
ARTICLE XXVI
SICK LEAVE
SECTION 1. Each regular permanent employee shall be entitled
to receive three (3) sick days first year of contract, four (4) sick days second
and third year of contract. For the new hires during the first calendar year of
their employ ment, sick leave will be earned at the rate of one day for every
three months, to a maximum of three days.
SECTION 2. Paid sick leave shall be used for an absence from
work due to non-occupational illness or injury.
SECTION 3. Employees absent on sick leave in accordance with
the above shall be paid for each such workday of absence their regular straight
time hourly rate of pay multiplied by the number of hours in their regular
workday.
SECTION 4. The above schedule of sick leaves may be
accumulated for the term of this Agreement. However, any unused sick leave will
be bought back at the termination of the Agreement at 110% of the then current
rate.
<PAGE> 35
32
ARTICLE XXVII
JURY DUTY
An employee who is called for jury duty and serves on a jury
on a regularly scheduled working day or days shall be paid by the Employer for
time lost from work by reason of such service the difference between the amount
received by said employee for such service and said employee's average straight
time hourly earnings, not to exceed eight (8) hours per day and excluding all
premiums, overtime and penalty pay. Jury duty shall not exceed eighty (80) hours
in any calendar year for any one employee. Above jury duty provisions shall
apply only to involuntary service.
ARTICLE XXVIII
401K PLAN
SECTION 1. Plan to go into effect week beginning September 3,
1984 or sooner, if plan is ready.
SECTION 2. Employee shall be allowed to contribute 2% to 6% of
his/her pay beginning September 3, 1984 or sooner, if plan is ready. The
employees will be able to contribute 2% to 8%.
SECTION 3. The Company contribution will be 16.66% of the
first 6% of the employee's contribution.
SECTION 4. The plan itself will take care of all
administrative costs.
SECTION 5. The Company agrees to take care of all deductions,
and to forward to the PNC Bank, the employee's contributions and its own
contributions.
ARTICLE XXIX
SEVERANCE PAY
In the event any of the following departments is eliminated
(Shipping, Production, Receiving, Building Maintenance), the following severance
pay schedule will be given to all employees in that terminated department for
those employees on the then-current seniority list who are employed, including
those who are subject to recall provision of this Agreement: 1/2 week's pay for
each one (1) year of continuous service with the Company, with a maximum of five
weeks.
<PAGE> 36
33
ARTICLE XXX
TERM OF AGREEMENT
This Agreement shall be effective as of the 24th day of
February, 1996 unless otherwise specifically so indicated and shall continue in
full force and effect without reopening or further negotiations until the 26th
day of February, 1999, and shall continue from year to year thereafter unless
either party hereto shall give written notice by certified mail to the other
party at least sixty days prior to the expiration date of this Agreement or the
intention of the party to amend, modify or terminate, whereupon the Agreement
shall terminate on the expiration date herein set forth.
IN WITNESS THEREOF, and intending to be legally bound hereby,
the parties have hereunto caused their properly authorized officers to sign this
Agreement the day and year first above written.
DANA PERFUMES CORP.
By: Keith H. Wagner
James E. O'Brien
Eugene E. Gostinski
Joseph T. Orloski
Thomas J. VanFossen
___________________________
___________________________
___________________________
___________________________
___________________________
OIL, CHEMICAL & ATOMIC WORKERS
INTERNATIONAL UNION AFL-CIO
By: Mitchell W. Barnik
<PAGE> 37
34
______________________________
LOCAL 8-782, OIL, CHEMICAL & ATOMIC
WORKERS UNION
By: Jacqueline McDermott
Arthur Cragle
Sheldon Metzger
Andrea Miller
Florence Pedley
Mary Ellen Wetzel
______________________________
______________________________
______________________________
______________________________
______________________________
______________________________
<PAGE> 38
35
SCHEDULE "A"
MINIMUM AND MAXIMUM TRIAL PERIOD
FOR DETERMINATION BY EMPLOYER OF
EMPLOYEES' ABILITY TO FILL A VACANCY
WORKING DAYS TRIAL
<TABLE>
<CAPTION>
JOB NUMBER MINIMUM MAXIMUM
<S> <C> <C>
F 100 - -
F 401 2 5
F 318 2 5
F 101 C 2 5
F 101 A 2 7
F 103 B 2 5
F 317 2 5
F 103 A 5 15
F 410 5 15
F 408 5 15
F 106 B 5 15
F 316 5 15
F 412 5 15
F 412 B 5 15
F 409 C 5 30
F 411 5 30
F 502 5 30
F 315 10 60
F 105 10 60
F 107 10 60
F 106 15 90
F 313 15 90
F 106 A 15 90
F 101 D 10 60
F 104 10 60
F 412 A 10 60
F 315 B 15 90
F 101 E 15 90
F 106 C 15 90
F 107 A 15 90
F 409 A 15 90
F 105 B 15 90
</TABLE>
<PAGE> 39
36
SCHEDULE "B"
<TABLE>
<CAPTION>
JOB
GRADE NUMBER JOB TITLE
----- ------ ---------
<S> <C> <C>
1 F 100 Packaging Assembler - Entry Level
2 F 101 C Packaging Assembler Class C
4 F 101 A Packaging Assembler - Water Bath
F 101 D Packaging Assembler - Machine Oper.
F 401 General Picker/Packer/Checker
5 F 103 B Production Aide
F 317 Utility Helper
F 106 B Batch Helper - 6 mos.
F 410 Special Picker/Packer/Checker
6 F 316 General Utility Class B
F 411 Export Picker/Packer/Checker
F 412 Material Handler - Ship/Rec
7 F 104 Production Line Coordinator
F 103 A Filling Machine Attendant
F 106 A Batch Mixer, Class B - 1 1/2 yrs. in Grade
F 107 Rets & Recon Clerk
F 315 General Utility Class A
F 409 C Scaler
F 412 B Material Handler Coordinator
F 412 C Material Handler/Truck Driver
F 502 Packaging Inspector
8 F 106 Batch Mixer Class A
F 315 A General Utility Class A - 8 yrs.
F 105 Production Maintenance & Setup
9 F 105 A Production Maintenance & Setup - 8 yrs.
10 F 313 Maintenance Mechanic Technician
F 106 Batch Mixer
</TABLE>
NOTE: Six years of continuous current service as an F 105. Persons holding
the F 105 grade on 3/1/93 will only require a total of six years'
experience as an F 105 to qualify as an F 105 A.
<PAGE> 40
37
SCHEDULE "B"
GROUP LEADERS
Group Leaders shall receive twenty cents per hour above the rate for
the group they lead.
JOB
NUMBER JOB TITLE
F 101 E Packaging Assemblers
F 401 A General Picker/Packer/Checker
F 412 A Material Handlers - Ship/Rec
F 107 A Returns & Recond.
F 502 A Receiving Warehouse
F 315 B General Utility Class A
F 105 B Production Maintenance & Setup - 8 yrs.
F 106 C Batch Mixers
F 313 A Maintenance Mechanic Technicians
NOTE: Only service as a mechanic with Dana will count toward 8 years of
experience needed for grade 8 of F 315 A and F 105 A.
<PAGE> 41
38
SCHEDULE "C"
HOURLY RATE SCHEDULE
<TABLE>
<CAPTION>
EFFECTIVE EFFECTIVE EFFECTIVE
12:01 A.M. 12:01 A.M. 12:01 A.M.
2/24/96 2/28/97 2/28/98
TO TO TO
GRADE 2/27/97 2/27/98 2/26/99
<S> <C> <C> <C>
1 7.10 7.10 7.10
2 10.40 10.70 11.00
4 10.51 10.81 11.11
5 10.68 10.98 11.28
6 10.79 11.09 11.39
7 10.95 11.25 11.55
8 11.34 11.64 11.94
9 11.80 12.10 12.40
10 12.30 12.60 12.90
</TABLE>
NOTE: Any permanent employee hired after March 1, 1993 will be hired at rates
$1.50 below Schedule "C" with increase of 50 cents every six months
until they reach the full rates listed above.
An employee hired into grade 1, F 100 position will have his rate
increased fifty cents after one year, fifty cents after a second year,
and finally fifty cents after a third year in the position.
An employee below full rate who successfully bids to a higher rated
job shall move to his new rate in the same pay increment in which he is
currently paid.
For example, a newly hired employee in grade 1, classification F
100 who has progressed to $7.60 per hour, which is $1.00 per hour less
than the full rate, is awarded a bid for a grade 5, F 103 B Production
Aide. This position currently carries a full rate of $10.68 per hour;
thus, this person would be paid $9.68 per hour.
<PAGE> 42
39
EXHIBIT A
1. DUES CHECKOFF AUTHORIZATION
AND ASSIGNMENT
TO DANA PERFUMES CORP.
I hereby assign to Local Union No. 8-782, Oil, Chemical and Atomic
Workers International Union, AFL-CIO, from any wages earned or to be earned by
me as your employee, the sum of ________ per month, or such amount as may
hereafter be established by the Union and become due to it, as my membership
dues in said Union, and the regular Union initiation fee of ________ or such
amount as may hereafter be established by the Union and in accordance with the
International Constitution, I authorize and direct you to deduct such amounts
from my pay for each month and to remit the same to the Union.
This authorization and assignment shall be irrevocable for the
period of one (1) year, or until the termination of the Agreement between the
Employer and the Union, whichever occurs sooner, and I agree and direct that
this authorization and assignment shall be automatically renewed, and shall be
irrevocable for successive periods of one (1) year or for the period of such
succeeding applicable collective agreement between the Employer and the Union,
whichever shall be shorter, unless written notice is given by me to the Employer
and the Union not more than twenty (20) days and not less than ten (10) days
prior to the expiration of each period of one (1) year, or of such applicable
collective agreement between the Employer and the Union, whichever occurs
sooner.
This authorization is made pursuant to the provisions of Section
302(c) of the Labor-Management Relations Act of 1947 and otherwise.
WITNESS:
SIGNATURE:
DATE:
<PAGE> 43
40
EXHIBIT A
2. CHECKOFF AUTHORIZATION FOR
AGENCY FEES, UNION FEES AND
INITIATION FEES
I hereby authorize DANA PERFUMES CORP. to withhold from my earnings
an agency fee of ________ per month after thirty-one (31) calendar days of
employment in accordance with the provisions of the contract between DANA
PERFUMES CORP. and Oil, Chemical & Atomic Workers Union Local 8-782.
1 further authorize that this agency fee be remitted to said Union
after payroll checkoff.
In addition, if my employment by DANA PERFUMES CORP. continues
beyond ________________________ I will be considered a permanent employee and do
hereby assign to Local Union No. 8-782, Oil, Chemical & Atomic Workers
International Union, AFL-CIO, from any wages earned or to be earned by me as
your employee the sum of ________ per month, or such amount as may hereafter be
established by the Union and become due to it, as my membership dues in said
Union, and the regular Union initiation fee of ________, or such amount as may
hereafter be established by the Union and in accordance with the International
Constitution. I authorize and direct you to deduct such amounts from my pay for
each month and to remit the same to the Union.
This authorization and assignment will be irrevocable for one (1)
year, or until the termination of the Agreement between the Employer and the
Union, whichever occurs sooner, and I agree and direct that this authorization
and assignment shall be automatically renewed, and shall be irrevocable for
successive periods of one (1) year each or for the period of such succeeding
applicable collective agreement between the Employer and the Union, whichever
shall be shorter, unless written notice is given by me to the Employer and the
Union not more than twenty (20) days and not less than ten (10) days prior to
the expiration of each period of one (1) year, or of such applicable collective
agreement between the Employer and the Union, whichever occurs sooner.
<PAGE> 44
41
The authorization is made pursuant to the provisions of Section
302(c) of the Labor-Management Relations Act of 1947 and otherwise.
WITNESS:
SIGNATURE:
DATE:
<PAGE> 45
42
MEMORANDUM OF UNDERSTANDING
1. SAFETY COMMITTEE - The safety committee has been reactivated and will
conduct monthly inspections on the first Wednesday of each month,
effective with February 1981. However, do not let these inspections deter
anyone from bringing an unsafe condition to the attention of management.
2. PLANT DOCTOR - Since no large group will ever wholly agree on the
performance of an individual, we as a group have agreed to report to
management, immediately, any incident a person may feel was unfair in the
treatment by the Doctor.
3. HAT AND HAIRNET REQUIREMENTS - Management will speak to the individual
departments in regard to use of hats and hairnets. It is most important
that hairnets be worn in a manner to prevent contamination of the product
either during a filling operation or a cartoning operation. The Company
will make an effort to supply a more suitable hat or hairnet in order to
accommodate the hairdos.
4. CLERICAL WORK - The clerical work referred to in this item has for many
years been performed by the Group Leader and it is the Company's position
that she will continue to perform this work. Due to the number of
employees in the Production Department and the number of registrations, it
is necessary for a person to be assigned to this particular duty --
especially during the busy seasons. This job function also rounds out the
duties and provides a full day's work for the Group Leader.
5. LAYOFF PROCEDURE - It is the position of the Company, in conjunction with
the past desire of the Union, to maintain full employment as much as
possible for the regular Union employees. In line with this, in an area
such as Production, we at various times of the year have a sufficient
backlog of work to provide work for those persons that are laid off due to
the result of bumping from other departments. If a situation arises where
we do not have a backlog of work, then the bumped person will be laid off.
This, as previously stated, is in the best interest of all permanent Union
employees.
6. LINE JOBS -
(a) If a person is transferred to a production line operation,
Management has the right to assign that person a specific operation
on that line and he need not rotate. However, if a person has bumped
into a grade 1 and grade 2 classifications and the rest of the grade
1's and grade 2's on that particular line rotate -- then it is the
Company's duty to cause that person to also rotate.
<PAGE> 46
43
(b) In reference to the buffing operation, Management feels that this
should be a grade 5 operation and, therefore, we will pay grade 5
for that particular operation.
In order to clarify the differences between jobs F 502 and F 101 B, when
checking any kind of material or finished goods for quality, the following
shall be the standards:
F 502 - This is grade 7, and the main function of the employee performing
this job is to inspect all aspects of an item for anything that may be
wrong with it. In so doing this, there is a written procedure on the
amount of each case or shipment that is to be sampled. A written report
will be filed on his findings and submitted to Quality Control. While this
is his main function, he has other duties unrelated to inspecting.
F 101 B - This is grade 3, and the main function of these employees is to
separate a particular lot of material that has been determined by Quality
Control to have some unacceptable units. The particular defect will be
noted for these employees. This type of work will be performed only when
the number of rejects is too high to be separated at normal packaging line
speeds.
7. NIGHT SHIFT AGREEMENT - It is the position of Management that Management
has no right to prevent a person from exercising his seniority when jobs
open up either on the day shift or the night shift. It was in conjunction
with the Union's representative and other officers of the Union, at a
meeting on 7/3/80, that in order to make a more stable work force we would
have the Union members elect, once a year, to determine their shift
preference. This agreement was made -- not only with the Company in mind,
but also the Union employees -- so that they were not constantly being
bumped back and forth between day shift and night shift. However, so long
as we have temporary employees on the payroll, Management cannot preclude
a Union employee from exercising his right to bump that person on either
shift. Consequently, Management's position remains the same as stated in
the July 3rd, 1980 agreement.
8. SENIORITY - Management's position in regard to seniority in its relation
to vacation is that the most senior person in a job classification shall
have the right to exercise his seniority as to choice of days off so long
as he has vacation time available. However, once the senior person or
persons have expended all their vacation time, and the Company has need
for someone to work in a specific classification, that person will be
required to work provided less senior employees have vacation time
remaining. Should no vacation time remain for anyone in that job
classification, the seniority factor shall again come into play and the
most senior person can elect not to work.
<PAGE> 47
44
9. JOB BIDDING - In regard to Job Bidding under item 9, when a vacancy of 5
days or less occurs within a job classification, Management will transfer
the most senior experienced person within the department to that job. If
the job will extend beyond 5 workdays, that job will be posted in the
normal bidding procedure in accordance with the provisions for temporary
vacancies as contained in the contract (120 days or less). In such case,
the successful bidder shall be allowed to carry only his permanent
classification and the presently bid temporary job classification. Upon
return to his permanent classification, he will automatically relinquish
the temporary classification.
10. VACATIONS - In order to solve the problem of vacation time with the least
amount of turmoil, Management proposes that a clause be put into the
contract that would state the following:
The Company and the Union further agree that from time to time the
Company may schedule additional plant shutdowns. When these
shutdowns do occur, it is mutually agreed to use any of these
additional weeks as vacation.
11. LOAN LABOR - While Management maintains the right to direct the work force
and use like job classifications plant-wide, should the occasion arise
where a person in a particular job classification is transferred out of
his permanent department, and a vacancy in that job classification arises
in his permanent department, the employee shall be transferred back to his
permanent department and a job bid will be posted for the department to
which he had been transferred. The recall to his permanent department
shall not take place until we have had a successful bidder to the
department where he was transferred. Of course, the original transferred
employee shall have the right to bid on the vacancy.
12. NOTICE OF LAYOFF - If in Management's decision, more than 3 days' notice
can be given, it will be given to the President and Recording Secretary.
But this shall not be subject to the provisions of Article VI of the
current Agreement.
13. TEMPORARY - In reference to transfers to specific duties for a period of 5
days or less, the Company shall refer to that as a temporary transfer.
In reference to a temporary vacancy, the Company shall refer to that as a
vacancy that will exist more than 5 days but less than 120 days.
14. VOLUNTARY LAYOFFS - Voluntary layoffs may be exercised only in the
following conditions:
<PAGE> 48
45
(A) TEMPORARY LAYOFFS OF 5 DAYS OR LESS:
1) The employee desiring the voluntary layoff must be in the
department at the time of the layoff in which the layoff is
taking place.
2) The employee taking the voluntary layoff must be in the same
pay grade as the employee being laid off. He must also be in
the same permanent job classification, and must be fully
qualified to do the complete operation of the job.
(B) LAYOFFS IN EXCESS OF 5 DAYS:
The person desiring the voluntary layoff does not have to be in the
department in which the layoff is taking place. However, the person
for whom he is taking the voluntary layoff must have the following
qualifications:
1) Permanent job classification must be the same.
2) Permanent pay grade must be the same.
3) Permanent department must be the same.
4) Must be fully qualified to do the complete operation of the
job.
NOTE: The right to allow employees to take a voluntary layoff remains at
the sole discretion of Management. Management has always considered
requests for voluntary layoffs and will continue to put forth every effort
to satisfy such requests.
15. LINE ROTATION - PRODUCTION DEPARTMENT - All employees are entitled to
change specific workstations (within the same line) every hour, where it
can be done without disruption of the production process. If a problem
develops, it will be discussed by the Department Management and the Union
Stewards, and good sense will prevail.
SHIPPING DEPARTMENT - Jobs on the belt line will be rotated under the same
conditions as above.
16. HEALTH FORMS - The Company has obtained a verbal agreement from its
insurance representative that the insurance company will not require a
doctor's report on a monthly basis, but will require reports based on the
average expected length of the disability. Each individual will be given
two forms. If a second form is required, then the individual will take
that form to his/her doctor to be filled out.
<PAGE> 49
46
17. COBRA (Federal Law) will be in effect as of March 1, 1987.
18. SPRAY ROOM - The spray room will be staffed by the present permanent
volunteers. Fill-ins will be taken from the top of the seniority list and
will be rotated on a daily basis. This will be all grade 1's and grade
2's. Only a doctor's excuse will exempt an employee from his/her turn in
this job. If a person starts work in the spray room, it will be counted as
their turn, regardless of length of time.
19. GRADE 4 - Shipping transfers will work at every duty (pick, pack, check)
for 2 weeks and then rotate duties normally.
20. Grade 2 includes placing masters on pallets when doing reconditioning.
21. The Material Coordinator is required to place materials in position inside
the aerosol room. On the production floor, grade 5's will assist in moving
pallets when necessary.
22. If a mechanic is required to train a new mechanic (having not been a
mechanic before for Dana), then that mechanic will receive the Group
Leader rate for the intensive trial period of the new mechanic (60 days).
However, this does not apply to a mechanic training another mechanic on a
single piece of equipment.
23. Inasmuch as is possible, persons coming out of the aerosol room will not
be placed on the same line as when they went into the aerosol room.
<PAGE> 50
47
DANA PERFUMES CORP.
COMPANY WORK RULES
It is Dana's policy to place as few restraints and restrictions on
the personal conduct of its employees as is possible. For the protection of its
property, business interests, and other employees, Dana hereby establishes the
following reasonable rules of conduct for all of its employees. Since violation
of these rules by an employee could result in serious loss to the Company and to
other employees, Dana reserves the right to discipline, including discharge,
employees who do not abide by them.
Employees shall refrain from:
1. Violation of Federal, State, or Municipal Laws.
2. Willful damage to Company property, including that entrusted to it
by others, and to property of employees or visitors.
3. Theft of any merchandise or property from the Company or other
employees.
4. Any act of dishonesty, including but not limited to falsification of
time records, or furnishing false or incomplete information for
personnel and/or security records.
5. Creation of hazards of fire, safety or health, and failure to use
safety devices or procedures provided for employee protection.
6. Reporting for work while under the influence of intoxicants or their
use on Company premises.
7. Gambling, fighting, disorderly conduct, and conduct which violates
common decency or morality (including abusive language, possession
or use of narcotics, etc.).
8. Insubordination or failure to carry out any reasonable order by a
management representative, including refusal to work on jobs
assigned by the supervisor.
9. Incompetency or failure to meet reasonable standards of efficiency,
including gross neglect of duty.
10a. Tardiness without valid excuse, absence from work without notifying
the Company or failure to return to work promptly upon expiration of
leave of
<PAGE> 51
48
absence. The switchboard opens at 6:20 a.m. every morning so that
timely notice before or reasonably after the beginning of each shift
can be made.
10b. If an employee is absent more than one day because of illness, such
an employee will be under an obligation to call the Company the day
before he or she intends to return to work. The Company will inform
said employee upon receipt of telephone call, or shortly thereafter,
whether or not a certificate from a doctor will be required in order
for that employee to return to work.
10c. All injuries must be reported to your supervisor and/or the nurse at
the time of the incident.
11. Leaving one's workplace for other than assigned duties without the
supervisor's authorization except for health purposes.
12. Unauthorized solicitation on Company premises and distributing or
posting literature or other matters on Company premises without
proper authority.
13. Violation of or noncompliance with security regulations, including:
(a) Giving Company pass or other Company identification material
to any person not entitled to it.
(b) Entering or assisting any person to enter the Company's
premises or restricted areas without proper authority.
(c) Removing or attempting to remove Company material, including
but not limited to documents, equipment, etc., from Company
premises without proper authority.
14. Revealing to any unauthorized persons any of the Company records,
reports, papers, devices and apparatus, or disclosing to others
information concerning the Company's formulas, practices, processes
and methods which are considered by the Company to be of a secret or
confidential nature without proper authorization therefor.
15. In general, all employees are expected to conduct themselves in a
reasonable fashion and to refrain from any conduct which may be
detrimental or harmful to themselves, their fellow employees, or the
Company.
<PAGE> 52
49
16. Maternity Policy - It is our intent to allow any employee who is
pregnant to continue working as long as her physical condition
permits. Once pregnancy is confirmed, the employee will notify our
Company nurse and provide a doctor's statement which specifies her
anticipated delivery date and state any necessary restrictions or
limitations on her work activity. Unless restrictions imposed by the
doctor preclude her continuing to work, she may work through her
pregnancy without further qualification. This is consistent with
Dana's policy of allowing employees with temporary disabilities to
continue to work so long as the task represents no threat to their
health and safety or the health and safety of fellow workers. The
maternity leave of absence terminates on the date the employee is
released by her doctor to return to work. The employee must request
a personal leave for additional time off.
These rules are effective March 1, 1966 (Numbers 1 through 15) and
the additions of: Number 16, effective September 1, 1976 and Number
10C, effective February 11, 1980. Dana reserves the right to change,
subtract, or add to these rules from time to time as circumstances
warrant.
17. Under Federal legislation (effective March 18, 1989) Dana Perfumes
is required to do the following:
(a) Give each employee written notice that the unlawful
manufacture, distribution, possession or use of a controlled
substance is prohibited in or on any of the premises of Dana
Perfumes Corp. Under conviction of any of these violations,
the following will apply:
1st conviction, the employee will be put on leave
without pay for a period of 42 days or if convicted of
the use of a controlled substance, the length of time
required to participate in a rehabilitation program (the
cost, if any, to be borne by the employee). No seniority
will accumulate to employee during this period of time.
2nd conviction, the employee will be discharged
permanently.
(b) Inform employees about the dangers of workplace drug abuse and
of available counseling and rehabilitation services:
(1) Each employee will be given a brochure on drug abuse.
<PAGE> 53
50
(2) Drug abuse services are listed in the "Guide to Human
Services" section of the telephone book, under alcohol
and drug abuse.
(c) Each employee as a condition of employment with a company
(Dana Perfumes Corp.) doing business with the Federal
Government must abide by the terms of the drug program and
must notify their supervisor within five days of any criminal
drug statute conviction for any violation occurring in the
workplace.
(d) Dana Perfumes Corp. must notify the government agency they
are doing business with, in ten days, after learning of an
employee's criminal drug conviction.
(e) Dana Perfumes Corp. is required to impose sanctions and
require satisfactory participation in a drug rehabilitation
program from any convicted employee (see 17a).
18. Rules for Attendance:
(a) If a person is out sick, that person must use his/her sick
days (if any).
NOTE: A total of six days during the calendar year may be
taken without pay, in lieu of third or fourth weeks' vacation
time.
(b) During shutdowns, an employee may elect to use some of his/her
vacation (3rd or 4th weeks) or sick time, if the employee so
desires.
(c) The 3rd and 4th weeks' vacation are earned after June 30th, as
per the contract.
(d) Absence beyond sick days, vacation, leaves of absence and six
no-pay days will require the following disciplinary action:
(A) First offense will be counseling and written notice by
the department manager, with one day's suspension
without pay.
(B) Second offense will be counseling by the plant manager;
a written notice will follow. Those attending will be
the
<PAGE> 54
51
Union president, the shop steward and the personnel
manager. Suspension will be three days without pay.
(C) Third offense will be ten workdays off without pay.
(D) Fourth offense will be permanent discharge.
(e) After one year of average attendance, a counseled employee's
record would be cleared and any action would go back to Step
e.(A).
(f) We (the Company) will use good judgment when reviewing a
person's record.
(g) Advance notice of funerals is required.
(h) Above rules apply on and after May 11, 1989, with record
starting January 1, 1989.
(i) The six no-pay sick days are to be administered in increments
of 4 hours only. This is in line with the past practice of
administering the normal three days' sick leave and vacation
days.
(j) An employee who is near to a violation of the "Rules of
Attendance" will be counseled by his/her department manager
and given written notice.
<PAGE> 1
Exhibit 12.1
Renaissance Cosmetics Inc;
Calculation of deficiency of earnings to combined fixed charges and preferred
dividends
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------------------------- ----------------------------------
Period From Six Months Ended
April 15, 1994 September 30, Six Months Ended
(Inception) Year Ended 1995 1996 Year Ended September 30, 1996
to March 31, 1995 March 31, 1996 (As Restated) March 31, 1996 (As Restated)
----------------- --------------- ------ ------------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
Pretax income ................ $(5,494) $(10,753) $(2,859) $ (4,993) $ (5,690) $ (1,579)
Interest Expense ............. 8,694 19,458 9,004 10,838 7,080 8,702
------- -------- ------- ------- -------- --------
Total earnings ............... 3,200 8,705 6,145 5,845 11,390 7,122
------- -------- ------- ------- -------- --------
Fixed Charges:
Interest Expense ............. 8,694 19,458 9,004 10,838 7,080 8,702
Preferred Dividends .......... 715 1,333 661 5,060 19,502 10,951
------- -------- ------- ------- -------- --------
9,409 20,791 9,665 15,898 36,582 19,653
Deficiency of earnings
to combined fixed
charges and preferred
dividends .................... $(6,209) $(12,086) $(3,520) $(10,053) $(25,192) $(12,530)
======= ======== ======= ======= ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
Direct Subsidiaries of the Company (Delaware)
1. Cosmar Corporation (Delaware)
Direct Subsidiaries of Cosmar Corporation
1. Dana Perfumes Corp. (Delaware)
2. Great American Cosmetics, Inc. (New York)
Direct Subsidiaries of Dana Perfumes Corp.
1. Marcafin S.A. (Switzerland)
2. Estalvi S.A. (Switzerland)
3. Financiera de Perfumeria S.A. (Panama)
4. Perfumes Dana S.A.I.C. (Argentina)
5. Perfumes Dana do Brasil, S.A. (Brazil)
6. Dana Sociedad Anonima (Spain)
7. Starrate Investment (Pty), Ltd. (South Africa)
8. Dana U.K. Limited (U.K.)
9. MEM Company, Inc. (New York)
10. Houbigant (1995) Limited (Canada)
11. RSH 149 S.A.R.L. (France)
Direct Subsidiaries of Estalvi S.A.
1. C.O.M.I.N.S.A. (Panama)
2. Parfums Dana Export Corp. (New York)
Direct Subsidiary of C.O.M.I.N.S.A.
1. Perfumes and Cosmetics Importers, Inc. (Puerto Rico)
Direct Subsidiary of Financiera de Perfumeria S.A.
1. Dana Perfumes (Canada) Limited (Canada)
Direct Subsidiaries of MEM Company, Inc.
1. Aristocrat Leather Products, Inc. (New Jersey)
2. English Leather, Inc. (New Jersey)
3. Marton Freres, Inc. (New York)
4. MEM Company (Canada) Ltd. (Canada)
5. Victor of Milano, Ltd. (Pennsylvania)
6. MEM International, Ltd. (New Jersey)
7. Rosemint Cosmetics Company, Inc. (New Jersey)
8. Tom Fields (France) S.A.R.L. (France)
9. St. Thomas Leatherworks Limited (Jamaica)
10. Alliance Trading Co., Inc. (Puerto Rico)
11. Tom Fields (U.K.) Ltd. (U.K.)
12. Tom Fields, Ltd. (New York)
13. St. Thomas Holdings Inc. (Delaware)
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
To the Board of Directors and Stockholders of
Renaissance Cosmetics, Inc.
New York, NY
We consent to the use in this Amendment No. 1 to Registration Statement
relating to 119,008 shares of 14.0% Senior Redeemable Preferred Stock, Series C
of Renaissance Cosmetics, Inc. on Form S-4 of our report dated June 14, 1996 on
the financial statements of Renaissance Cosmetics Inc. as of March 31, 1996 and
1995 and for the year ended March 31, 1996 and for the period from April 15,
1994 (Inception) to March 31, 1995, and our report dated October 28, 1994
relating to the combined statements of operations of assets acquired and
liabilities assumed, changes in excess of assets acquired and liabilities
assumed and statements of cash flows of assets acquired and liabilities assumed
of Cosmar Corporation and Affiliate for the period from January 1, 1994 to
August 17, 1994, appearing in the Prospectus, which is a part of this
Registration Statement, and to the references to us under the heading "Experts"
in such Prospectus.
Our audits of the financial statements referred to in our aforementioned reports
also included the financial statement schedule of Renaissance Cosmetics Inc.,
and the financial statement schedule for Cosmar Corporation and Affiliate for
the period from January 1, 1994 to August 17, 1994, each listed in the Index at
Item 21(b). These financial statement schedules are the responsibility of the
Company's and Cosmar's management. Our responsibility is to express an opinion
based on our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
January 30, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 21, 1996, with respect to the consolidated
financial statements of MEM Company, Inc. included in Amendment No. 1 to the
Registration Statement (Form S-4 No. 333-13171) and related Prospectus of
Renaissance Cosmetics, Inc. for the registration of 119,008 shares of its 14.0%
Senior Redeemable Preferred Stock, Series C.
/s/ Ernst & Young LLP
-------------------------------
Ernst & Young LLP
Hackensack, New Jersey
January 30, 1997
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
(No. 333-13171) of Renaissance Cosmetics Inc., relating to 115,000 shares of
14.0% Senior Redeemable Preferred Stock, Series C of our report dated April 26,
1994, on the combined statements of income and cash flows of Cosmar Corporation
and Affiliate for the year ended December 31, 1993, appearing in the
Prospectus, which is a part of this Registration Statement, and to the
references to us under the heading "Experts" in such Prospectus.
/s/ Windes & McClaughry
- -------------------------------------------
WINDES & McCLAUGHRY
Long Beach, California
January 30, 1997
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement (No.
333-13171) of Renaissance Cosmetics, Inc., relating to 119,008 shares of 14.0%
Senior Redeemable Preferred Stock, Series C of our report dated July 11, 1996,
on the combined statements of income and cash flows of Great American Cosmetics,
Inc. for the years ended December 31, 1995 and 1994, appearing in the
Prospectus, which is part of this Registration Statement, and to the references
to us under the heading "Experts" in such Prospectus.
/s/ Deutsch, Marin & Co.
- ----------------------------
DEUTSCH, MARIN & COMPANY
East Meadow, New York
January 30, 1997
<PAGE> 1
Exhibit 99.1
LETTER OF TRANSMITTAL
RENAISSANCE COSMETICS, INC.
OFFER TO EXCHANGE ITS
14.0% SENIOR REDEEMABLE PREFERRED STOCK, SERIES C
(THE "SERIES C PREFERRED STOCK")
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
14.0% SENIOR REDEEMABLE PREFERRED STOCK, SERIES B
(THE "SERIES B PREFERRED STOCK")
PURSUANT TO THE PROSPECTUS, DATED ______ __, 1997
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1997 OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED
(THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
TO: FIRSTAR TRUST COMPANY, EXCHANGE AGENT
BY MAIL: BY HAND OR OVERNIGHT DELIVERY:
FIRSTAR TRUST COMPANY FIRSTAR TRUST COMPANY
CORPORATE TRUST SERVICES CORPORATE TRUST SERVICES
P.O. BOX 2077 615 EAST MICHIGAN STREET, 4TH FLOOR
MILWAUKEE, WI 53201 MILWAUKEE, WI 53202
ATTENTION: BARBARA BAHR ATTENTION: BARBARA BAHR
BY FACSIMILE:
(414) 276-4226
CONFIRM BY TELEPHONE:
(414) 287-3922
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX BELOW
------------------------------------------------
<PAGE> 2
2
List below the shares of Series B Preferred Stock to which this
Letter of Transmittal relates. If the space provided below is inadequate,
certificate numbers and number of shares of Series B Preferred Stock represented
thereby should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF SERIES B PREFERRED STOCK (1) (2) (3)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMBER
OF SHARES OF
NUMBER SERIES B
OF SHARES OF PREFERRED STOCK
Name(s) and Address(es) of Registered Holder(s) CERTIFICATE SERIES B TENDERED
(Please fill in, if blank) NUMBER(S)*/ PREFERRED STOCK (IF LESS THAN ALL)**/
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
*/ Need not be completed by book-entry holders.
**/ Unless otherwise indicated, the holder will be deemed to have
tendered the full number of shares represented by such certificates
of Series B Preferred Stock.
- --------------------------------------------------------------------------------
<PAGE> 3
3
The undersigned acknowledges that he or she has received and reviewed
the Prospectus, dated ______________, 1997 (the "Prospectus"), of Renaissance
Cosmetics, Inc., a Delaware corporation (the "Company"), and this Letter of
Transmittal (the "Letter"), which together constitute the Company's offer (the
"Exchange Offer") to exchange shares of 14.0% Senior Redeemable Preferred Stock,
Series C (the "Series C Preferred Stock") of the Company for any and all shares
of the Company's issued and outstanding 14.0% Senior Redeemable Preferred Stock,
Series B (the "Series B Preferred Stock"), respectively, from the holders
thereof.
The undersigned has completed the appropriate boxes above and below and
signed this letter to indicate the action the undersigned desires to take with
respect to the Exchange Offer.
This Letter is to be used either if certificates representing shares of
Series B Preferred Stock are to be forwarded herewith or if delivery of shares
of Series B Preferred Stock is to be made by book-entry transfer to an account
maintained by the Exchange Agent at The Depository Trust Company, pursuant to
the procedures set forth in "The Exchange Offer--Procedures for Tendering Series
B Preferred Stock" in the Prospectus. Delivery of this Letter and any other
required documents should be made to the Exchange Agent. Delivery of documents
to a book-entry transfer facility does not constitute delivery to the Exchange
Agent.
Holders whose shares of Series B Preferred Stock are not immediately
available or who cannot deliver their shares of Series B Preferred Stock and all
other documents required hereby to the Exchange Agent on or prior to the
Expiration Date must tender their shares of Series B Preferred Stock according
to the guaranteed delivery procedure set forth in the Prospectus under the
caption "The Exchange Offer--Procedures for Tendering Series B Preferred Stock."
See Instruction 1.
/ / CHECK HERE IF SHARES OF SERIES B PREFERRED STOCK ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT
WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution / /The Depository Trust Company
------------------
Account Number
-----------------------------------------------------------------
Transaction Code Number
--------------------------------------------------------
/ / CHECK HERE IF SHARES OF SERIES B PREFERRED STOCK ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)
----------------------------------------------------
Name of Eligible Institution that Guaranteed Delivery
---------------------------
If delivered by book-entry transfer:
Name of Tendering Institution
---------------------------------------------------
Account Number
------------------------------------------------------------------
Transaction Code Number
---------------------------------------------------------
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name
---------------------------------------------------------------------------
Address
-------------------------------------------------------------------------
-------------------------------------------------------------------------
<PAGE> 4
4
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the number of shares of Series B
Preferred Stock indicated above. Subject to, and effective upon, the acceptance
for exchange of the shares of Series B Preferred Stock tendered hereby, the
undersigned hereby sells, assigns and transfers to, or upon the order of, the
Company all right, title and interest in and to such shares of Series B
Preferred Stock as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the shares of
Series B Preferred Stock tendered hereby and that the Company will acquire good
and unencumbered title thereto, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim when the same are
accepted by the Company. The undersigned will, upon request, execute and deliver
any additional documents deemed by the Company or the Exchange Agent to be
necessary or desirable to complete the sale, assignment and transfer of the
shares of Series B Preferred Stock tendered hereby.
The undersigned also acknowledges that this Exchange Offer is being
made in reliance on the Company's belief, based on no-action letters issued by
the staff of the Securities and Exchange Commission (the "SEC") to third
parties, that the shares of Series C Preferred Stock issued in exchange for the
shares of Series B Preferred Stock pursuant to the Exchange Offer may be offered
for resale, resold and otherwise transferred by holders thereof (other than (i)
a broker-dealer who purchases such shares of Series C Preferred Stock directly
from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act of 1933, as amended (the "Securities Act"),
or (ii) a person that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such shares
of Series C Preferred Stock are acquired in the ordinary course of such holders'
business and such holders have no arrangement with any person to participate in
the distribution of such shares of Series C Preferred Stock. If the undersigned
is not a broker-dealer or is a broker-dealer but will not receive shares of
Series C Preferred Stock for its own account in exchange for shares of Series B
Preferred Stock, the undersigned represents that (i) the shares of Series C
Preferred Stock acquired pursuant to the Exchange Offer are being obtained in
the ordinary course of such holder's business, (ii) such holder has no
arrangements or understanding with any person to participate in the distribution
of such shares of Series C Preferred Stock, and (iii) such holder is not an
"affiliate" of the Company, as defined in Rule 405 under the Securities Act, or,
if such holder is an affiliate, that such holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. If the undersigned is a broker-dealer that will receive
shares of Series C Preferred Stock for its own account in exchange for shares of
Series B Preferred Stock that were acquired as a result of market-making
activities or other trading activities, it acknowledges that it will deliver a
prospectus in connection with any resale of such shares of Series C Preferred
Stock; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
By acceptance of the Exchange Offer, each broker-dealer that receives
shares of Series C Preferred Stock pursuant to the Exchange Offer hereby
acknowledges and agrees that, upon receipt of notice by the Company of the
happening of any event which makes any statement in the Prospectus untrue in any
material respect or which requires the making of any changes in the Prospectus
in order to make the statements therein not misleading (which notice the Company
agrees to deliver promptly to such broker-dealer), such broker-dealer will
suspend use of the Prospectus until the Company has amended or supplemented the
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented prospectus to such broker-dealer.
The undersigned, if a California resident, hereby further represents
and warrants that the undersigned (or the beneficial owner of the shares of
Series B Preferred Stock tendered hereby, if not the undersigned) (i) is a bank,
savings and loan association, trust company, insurance company, investment
company registered under the Investment Company Act of 1940, pension or
profit-sharing trust (other than a pension or profit-sharing trust of the
Company, a self-employed individual retirement plan, or individual retirement
account), or a corporation which has a net worth on a consolidated basis
according to its most recent audited financial statements of not less than
$14,000,000, and (ii) is acquiring the shares of Series C Preferred Stock for
its own account for investment purposes (or for the account of the beneficial
owner of such shares of Series C Preferred Stock for investment purposes).
<PAGE> 5
5
All authority conferred or agreed to be conferred in this Letter and
every obligation of the undersigned hereunder shall be binding upon the
successors, assigns, heirs, executors, administrators, trustees in bankruptcy
and legal representatives of the undersigned and shall not be affected by, and
shall survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in the instructions
contained in this Letter.
The undersigned understands that tenders of the shares of Series B
Preferred Stock pursuant to any one of the procedures described under "The
Exchange Offer--Procedures for Tendering Series B Preferred Stock" in the
Prospectus and in the instructions hereto will constitute a binding agreement
between the undersigned and the Company in accordance with the terms and subject
to the conditions of the Exchange Offer.
The undersigned recognizes that, under certain circumstances set forth
in the Prospectus under "The Exchange Offer--Certain Conditions to the Exchange
Offer," the Company may not be required to accept for exchange any of the shares
of Series B Preferred Stock tendered. Shares of Series B Preferred Stock not
accepted for exchange or withdrawn will be returned to the undersigned at the
address set forth below unless otherwise indicated under "Special Delivery
Instructions" below.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby requests that the shares of Series C
Preferred Stock (and, if applicable, substitute certificates representing shares
of Series B Preferred Stock for any shares of Series B Preferred Stock not
exchanged) be issued in the name of the undersigned. Similarly, unless otherwise
indicated under the box entitled "Special Delivery Instructions" below, the
undersigned hereby requests that the shares of Series C Preferred Stock (and, if
applicable, substitute certificates representing shares of Series B Preferred
Stock for any shares of Series B Preferred Stock not exchanged) be sent to the
undersigned at the address shown above in the box entitled "Description of
Shares of Series B Preferred Stock."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF SHARES
OF SERIES B PREFERRED STOCK" ABOVE AND SIGNING THIS LETTER AND DELIVERING SUCH
SHARES AND THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE SHARES OF SERIES B
PREFERRED STOCK AS SET FORTH IN SUCH BOX ABOVE.
<PAGE> 6
6
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9)
- --------------------------------------------------------------------------------
X ...................................... .....................................
X ...................................... .....................................
SIGNATURE(S) OF OWNER(S) DATE
Area Code and Telephone Number ..............
If a holder is tendering any shares of Series B Preferred Stock, this Letter
must be signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) for the shares of Series B Preferred Stock or by any person(s)
authorized to become registered holder(s) by endorsements and documents
transmitted herewith. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, please indicate such capacity below. See
Instruction 3.
Name(s): .......................................................................
.......................................................................
(PLEASE TYPE OR PRINT)
Capacity: ......................................................................
Address: .......................................................................
(INCLUDE ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution: .......................................................
(AUTHORIZED SIGNATURE)
...............................................................................
(TITLE)
...............................................................................
(NAME OF FIRM)
Dated: .........................................................................
- --------------------------------------------------------------------------------
<PAGE> 7
7
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if shares of Series C Preferred Stock (and if
applicable shares of Preferred Stock (and if applicable shares of Series B
Preferred Stock not exchanged) are to be issued in the name of and sent to
someone other than the person or persons whose signature(s) appear on this
Letter above.
Issue shares of Series C Preferred Stock (and if applicable shares of Series B
Preferred Stock not exchanged) to:
Name(s): .......................................................................
(PLEASE TYPE OR PRINT)
.......................................................................
(PLEASE TYPE OR PRINT)
Address: .......................................................................
.......................................................................
(INCLUDE ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9
AND SIGNATURE GUARANTEE SECTION)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if shares of Series C Series B Preferred Stock not
exchanged) are to be issued in the name of and sent to someone be sent to
someone other than the person or other than the person or persons whose persons
whose signature(s) appear(s) on this Letter above or to such person or persons
at an address other than shown in the box entitled "Description of Shares of
Series B Preferred Stock" on this Letter above.
Mail shares of Series C Preferred Stock (and if applicable shares of Series B
Preferred Stock Name(s): not exchanged) to:
Name(s): .......................................................................
(PLEASE TYPE OR PRINT)
.......................................................................
(PLEASE TYPE OR PRINT)
Address: .......................................................................
.......................................................................
(INCLUDE ZIP CODE)
- --------------------------------------------------------------------------------
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH,
THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATE(S) FOR SHARES
OF SERIES B PREFERRED STOCK OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF SHARES
OF SERIES B PREFERRED STOCK AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED
BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
<PAGE> 8
8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND SHARES OF SERIES B PREFERRED STOCK; GUARANTEED
DELIVERY PROCEDURE
This Letter is to be used to forward, and must accompany, all shares of
Series B Preferred Stock tendered pursuant to the Exchange Offer. Certificates
representing the shares of Series B Preferred Stock in proper form for transfer
(or a confirmation of book-entry transfer of such shares of Series B Preferred
Stock into the Exchange Agent's account at the book-entry transfer facility) as
well as a properly completed and duly executed copy of this Letter and all other
documents and signature guarantees required by this Letter, must be received by
the Exchange Agent at its address set forth herein on or before the Expiration
Date.
THE METHOD OF DELIVERY OF THIS LETTER, THE SHARES OF SERIES B PREFERRED
STOCK AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
TENDERING HOLDERS. DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR
CONFIRMED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED
THAT REGISTERED MAIL PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, OR AN
OVERNIGHT OR HAND DELIVERY SERVICE, BE USED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO PERMIT TIMELY DELIVERY. NO SHARES OF SERIES B PREFERRED
STOCK SHOULD BE SENT TO THE COMPANY.
If a holder desires to tender shares of Series B Preferred Stock and
the certificates representing such holder's shares of Series B Preferred Stock
are not immediately available or time will not permit such holder's Letter of
Transmittal, certificates representing shares of Series B Preferred Stock (or a
confirmation of book-entry transfer of shares of Series B Preferred Stock into
the Exchange Agent's account at the book-entry transfer facility) or other
required documents to reach the Exchange Agent on or before the Expiration Date,
such holder may nevertheless tender shares of Series B Preferred Stock if:
(a) such tender is made by or through an Eligible Institution (as
defined below);
(b) on or prior to the Expiration Date, the Exchange Agent has received
a telegram, facsimile or letter from such Eligible Institution setting forth the
name and address of the holder of such shares of Series B Preferred Stock, the
name in which such shares of Series B Preferred Stock are registered, if
possible, the certificate number or numbers of the certificate or certificates
representing shares of Series B Preferred Stock to be tendered, and the number
of shares of Series B Preferred Stock tendered and stating that the tender is
being made thereby and guaranteeing that, within three business days after the
Expiration Date, a duly executed Letter of Transmittal, or facsimile thereof,
together with the shares of Series B Preferred Stock in proper form for transfer
(or a confirmation of book-entry transfer of such shares of Series B Preferred
Stock into the Exchange Agent's account at the book-entry transfer facility),
and any other documents required by this Letter and the instructions hereto,
will be deposited by such Eligible Institution with the Exchange Agent; and
(c) this Letter, or a facsimile hereof, and shares of Series B
Preferred Stock in proper form for transfer (or a confirmation of book-entry
transfer of such shares of Series B Preferred Stock into the Exchange Agent's
account at the book-entry transfer facility) and all other required documents
are received by the Exchange Agent within three business days after the
Expiration Date.
See "The Exchange Offer" in the Prospectus.
2. WITHDRAWALS
Any holder who has tendered shares of Series B Preferred Stock may
withdraw the tender by delivering written notice of withdrawal to the Exchange
Agent prior to the Expiration Date. For a withdrawal to be effective, a written
notice of withdrawal sent by letter, telegram or facsimile must be received by
the Exchange Agent at its address or facsimile number set forth herein. Any such
notice of withdrawal must (i) specify the name of the person having tendered
<PAGE> 9
9
the shares of Series B Preferred Stock to be withdrawn (the "Depositor"), (ii)
identify the shares of Series B Preferred Stock to be withdrawn (including the
certificate number or numbers of the certificate or certificates representing
such shares of Series B Preferred Stock, and number of shares of such Series B
Preferred Stock), (iii) be signed by the holder in the same manner as the
original signature on this Letter by which such shares of Series B Preferred
Stock were tendered or as otherwise set forth in Instruction 3 below (including
any required signature guarantees), or be accompanied by documents of transfer
sufficient to have the Transfer Agent (as defined in the Prospectus) register
the transfer of such shares of Series B Preferred Stock into the name of the
person withdrawing the tender and (iv) specify the name in which any such shares
of Series B Preferred Stock are to be registered, if different from that of the
Depositor. If shares of Series B Preferred Stock have been tendered pursuant to
the procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn shares of Series B Preferred Stock or otherwise
comply with the book-entry transfer facility's procedures. See "The Exchange
Offer--Withdrawal Rights" in the Prospectus.
3. SIGNATURES ON THIS LETTER; STOCK POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES
If this Letter is signed by the registered holder of the shares of
Series B Preferred Stock tendered hereby, the signature must correspond exactly
with the name as written on the face of the certificates without any change
whatsoever.
If any tendered shares of Series B Preferred Stock are owned of record
by two or more joint owners, all such owners must sign this Letter.
If any tendered shares of Series B Preferred Stock are registered in
different names on several certificates, it will be necessary to complete, sign
and submit as many separate copies of this Letter as there are different
registrations of certificates.
If this Letter or any shares of Series B Preferred Stock or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, proper evidence satisfactory to the Company of
their authority so to act must be submitted.
The signatures on this Letter or a notice of withdrawal, as the case
may be, must be guaranteed unless the shares of Series B Preferred Stock
surrendered for exchange pursuant thereto are tendered (i) by a registered
holder of the shares of Series B Preferred Stock who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" in
this Letter or (ii) for the account of an Eligible Institution. In the event
that the signatures in this Letter or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guarantees must be by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., or by a commercial bank or trust
company having an office or correspondent in the United States (collectively,
"Eligible Institutions"). If shares of Series B Preferred Stock are registered
in the name of a person other than the signer of this Letter, the shares of
Series B Preferred Stock surrendered for exchange must be endorsed by, or be
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered holder with the signature thereon guaranteed by an
Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
Tendering holders of shares of Series B Preferred Stock should indicate
in the applicable box the name and address to which shares of Series C Preferred
Stock issued pursuant to the Exchange Offer are to be issued or sent, if
different from the name or address of the person signing this Letter. In the
case of issuance in a different name, the employer identification or social
security number of the person named must also be indicated. If no such
instructions are given, any shares of Series C Preferred Stock will be issued in
the name of, and delivered to, the name or address of the person signing this
Letter and any shares of Series B Preferred Stock not accepted for exchange will
be returned to the name or address of the person signing his Letter.
<PAGE> 10
10
5. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9
Under the federal income tax laws, payments that may be made by the
Company on account of shares of Series C Preferred Stock issued pursuant to the
Exchange Offer may be subject to backup withholding at the rate of 31%. In order
to avoid such backup withholding, each tendering holder should complete and sign
the Substitute Form W-9 included in this Letter and either (a) provide the
correct taxpayer identification number ("TIN") and certify, under penalties of
perjury, that the TIN provided is correct and that (i) the holder has not been
notified by the Internal Revenue Service (the "IRS") that the holder is subject
to backup withholding as a result of failure to report all interest or dividends
or (ii) the IRS has notified the holder that the holder is no longer subject to
backup withholding; or (b) provide an adequate basis for exemption. If the
tendering holder has not been issued a TIN and has applied for one, or intends
to apply for one in the near future, such holder should write "Applied For" in
the space provided for the TIN in Part I of the Substitute Form W-9, sign and
date the Substitute Form W-9 and sign the Certificate of Payee Awaiting Taxpayer
Identification Number. If "Applied For" is written in Part I, the Company (or
the Transfer Agent for the shares of Series C Preferred Stock) shall retain 31%
of payments made to the tendering holder during the sixty (60) day period
following the date of the Substitute Form W-9. If the holder furnishes the
Exchange Agent or the Company with its TIN within sixty (60) days after the date
of the Substitute Form W-9, the Company (or the Paying Agent) shall remit such
amounts retained during the sixty (60) day period to the holder and no further
amounts shall be retained or withheld from payments made to the holder
thereafter. If, however, the holder has not provided the Exchange Agent or the
Company with its TIN within such sixty (60) day period, the Company (or the
Paying Agent) shall remit such previously retained amounts to the IRS as backup
withholding. In general, if a holder is an individual, the taxpayer
identification number is the Social Security number of such individual. If the
Exchange Agent or the Company is not provided with the correct taxpayer
identification number, the holder may be subject to a $50 penalty imposed by the
IRS. Certain holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such holder must submit a statement (generally, IRS Form W-8), signed
under penalties of perjury, attesting to that individual's exempt status. Such
statements can be obtained from the Exchange Agent. For further information
concerning backup withholding and instructions for completing the Substitute
Form W-9 (including how to obtain a taxpayer identification number if you do not
have one and how to complete the Substitute Form W-9 if shares of Series B
Preferred Stock are registered in more than one name), consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause
shares of Series B Preferred Stock to be deemed invalidly tendered, but may
require the Company (or the Paying Agent) to withhold 31% of the amount of any
payments made on account of the shares of Series C Preferred Stock. Backup
withholding is not an additional federal income tax. Rather, the federal income
tax liability of a person subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained.
6. TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the
transfer of shares of Series B Preferred Stock to it or its order pursuant to
the Exchange Offer. If, however, shares of Series C Preferred Stock and/or
substitute shares of Series B Preferred Stock not exchanged are to be delivered
to, or are to be registered or issued in the name of, any person other than the
registered holder of the shares of Series B Preferred Stock tendered hereby, or
if tendered shares of Series B Preferred Stock are registered in the name of any
person other than the person signing this Letter, or if a transfer tax is
imposed for any reason other than the transfer of shares of Series B Preferred
Stock to the Company or its order pursuant to the Exchange Offer, the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the shares of Series B Preferred Stock
specified in this Letter.
<PAGE> 11
11
7. WAIVER OF CONDITIONS
The Company reserves the absolute right to waive satisfaction of any or
all conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of shares of Series B Preferred Stock, by
execution of this Letter, shall waive any right to receive notice of the
acceptance of their shares of Series B Preferred Stock for exchange.
Neither the Company nor any other person is obligated to give notice of
defects or irregularities in any tender, nor shall any of them incur any
liability for failure to give any such notice.
9. INADEQUATE SPACE
If the space provided herein is inadequate, the number of shares of
Series B Preferred Stock being tendered and the certificate number or numbers
(if available) should be listed on a separate schedule attached hereto and
separately signed by all parties required to sign this Letter.
10. MUTILATED, LOST, STOLEN OR DESTROYED SHARES OF SERIES B PREFERRED STOCK
Any holder whose certificates representing shares of Series B Preferred
Stock have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent at the address and telephone number indicated above.
<PAGE> 12
12
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYER'S NAME: RENAISSANCE COSMETICS, INC.
<TABLE>
<CAPTION>
- ------------------------------- ------------------------------------------ ---------------------------------------
<S> <C> <C>
SUBSTITUTE PART I--Taxpayer Identification Number
Form W-9 ------------------------------
Department of the Treasury Enter your taxpayer identification Social Security Number
Internal Revenue Service number in the appropriate box. For most
individuals, this is your social OR
security number. If you do not have a
number, see how to obtain a "TIN" in the ------------------------------
enclosed Guidelines. Employer Identification Number
NOTE: If the account is in more than
one name, see the chart on page 2 of the
enclosed Guidelines to determine what
number to give.
----------------------------------------------------------------------------------
PART II--For Payees Exempt From Backup Withholding (see enclosed Guidelines)
----------------------------------------------------------------------------------
PAYER'S REQUEST FOR TAXPAYER CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
IDENTIFICATION NUMBER (TIN) (1) the number shown on this form is my correct Taxpayer Identification Number
AND CERTIFICATION (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not
been notified by the Internal Revenue Service (the "IRS") that I am subject
to backup withholding as a result of a failure to report all interest or
dividends or the IRS has notified me that I am no longer subject to backup
withholding.
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
SIGNATURE DATE
-------------------------------------- -----------------------
- ------------------------------------------------------------------------------------------------------------------
Certification Guidelines -- You must cross out item (2) of the above
certification if you have been notified by the IRS that you are subject to
backup withholding because of underreporting of interest or dividends on your
tax return. However, if after being notified by the IRS that you were subject to
backup withholding you received another notification from the IRS that you are
no longer subject to backup withholding, do not cross out item (2).
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me, and that I mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payer, 31 percent of all
payments made to me on account of the shares of Series C Preferred Stock shall
be retained until I provide a Taxpayer Identification Number to the payer and
that, if I do not provide my Taxpayer Identification Number within sixty (60)
days, such retained amounts shall be remitted to the Internal Revenue Service as
backup withholding and 31 percent of all reportable payments made to me
thereafter will be withheld and remitted to the Internal Revenue Service until I
provide a Taxpayer Identification Number.
SIGNATURE DATE
------------------------------- ---------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE SHARES
OF SERIES C PREFERRED STOCK. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
<PAGE> 13
13
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen:
i.e., 00-0000000. The table below will help determine the number to give the
payer.
- --------------------------------- ------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF--
- --------------------------------- ------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, any one of the
individuals(1/)
3. Husband and wife The actual owner of the
(joint account) account or, if joint funds,
either person(1/)
4. Custodian account of a The minor(2/)
minor (Uniform Gift to Minors
Act)
5. Adult and minor (joint The adult or, if the minor
account) is the only contributor, the
minor(1/)
6. Account in the name of The ward, minor, or
guardian or committee for a incompetent person(3/)
designated ward, minor, or
incompetent person
7. a. The usual revocable The grantor-trustee(1/)
savings trust account
(grantor is also trustee)
b. So-called trust The actual owner(1/)
account that is not a legal
or valid trust under State
law
8. Sole proprietorship account The owner(4/)
- --------------------------------- ------------------------------
- --------------------------------- ------------------------------
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- --------------------------------- ------------------------------
9. A valid trust, The Legal entity (Do not
estate or pension trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated in
the account title.)(5/)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational organization
account
12. Company account held in The company
the name of the business
13. Association, club, The organization
or other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of Agriculture in
the name of a public entity
(such as a State or local
government, school district,
or prison) that receives
agricultural program payments
16. Sole proprietorship The owner(4/)
account
- --------------------------------- ------------------------------
(1/) List first and circle the name of the person whose number you furnish.
(2/) Circle the minor's name and furnish the minor's social security number.
(3/) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4/) Show the name of the owner. See item 8 or 16. You may also enter your
business name.
(5/) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 14
14
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on
ALL payments include the following: A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a), or an individual
retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
- - An international organization or any agency, or instrumentality
thereof.
- - A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a). An exempt
charitable remainder trust, or a non-exempt trust described in section
4947(a)(1).
- - An entity registered at all times under the Investment Company Act of
1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- - Payment to nonresident aliens subject to withholding under section
1441.
- - Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid
in money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $500 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
- - Payments described in section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer.
Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.-- Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
<PAGE> 1
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
14% SENIOR REDEEMABLE PREFERRED STOCK, SERIES B
(THE "SERIES B PREFERRED STOCK")
OF
RENAISSANCE COSMETICS, INC.
This form, or one substantially equivalent hereto, must be used to
tender shares of Series B Preferred Stock pursuant to the Exchange Offer
described in the Prospectus dated __________, 1997 (the "Prospectus") of
Renaissance Cosmetics, Inc., a Delaware corporation (the "Company"), if a holder
of shares of Series B Preferred Stock cannot deliver a Letter of Transmittal to
the Exchange Agent listed below (the "Exchange Agent") or cannot either deliver
the certificates representing the shares of Series B Preferred Stock to be
tendered or complete the procedure for book-entry transfer at or prior to 5:00
P.M., New York City time, on ___________________, 1997 or such later date and
time to which the Exchange Offer may be extended (the "Expiration Date"). This
form, or one substantially equivalent hereto, must be delivered by hand or sent
by telegram, facsimile transmission or mail to the Exchange Agent, and must be
received by the Exchange Agent on or prior to the Expiration Date. See "The
Exchange Offer--Procedure for Tendering Series B Preferred Stock" in the
Prospectus. Capitalized terms used herein and not defined herein shall have the
meanings ascribed thereto in the Prospectus.
To: Firstar Trust Company, Exchange Agent
By Mail: By Hand or Overnight Delivery:
Firstar Trust Company Firstar Trust Company
Corporate Trust Services Corporate Trust Services
P.O. Box 2077 615 E. Michigan Street, 4th Floor
Milwaukee, WI 53201 Milwaukee, WI 53202
Attention: Barbara Bahr Attention: Barbara Bahr
By Facsimile:
(414) 276-4226
Confirm by Telephone:
(414) 287-3922
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby represents that he or she is the holder of the
shares of Series B Preferred Stock indicated below and that the Letter of
Transmittal cannot be delivered to the Exchange Agent and/or either the
certificates representing such shares of Series B Preferred Stock cannot be
delivered to the Exchange Agent or the procedure for book-entry transfer cannot
be completed on or before the Expiration Date. The undersigned hereby tenders
the shares of Series B Preferred Stock indicated below pursuant to the
guaranteed delivery procedures set forth in the Prospectus and the Letter of
Transmittal, receipt of which is hereby acknowledged.
Name(s) of Tendering Holder(s):
-------------------------------------------------
PLEASE TYPE OR PRINT
- --------------------------------------------------------------------------------
SIGNATURES
Address(es):
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
Telephone Number(s):
------------------------------------------------------------
Name(s) in which shares of Series B Preferred Stock are registered:
-------------
CERTIFICATE NO(S). NUMBER OF SHARES
(IF AVAILABLE)(*/) TENDERED
------------------ --------
- ------------------------------------- -----------------------------------------
- ------------------------------------- -----------------------------------------
- ------------------------------------- -----------------------------------------
- ------------------------------------- -----------------------------------------
- ------------------------------------- -----------------------------------------
- --------------------
(*/) Need not be completed by book-entry holders.
<PAGE> 3
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or a correspondent in the
United States, hereby guarantees that the undersigned will deliver to the
Exchange Agent the certificates representing the shares of Series B Preferred
Stock being tendered hereby in proper form for transfer (or a confirmation of
book-entry transfer of such shares of Series B Preferred Stock into the Exchange
Agent's account at the book-entry transfer facility), with any required
signature guarantees and any other required documents, all within three business
days after the Expiration Date.
- ------------------------------------- -----------------------------------------
FIRM AUTHORIZED SIGNATURE
Name:
- ------------------------------------- ------------------------------------
ADDRESS PLEASE TYPE OR PRINT
Title:
- ------------------------------------- -----------------------------------
ZIP CODE
Dated: , 1996
- ------------------------------------- -----------------------------
TELEPHONE NO.
The institution that completes this form must communicate the guarantee
to the Exchange Agent and must deliver the certificates representing any shares
of Series B Preferred Stock (or a confirmation of book-entry transfer of such
shares of Series B Preferred Stock into the Exchange Agent's account at the
book-entry transfer facility) and the Letter of Transmittal to the Exchange
Agent within the time period shown herein. Failure to do so could result in a
financial loss to such institution.
<PAGE> 1
Exhibit 99.3
EXCHANGE AGENCY AGREEMENT
January __, 1997
Firstar Trust Company
Corporate Trust Services
615 East Michigan Street, 4th Floor
Milwaukee, Wisconsin 53201-2077
Ladies and Gentlemen:
Renaissance Cosmetics, Inc., a Delaware corporation (the "Company"),
intends to make an offer (the "Exchange Offer") to exchange its 14% Senior
Redeemable Preferred Stock, Series C, par value $0.01 per share (the "Series C
Preferred Stock"), for its outstanding 14% Senior Redeemable Preferred Stock,
Series B, par value $0.01 per share (the "Series B Preferred Stock"). The terms
and conditions of the Exchange Offer as currently contemplated are set forth in
a prospectus, dated January __, 1997 (the "Prospectus"), distributed to all
record holders of the Series B Preferred Stock. The Series B Preferred Stock and
the Series C Preferred Stock are collectively referred to herein as the
"Preferred Stock."
The Company hereby appoints Firstar Trust Company ("Firstar") to act
as exchange agent (the "Exchange Agent") in connection with the Exchange Offer.
References hereinafter to "you" shall refer to Firstar.
The Exchange Offer is expected to be commenced by the Company on or
about __________, 1997. The Letter of Transmittal accompanying the Prospectus is
to be used by the holders of the Series B Preferred Stock to accept the Exchange
Offer, and contains instructions with respect to the delivery of certificates
representing the shares of Series B Preferred Stock tendered.
The Exchange Offer shall expire at 5:00 P.M., New York City time, on
__________, 1997 or on such later date or time to which the Company may extend
the Exchange Offer (the "Expiration Date"). Subject to the terms and conditions
set forth in the Prospectus, the Company expressly reserves the right to extend
the Exchange Offer from time to time and may extend the Exchange Offer by giving
oral (confirmed in writing) or written notice to you before 9:00 A.M., New York
City time, on the business day following the previously scheduled Expiration
Date.
<PAGE> 2
2
In carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
1. You will perform such duties and only such duties as are
specifically set forth in the section of the Prospectus captioned "The Exchange
Offer" or as specifically set forth herein; provided, however, that in no way
will your general duty to act in good faith be discharged by the foregoing.
2. You are to examine each of the Letters of Transmittal and
certificates representing shares of Series B Preferred Stock and any other
documents delivered or mailed to you by or for holders of the Series B Preferred
Stock to ascertain whether: (i) the Letters of Transmittal and any such other
documents are duly executed and properly completed in accordance with the
instructions set forth therein and (ii) the shares of Series B Preferred Stock
have otherwise been properly tendered. In each case where the Letter of
Transmittal or any other document has been improperly completed or executed or
any of the certificates representing shares of Series B Preferred Stock are not
in proper form for transfer or some other irregularity in connection with the
acceptance of the Exchange Offer exists, you will endeavor promptly to inform
the presenters of the need for fulfillment of all requirements and promptly to
take any other action as may be necessary or advisable to cause such
irregularity to be corrected, and you will promptly notify the Company thereof.
3. With the approval of any of the Chairman, the Chief Executive
Officer, the President, any Vice President and the Secretary (each, a
"Designated Officer") of the Company, or of counsel to the Company (such
approval, if given orally, to be confirmed in writing) or any other party
designated by such a Designated Officer, you are authorized to waive any
irregularities in connection with any tender of shares of Series B Preferred
Stock pursuant to the Exchange Offer.
4. Tenders of shares of Series B Preferred Stock may be made only as
set forth in the Letter of Transmittal and in the section of the Prospectus
captioned "The Exchange Offer -- Procedures for Tendering Series B Preferred
Stock," and shares of Series B Preferred Stock shall be considered properly
tendered to you only when tendered in accordance with the procedures set forth
therein.
Notwithstanding the provisions of this paragraph 4, shares of Series
B Preferred Stock that a Designated Officer of the Company shall approve as
having been properly tendered shall be considered to be properly tendered.
5. You shall advise the Company with respect to any shares of Series
B Preferred Stock received subsequent to the Expiration Date and accept its
instructions with respect to disposition of such shares of Series B Preferred
Stock.
<PAGE> 3
3
6. You shall accept tenders:
(a) in cases where the shares of Series B Preferred Stock are
registered in two or more names only if signed by all named holders;
(b) in cases where the signing person (as indicated on the
Letter of Transmittal) is acting in a fiduciary or a representative capacity
only when proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of shares of
Series B Preferred Stock provided that customary transfer requirements,
including payment of any applicable transfer taxes, have been satisfied.
You shall accept partial tenders of shares of Series B Preferred
Stock where so indicated and as permitted in the Letter of Transmittal and
deliver certificates representing shares of Series B Preferred Stock to the
transfer agent for split-up and return any untendered shares of Series B
Preferred Stock to the holder (or such other person as may be designated in the
Letter of Transmittal) as promptly as practicable.
7. The Company will exchange shares of Series B Preferred Stock duly
tendered for shares of Series C Preferred Stock on the terms and subject to the
conditions set forth in the Prospectus and the Letter of Transmittal. Delivery
of shares of Series C Preferred Stock will be made on behalf of the Company by
you at the rate of one share of Series C Preferred Stock for each share of
Series B Preferred Stock tendered as soon as practicable after notice (such
notice if given orally, to be confirmed in writing) of acceptance of said shares
of Series B Preferred Stock by the Company; provided, however, that in all
cases, shares of Series B Preferred Stock tendered pursuant to the Exchange
Offer will be exchanged only after timely receipt by you of certificates
representing such shares of Series B Preferred Stock, a properly completed and
duly executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees and any other required documents. Unless otherwise
instructed by the Company, you shall issue only whole shares of Series C
Preferred Stock.
8. Tenders pursuant to the Exchange Offer are irrevocable, except
that, subject to the terms and upon the conditions set forth in the Prospectus
and the Letter of Transmittal, shares of Series B Preferred Stock tendered
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date.
9. The Company shall not be required to exchange any shares of
Series B Preferred Stock tendered if any of the conditions set forth in the
Exchange Offer are not met. Notice of any decision by the Company not to
exchange any shares of Series B Preferred Stock tendered shall be given (and
confirmed in writing) by the Company to you.
<PAGE> 4
4
10. If, pursuant to the Exchange Offer, the Company does not accept
for exchange all or part of the shares of Series B Preferred Stock tendered
because of an invalid tender, the occurrence of certain other events set forth
in the Prospectus under the caption "The Exchange Offer -- Certain Conditions to
the Exchange Offer" or otherwise, you shall as soon as practicable after the
expiration or termination of the Exchange Offer return those certificates
representing unaccepted shares of Series B Preferred Stock (or effect
appropriate book-entry transfer), together with any related required documents
and the Letters of Transmittal relating thereto that are in your possession, to
the persons who deposited them.
11. All certificates representing reissued shares of Series B
Preferred Stock, unaccepted shares of Series B Preferred Stock or shares of
Series C Preferred Stock shall be forwarded by (a) first-class certified mail,
return receipt requested under a blanket surety bond protecting you and the
Company from loss or liability arising out of the non-receipt or non-delivery of
such certificates or (b) by registered mail insured separately for the
replacement value of each of such certificates.
12. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons or
to engage or utilize any person to solicit tenders.
13. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those
specifically set forth herein or as may be subsequently agreed to in writing by
you and the Company;
(b) will be regarded as making no representations and having
no responsibilities as to the validity, sufficiency, value or genuineness of any
of the certificates or the shares of Series B Preferred Stock represented
thereby deposited with you pursuant to the Exchange Offer, and will not be
required to and will make no representation as to the validity, value or
genuineness of the Exchange Offer; provided, however, that in no way will your
general duty to act in good faith be discharged by the foregoing;
(c) shall not be obligated to take any legal action hereunder
which might in your reasonable judgment involve any expense or liability, unless
you shall have been furnished with reasonable indemnity;
(d) may reasonably rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice, letter, telegram or
other document or security delivered to you and reasonably believed by you to be
genuine and to have been signed by the proper party or parties;
<PAGE> 5
5
(e) may reasonably act upon any tender, statement, request,
comment, agreement or other instrument whatsoever not only as to its due
execution and validity and effectiveness of its provisions, but also as to the
truth and accuracy of any information contained therein, which you shall in good
faith believe to be genuine or to have been signed or represented by a proper
person or persons;
(f) may rely on and shall be protected in acting upon written
or oral instructions from any Designated Officer of the Company;
(g) may consult with your counsel with respect to any
questions relating to your duties and responsibilities and the written opinion
of such independent counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to be taken by
you hereunder in good faith and in accordance with the written opinion of such
counsel; and
(h) shall not advise any person tendering shares of Series B
Preferred Stock pursuant to the Exchange Offer as to the wisdom of making such
tender or as to the market value or decline or appreciation in market value of
any shares of Series B Preferred Stock.
14. You shall take such action as may from time to time be requested
by the Company (and such other action as you may reasonably deem appropriate) to
furnish copies of the Prospectus, Letter of Transmittal and the Notice of
Guaranteed Delivery or such other forms as may be approved from time to time by
the Company, to all persons requesting such documents and to accept and comply
with telephone requests for information relating to the Exchange Offer, provided
that such information shall relate only to the procedures for accepting (or
withdrawing from) the Exchange Offer. The Company will furnish you with copies
of such documents at your request.
15. You shall advise by cable, telex, facsimile transmission or
telephone, and promptly thereafter confirm in writing to the Company and such
other person or persons as it may request, daily (and more frequently during the
week immediately preceding the Expiration Date and if otherwise requested) up to
and including the Expiration Date, as to the number of shares of Series B
Preferred Stock that have been tendered pursuant to the Exchange Offer and the
items received by you pursuant to this Agreement, separately reporting and
giving cumulative totals as to items properly received and items improperly
received. In addition, you will also inform, and cooperate in making available
to, the Company or any such other person or persons upon oral request made from
time to time prior to the Expiration Date such other information as it or he
reasonably requests. Such cooperation shall include, without limitation, the
granting by you to the Company and such person as the Company may request of
access to those persons on your staff who are responsible for receiving tenders,
in order to ensure that immediately prior to the Expiration Date the Company
shall have received information in sufficient detail to
<PAGE> 6
6
enable it to decide whether to extend the Exchange Offer. You shall prepare a
final list of all persons whose tenders were accepted, the aggregate number of
shares of Series B Preferred Stock tendered, the aggregate number of shares of
Series B Preferred Stock accepted and deliver said list to the Company.
16. Letters of Transmittal and Notices of Guaranteed Delivery shall
be stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to the Company.
17. You hereby expressly waive any lien, encumbrance or right of
set-off whatsoever that you may have with respect to funds deposited with you
for the payment of transfer taxes by reasons of amounts, if any, borrowed by the
Company, or any of its subsidiaries or affiliates pursuant to any loan or credit
agreement with you or for compensation owed to you hereunder.
18. For services rendered as Exchange Agent hereunder, you shall be
entitled to such compensation as set forth on Schedule 1 attached hereto.
19. You hereby acknowledge receipt of the Prospectus and the Letter
of Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except with
respect to the duties, liabilities and indemnification of you as Exchange Agent
which shall be controlled by this Agreement.
20. The Company covenants and agrees to indemnify and hold you in
your capacity as Exchange Agent hereunder harmless against any loss, liability,
cost or expense, including reasonable attorneys' fees arising out of or in
connection with any act, omission, delay or refusal made by you in reasonable
reliance upon any signature, endorsement, assignment, certificate, order,
request, notice, instruction or other instrument or document reasonably believed
by you to be valid, genuine and sufficient and in accepting any tender or
effecting any transfer of shares of Series B Preferred Stock reasonably believed
by you in good faith to be authorized, and in delaying or refusing in good faith
to accept any tenders or effect any transfer of shares of Series B Preferred
Stock; provided, however, that the Company shall not be liable for
indemnification or otherwise for any loss, liability, cost or expense to the
extent arising out of your gross negligence, willful misconduct or bad faith. In
no case shall the Company be liable under this indemnity with respect to any
claim against you unless the Company shall be notified by you, by letter or
cable or by telex confirmed by letter, of the written assertion of a claim
against you or of any other action commenced against you, promptly after you
shall have received any such written assertion or shall have been served with a
summons in connection therewith.
<PAGE> 7
7
In addition, the Company shall not be liable for any loss, liability, cost or
expense resulting from a settlement entered into without its consent. The
Company shall be entitled to participate at its own expense in the defense of
any such claim or other action, and, if the Company so elects, the Company shall
assume the defense of any suit brought to enforce any such claim. In the event
that the Company shall assume the defense of any such suit, the Company shall
not be liable for the fees and expenses of any additional counsel thereafter
retained by you, so long as the Company shall retain counsel reasonably
satisfactory to you to defend such suit.
21. You shall arrange to comply with all requirements under the tax
laws of the United States, including those relating to missing Tax
Identification Numbers, and shall file any appropriate reports with the Internal
Revenue Service. The Company understands that you are required to deduct 31% on
payments to holders who have not supplied their correct Taxpayer Identification
Number or required certification. Such funds will be turned over to the Internal
Revenue Service.
22. You shall deliver or cause to be delivered, in a timely manner
to each governmental authority to which any transfer taxes are payable in
respect of the exchange of shares of Series B Preferred Stock, your check in the
amount of all transfer taxes so payable, and the Company shall reimburse you for
the amount of any and all transfer taxes payable in respect of the exchange of
shares of Series B Preferred Stock; provided, however, that you shall reimburse
the Company for amounts refunded to you in respect of your payment of any such
transfer taxes, at such time as such refund is received by you.
23. This Agreement and your appointment as Exchange Agent hereunder
shall be construed and enforced in accordance with the laws of the State of New
York applicable to agreements made and to be performed entirely within such
state, and shall inure to the benefit of, and the obligations created hereby
shall be binding upon, the successors and assigns of each of the parties hereto.
This Agreement may not be modified orally.
24. This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
25. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
26. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged.
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8
27. Unless otherwise provided herein, all notices, requests and
other communications to any party hereunder shall be in writing (including
telecopy or similar writing) and shall be given to such party, addressed to it,
at its address or telecopy number set forth below:
If to the Company:
Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, NY 10022
Facsimile: (212) 371-7868
Attention: General Counsel
If to the Exchange Agent:
Firstar Trust Company
Corporate Trust Services
P.O. Box 2077
Milwaukee, Wisconsin 53201
Facsimile: (414) 276-4226
Attention: Barbara Bahr
28. Unless terminated earlier by the parties hereto, this Agreement
shall terminate 90 days following the Expiration Date. Upon any termination of
this Agreement, you shall promptly deliver to the Company any certificates,
funds or property then held by you as Exchange Agent under this Agreement.
29. This Agreement shall be binding and effective as of the date
hereof.
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9
Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
RENAISSANCE COSMETICS, INC.
By:_________________________________
Name:
Title:
Accepted as of the date first above written.
FIRSTAR TRUST COMPANY
By:______________________________
Name:
Title:
Attested By:
_________________________________
Name:
Title:
<PAGE> 10
Schedule 1
FEE SCHEDULE
Pursuant to Paragraph EIGHTEEN of the Exchange Agency Agreement, the fee
for the Agent is $1,500 plus out-of-pocket expenses.
