<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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)
------------------------
RENAISSANCE GUARANTOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2844 APPLIED FOR
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
635 MADISON AVENUE
NEW YORK, NEW YORK 10022
(212)751-3700
(NAME, 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:
MITCHELL S. FISHMAN, 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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 3/4% Senior Notes due 2004................. $200,000,000 100% $206,750,000 $62,651.52
- ------------------------------------------------------------------------------------------------------------------------------
Subsidiary Guarantee of Notes................. $200,000,000 (2) (2) (3)
==============================================================================================================================
</TABLE>
(1) Determined solely for the purposes of calculating the registration fee in
accordance with Rule 457 promulgated under the Securities Act of 1933, as
amended, and based upon the average of the bid and asked prices on March 18,
1997.
(2) No separate consideration will be received for the Subsidiary Guarantee.
(3) Pursuant to Rule 457(n), no separate fee is payable.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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.
================================================================================
<PAGE> 2
SUBJECT TO COMPLETION DATED MARCH , 1997
PRELIMINARY PROSPECTUS
LOGO
OFFER TO EXCHANGE ITS 11 3/4% SENIOR NOTES DUE 2004 WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT FOR ANY AND ALL OF ITS OUTSTANDING 11 3/4% SENIOR NOTES
DUE 2004.
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
, 1997, UNLESS EXTENDED.
------------------------
Renaissance Cosmetics, Inc., a Delaware corporation (the "Company") hereby
offers to exchange up to $200,000,000 aggregate principal amount of its 11 3/4%
Senior Notes due 2004 (the "New Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for a like principal
amount of its 11 3/4% Senior Notes due 2004 outstanding on the date hereof (the
"Existing Notes") 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"). The terms of the New Notes are identical in
all material respects to those of the Existing Notes, except for certain
transfer restrictions and registration rights relating to the Existing Notes.
The New Notes will be issued pursuant to, and entitled to the benefits of, the
indenture, dated as of February 7, 1997 (the "Indenture"), between the Company
and United States Trust Company of New York, as trustee, governing the Existing
Notes. The Existing Notes and New Notes outstanding under the Indenture at any
time are referred to collectively as the "Notes."
Interest on the Notes will be payable in cash semiannually on each February
15 and August 15, commencing August 15, 1997. In connection with the offering of
the Existing Notes on February 7, 1997 (the "Offering"), the Company transferred
$17.5 million of the net proceeds from the Offering to a newly-formed,
wholly-owned, single-purpose subsidiary (the "Guarantor") in exchange for a
limited guarantee by the Guarantor of the Company's obligations under the Notes.
The Guarantor then placed such amount into an escrow account (the "Escrow
Account") for the benefit of the holders of the Notes. Until disbursed in
accordance with the related escrow agreement and the Indenture, the Escrow
Account is designed to provide security for a portion of the Company's
obligations under the Notes for the first two years after the issue date of the
Notes. The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after February 15, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest thereon to the redemption date.
In addition, the Company, at its option, may redeem at any time on or prior to
February 15, 2000, in the aggregate up to 35% of the original principal amount
of the Notes at a redemption price equal to 111.75% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon to the redemption date,
with the Net Proceeds (as defined herein) of one or more Public Equity Offerings
(as defined herein) or Strategic Equity Investments (as defined herein);
provided, that at least $130.0 million of the principal amount of the Notes
originally issued remains outstanding immediately after the occurrence of any
such redemption and that any such redemption occurs within 90 days following the
closing of any such Public Equity Offering or Strategic Equity Investment.
Upon a Change of Control (as defined herein), the Company will be required
to make an offer to purchase all outstanding Notes at a purchase price equal to
101% of the principal amount thereof, plus accrued and unpaid interest thereon
to the purchase date. In addition, the Company will be obligated in certain
instances to make an offer to purchase the Notes at a purchase price equal to
100% of the principal amount thereof plus accrued and unpaid interest thereon to
the purchase date with the Available Asset Sale Proceeds (as defined herein) of
certain asset sales.
The Notes are general unsecured obligations of the Company except to the
extent they are collateralized by a first priority security interest in the
Escrow Account granted by the Guarantor. The Notes rank pari passu in right of
payment with all existing and future senior indebtedness of the Company (except
as to senior secured indebtedness of the Company) and rank senior to all
existing and future subordinated indebtedness of the Company. The Notes are
effectively subordinated to all existing and future indebtedness and other
liabilities and commitments of the Company's subsidiaries (other than the
Guarantor), including the New Revolving Credit Facility (as defined herein). The
New Revolving Credit Facility contains a provision which permits the lenders
thereunder to block payments to the Company from its subsidiaries (other than
the Guarantor) following a payment default, or for a period of 179 days
following a non-payment default, under the New Revolving Credit Facility. This
provision does not affect the ability of the holders of the Notes to accelerate
the maturity of the Notes or to seek other available remedies in the event of
any resulting payment default on the Notes. See "Description of Certain Other
Indebtedness -- New Revolving Credit Facility."
The Indenture permits the Company and its subsidiaries to incur additional
indebtedness, including up to $75.0 million of indebtedness of subsidiaries
under the New Revolving Credit Facility, subject to certain limitations. See
"Description of the Notes." At December 31, 1996, the Company had outstanding
$5.0 million aggregate principal amount ($3.8 million accreted amount) of
indebtedness which is subordinated to the Notes. The Company does not have
outstanding, and currently does not have any arrangements to issue, any other
significant indebtedness that will be subordinated to the Notes. See
"Description of the Notes -- General."
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF EXISTING NOTES AND PROSPECTIVE
PURCHASERS OF NEW NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1997.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<PAGE> 3
(Continued from previous page)
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Note Registration Rights Agreement,
dated as of February 7, 1997 (the "Registration Rights Agreement"), between the
Company and CIBC Wood Gundy Securities Corp., as the initial purchaser (the
"Initial Purchaser") of the Existing Notes, with respect to the initial sale of
the Existing Notes.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all of the expenses incident to the Exchange Offer. Tenders of
Existing Notes pursuant to the Exchange Offer may be withdrawn at any time prior
to the Expiration Date (as defined) of the Exchange Offer. The Company expressly
reserves the right to terminate or amend the Exchange Offer and not to accept
for exchange any Existing Notes not theretofore accepted for exchange upon the
occurrence of any of the events specified under "The Exchange Offer--Conditions
to the Exchange Offer." If any such termination or amendment occurs, the Company
will notify the Exchange Agent and will either issue a press release or give
oral or written notice to the holders of the Existing Notes as promptly as
practicable. 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 for which the Exchange Offer is open, provided,
however, that the Exchange Offer will not be extended beyond
, 1997. In the event the Company terminates the Exchange
Offer and does not accept for exchange any Existing Notes with respect to the
Exchange Offer, the Company will promptly return such Existing Notes to the
holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivery of 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 New Notes
received in exchange for Existing Notes where such Existing Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the
Existing Notes. Holders of the Existing Notes whose Existing Notes are not
tendered and accepted in the Exchange Offer will continue to hold the Existing
Notes. Following consummation of the Exchange Offer, the holders of the Existing
Notes 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 registration under the Securities Act
of the Existing Notes held by them. To the extent Existing Notes are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted Existing Notes could be adversely affected.
The Company currently does not intend to list the New Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active public market for the
New Notes will develop.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange pursuant to the Exchange Offer.
<PAGE> 4
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION 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, ANY OF THE NEW NOTES OR EXISTING NOTES BY ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH
AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE
EXCHANGE PROPOSED TO BE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS.
THE EXCHANGE OFFER IS NOT BEING MADE TO , NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF EXISTING NOTES 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.
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.
Pursuant to the Indenture, the Company has agreed to provide the Trustee
and holders and prospective holders of the Notes with annual, quarterly and
other reports at the times and containing in all material respects the
information specified in Sections 13 and 15(d) of the Exchange Act and to file
such reports with the Commission, whether or not the Company is subject to such
filing requirements.
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.
<PAGE> 5
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. Certain, but not necessarily all, of
such forward-looking statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategies that involve risks and
uncertainties. 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 future
acquisitions, including obtaining required approvals from its existing lenders
for such acquisitions; changes in the retail industry; changes in consumer
preferences; competition; availability of key personnel; foreign currency
exchange rates; industry capacity; development and operating costs; advertising
and promotional efforts; brand awareness; acceptance of new product offerings;
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.
2
<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 61 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 nine months ended December 31, 1996, the Company generated net sales of
$131.3 million and $124.6 million, respectively, and EBITDA of $16.5 million and
$14.2 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 the first 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.
3
<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. Subject to the limitations imposed by the New Revolving Credit
Facility and the Indenture, 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 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
4
<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
recently 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.
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 (61 as of February 24, 1997) 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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<PAGE> 9
TRANSACTIONS RELATED TO THE OFFERING
On December 4, 1996, Cosmar entered into a Senior Secured Credit Agreement,
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"), pursuant to which Cosmar borrowed $117.5
million and received net proceeds of $113.2 million. Such net proceeds were used
to finance the MEM Acquisition (after application of a $33.8 million certificate
of deposit, plus approximately $537,000 of accrued interest thereon), to finance
the P&G Acquisition and to repay all outstanding indebtedness under the
Company's then-existing credit facility (the "Old Credit Facility") with Nomura
Holding America, Inc. ("Nomura"), which was terminated on such date
(collectively, the "Transactions"), and the remainder was used for general
corporate purposes. The Senior Secured Credit Facility had an initial term of
one year, subject to extension under certain circumstances, and the indebtedness
under the Senior Secured Credit Facility bore interest at an initial interest
rate of 11.5% per annum, which would have increased 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 was secured by
substantially all of the assets of Cosmar, the Company and the other guarantors.
On December 24, 1996, the Company commenced an offer to purchase all of its
outstanding $65.0 million principal amount of 13 3/4% Senior Notes due 2001,
Series B (the "Old Senior Notes"), at a price of $1,165 for each $1,000
principal amount thereof (plus accrued interest thereon) (the "Old Senior Notes
Offer").
On February 7, 1997, the Company completed the Offering, pursuant to which
it received net proceeds of approximately $192.1 million. Such net proceeds,
together with $23.7 million of the Company's available cash were used as
follows: (i) $80.0 million was used to finance the purchase of all of the
then-outstanding $65.0 million principal amount of Old Senior Notes, which was
tendered and purchased by the Company pursuant to the Old Senior Notes Offer, at
a price of $1,165 for each $1,000 principal amount thereof (plus accrued
interest thereon); (ii) $118.3 million was used to repay all outstanding
indebtedness under the Senior Secured Credit Agreement; and (iii) $17.5 million
was used to fund the Escrow Account.
In connection with the Old Senior Notes Offer, the Company also solicited
and obtained consents from the holders of the then-outstanding Old Senior Notes
to amend the Indenture, dated as of August 18, 1994, as amended, between the
Company and American Bank National Association, as trustee (the "Old
Indenture"), pursuant to which the Old Senior Notes were issued. The amendments
eliminated substantially all of the restrictive covenants contained in the Old
Indenture. Shares of the Company's Redeemable Preferred Stock (as defined
herein) are exchangeable into senior notes issued under the Old Indenture under
certain circumstances.
6
<PAGE> 10
THE EXCHANGE OFFER
Securities Offered ............. Up to $200,000,000 aggregate principal amount
of 11 3/4% Senior Notes due 2004 (the "New
Notes") which have been registered under the
Securities Act. The terms of the New Notes
and those of the Existing Notes are identical
in all material respects, except for certain
transfer restrictions relating to the
Existing Notes.
The Exchange Offer ............ The New Notes are being offered in exchange
for a like principal amount of Existing
Notes. Existing Notes may be exchanged only
in integral multiples of $1,000. The issuance
of the New Notes is intended to satisfy
obligations of the Company under the
Registration Rights Agreement.
Expiration Date;
Withdrawal of Tender ........ 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 is
extended by the Company, provided, however,
that the Exchange Offer will not be extended
beyond , 1997. The tender of
Existing Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to the
Expiration Date. Any Existing Notes not
accepted for exchange for any reason will be
returned without expense to the tendering
holder thereof as promptly as practicable
after the expiration or termination of the
Exchange Offer.
Conditions to the Exchange
Offer .......................... The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. The Company currently expects
that each of the conditions will be satisfied
and that no waivers will be necessary. See
"The Exchange Offer -- Conditions to the
Exchange Offer."
Procedures for Tendering
Existing Notes ............... Each holder of Existing Notes wishing to
accept the Exchange Offer must complete, sign
and date a Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
such Existing Notes and any other required
documentation, to the Exchange Agent (as
defined) at the address set forth herein. See
"The Exchange Offer -- Procedures for
Tendering Existing Notes."
Use of Proceeds ................ There will be no proceeds to the Company from
the exchange of Notes pursuant to the
Exchange Offer.
Certain Federal Income
Tax Considerations ........... The exchange pursuant to the Exchange Offer
should not be a taxable event for federal
income tax purposes. See "Certain Federal
Income Tax Considerations."
Exchange Agent ................. United States Trust Company of New York is
serving as the Exchange Agent in connection
with the Exchange Offer.
7
<PAGE> 11
CONSEQUENCE OF EXCHANGING EXISTING NOTES
PURSUANT TO THE EXCHANGE OFFER
Based on certain no action letters issued by the staff of the Commission to
third parties in unrelated transactions, the Company believes that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any holder who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or (ii) any broker-dealer that purchases Notes from the Company to resell
pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other
available exemption) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of the holder's business and such holders have
no arrangement or understanding with any person to participate in a distribution
of such New Notes and are not participating in, and do not intend to participate
in, the distribution of such New Notes. By tendering, each holder will represent
to the Company in the Letter of Transmittal that, among other things, the New
Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving such New Notes, whether or not such
person is the holder, that neither the holder nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such New Notes, that neither the holder nor any such other person is
participating in or intends to participate in the distribution of such New Notes
and that neither the holder nor any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company. Each broker-dealer
that receives New Notes for its own account in exchange for Existing Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution." In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdiction or an exemption from registration or qualification is
available and complied with. The Company has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified limitations
therein, to register or qualify the New Notes for offer or sale under the
securities or blue sky laws of such jurisdictions as any holder of the Notes
reasonably requests in writing. If a holder of Existing Notes does not exchange
such Existing Notes for New Notes pursuant to the Exchange Offer, such Existing
Notes will continue to be subject to the restrictions on transfer contained in
the legend thereon. In general, the Existing Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. See "The Exchange Offer -- Consequences of Failure to
Exchange; Resales of New Notes."
The Existing Notes are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
Following commencement of the Exchange Offer but prior to its consummation, the
Existing Notes may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the New Notes will not be eligible for
PORTAL trading.
8
<PAGE> 12
THE NOTES
Except as otherwise indicated, the following description relates both to
the Existing Notes issued pursuant to the Offering and to the New Notes to be
issued in exchange for Existing Notes in connection with the Exchange Offer. The
New Notes will be obligations of the Company evidencing the same indebtedness as
the Existing Notes, and will be entitled to the benefits of the same Indenture.
The form and terms of the New Notes are the same as the form and terms of the
Existing Notes, except that the New Notes have been registered under the
Securities Act and therefore will not bear legends restricting the transfer
thereof. For a more complete description of the Notes see "Description of
Notes." Throughout this Prospectus, references to the "Notes" refer to the New
Notes and the Existing Notes collectively.
Issuer ......................... Renaissance Cosmetics, Inc.
Securities Offered ............. $200,000,000 principal amount of 11 3/4%
Senior Notes due 2004.
Maturity Date .................. February 15, 2004.
Interest Rate .................. The Notes bear interest at a rate of 11 3/4%
per annum.
Interest Payment Dates ......... February 15 and August 15, commencing August
15, 1997.
Escrow Account ................. In connection with the closing of the
Offering, the Company transferred $17.5
million of the net proceeds from the Offering
to the Guarantor (as defined herein) in
exchange for a limited guarantee by the
Guarantor of the Company's obligations under
the Notes. The Guarantor then placed such
amount into an escrow account (the "Escrow
Account") for the benefit of the holders of
the Notes. Until disbursed in accordance with
the related escrow agreement and the
Indenture (as defined herein), the Escrow
Account is designed to provide security for a
portion of the Company's obligations under
the Notes for the first two years after the
Issue Date. Pending such disbursement, all
funds contained in the Escrow Account will be
invested in Temporary Cash Investments (as
defined herein).
Guarantor ...................... Renaissance Guarantor, Inc. (the
"Guarantor"), a special-purpose corporation,
is a newly-formed, wholly-owned subsidiary of
the Company and is subject to restrictions
substantially limiting its activities to
providing a guarantee (to the extent of the
value of the Guarantor's property) of the
obligations of the Company under the Notes,
holding title to the Escrow Account and
making payments from the proceeds of the
Escrow Account to the holders of the Notes.
Security; Ranking .............. The Notes are general unsecured obligations
of the Company except to the extent they are
collateralized by a first priority security
interest in the Escrow Account granted by the
Guarantor. The Notes rank pari passu in right
of payment with all existing and future
senior indebtedness of the Company (except as
to senior secured indebtedness of the
Company) and rank senior to all existing and
future subordinated indebtedness of the
Company. The Indenture permits the Company
and its subsidiaries to incur additional
indebtedness including up to $75.0 million of
indebtedness of subsidiaries under the New
Revolving Credit Facility, subject to certain
limitations. See "Description of the Notes."
At December 31, 1996, the Company had
outstanding $5.0 million aggregate principal
amount ($3.8 mil-
9
<PAGE> 13
lion accreted amount) of indebtedness which
is subordinated to the Notes. The Company
does not have outstanding, and currently does
not have any arrangements to issue, any other
significant indebtedness that will be
subordinated to the Notes. See "Description
of the Notes -- General." The Notes are
effectively subordinated to all existing and
future indebtedness and other liabilities and
commitments of the Company's subsidiaries,
including the Company's New Revolving Credit
Facility (as defined herein). The New
Revolving Credit Facility contains a
provision which permits the lenders
thereunder to block payments to the Company
from its subsidiaries (other than the
Guarantor) following a payment default, or
for a period of 179 days following a
non-payment default, under the New Revolving
Credit Facility. This provision will not
affect the ability of the holders of the
Notes to accelerate the maturity of the Notes
or to seek other available remedies in the
event of any resulting payment default on the
Notes.
Mandatory Redemption ........... There are no mandatory redemption
requirements with respect to the Notes.
Optional Redemption ............ The Notes will be redeemable at the option of
the Company, in whole or in part, at any time
on or after February 15, 2002, at the
redemption prices set forth herein, plus
accrued and unpaid interest thereon to the
redemption date. In addition, the Company, at
its option, may redeem at any time on or
prior to February 15, 2000, in the aggregate
up to 35% of the original principal amount of
the Notes at a redemption price equal to
111.75% of the aggregate principal amount
thereof, plus accrued and unpaid interest
thereon to the redemption date, with the Net
Proceeds (as defined herein) of one or more
Public Equity Offerings (as defined herein)
or Strategic Equity Investments (as defined
herein); provided, that at least $130.0
million of the principal amount of the Notes
originally issued remains outstanding
immediately after the occurrence of any such
redemption and that any such redemption
occurs within 90 days following the closing
of any such Public Equity Offering or
Strategic Equity Investment.
Change of Control .............. Upon a Change of Control (as defined herein),
the Company will be required to make an offer
to purchase all outstanding Notes at a
purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid
interest thereon to the purchase date.
However, the New Revolving Credit Facility
restricts the purchase of the Notes by the
Company, unless and until such time as the
indebtedness under the New Revolving Credit
Facility has been repaid in full. The New
Revolving Credit Facility also provides that
the indebtedness thereunder may become due in
the event of a "Change of Control" as defined
therein. In the event of a Change of Control,
there can be no assurance that the Company
would have sufficient assets to satisfy all
of its obligations under the New Revolving
Credit Facility and the Notes. See
"Description of the Notes -- Change of
Control Offer."
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<PAGE> 14
Asset Sale Proceeds............. The Company will be obligated in certain
instances to make an offer to purchase the
Notes at a purchase price equal to 100% of
the principal amount thereof plus accrued and
unpaid interest thereon to the purchase date
with the Available Asset Sale Proceeds (as
defined herein) of certain asset sales. See
"Description of the Notes -- Certain
Covenants -- Limitation on Certain Asset
Sales."
Certain Covenants............... The Indenture governing the Notes (the
"Indenture") contains covenants for the
benefit of the holders of the Notes that,
among other things, restrict the ability of
the Company and its Subsidiaries (as defined
herein) to: (i) incur additional Indebtedness
(as defined herein); (ii) pay dividends and
make distributions; (iii) make certain
investments; (iv) create liens; (v) enter
into transactions with affiliates; (vi) issue
stock of its Subsidiaries; (vii) enter into
agreements restricting the ability of such
Subsidiaries to pay dividends and make
distributions; (viii) enter into sale and
leaseback transactions; (ix) merge or
consolidate the Company; (x) transfer or sell
assets; and (xi) finance certain
acquisitions. These covenants are subject to
a number of important exceptions. See
"Description of the Notes -- Certain
Covenants."
COMPARISON OF NEW NOTES WITH EXISTING NOTES
Freely Transferable ............ Generally, the New Notes will be freely
transferable under the Securities Act by
holders thereof other than any holder that is
either an affiliate of the Company or a
broker-dealer that purchased the Notes from
the Company to resell pursuant to Rule 144A
or any other available exemption. The New
Notes otherwise will be substantially
identical in all material respects (including
interest rate and maturity) to the Existing
Notes. See "The Exchange Offer."
Registration Rights ............ The holders of Existing Notes currently are
entitled to certain registration rights
pursuant to the Note Registration Rights
Agreement (the "Registration Rights
Agreement"), dated as of February 7, 1997,
between the Company and the Initial
Purchaser. However, upon consummation of the
Exchange Offer, subject to certain
exceptions, holders of Existing Notes who do
not exchange their Existing Notes for New
Notes in the Exchange Offer will no longer be
entitled to registration rights and will not
be able to offer or sell their Existing
Notes, unless such Existing Notes are
subsequently registered under the Securities
Act (which, subject to certain limited
exceptions, the Company will have no
obligations to do), except pursuant to an
exemption from, or in a transaction not
subject to, the Securities Act and applicable
state securities laws. See "Risk Factors --
Adverse Consequences of Failure to Adhere to
Exchange Offer Procedures."
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<PAGE> 15
Absence of a Public Market for
the New Notes................. The New Notes are new securities and there is
currently no established market for the New
Notes. Accordingly, there can be no assurance
as to the development or liquidity of any
market for the New Notes. The Company does
not intend to apply for listing on a
securities exchange of the New Notes.
RISK FACTORS
Holders of Existing Notes and prospective purchasers of New Notes should
carefully consider all of the information set forth in this Prospectus and, in
particular, should evaluate the specific factors set forth under "Risk Factors"
in connection with the Exchange Offer.
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<PAGE> 16
RISK FACTORS
Set forth below are the principal risk factors involved in an exchange of
or investment in the Notes. Holders of Existing Notes and prospective purchasers
of the New Notes should carefully consider these risk factors as well as the
other information set forth elsewhere in this Prospectus, which may affect a
decision to acquire the New Notes. For a discussion of certain potential tax
consequences of such investment, see "Certain Federal Income Tax
Considerations."
HIGH LEVEL OF INDEBTEDNESS AND LEVERAGE AND POSSIBLE INABILITY TO MEET DEBT
SERVICE OBLIGATION
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 December 31, 1996, the
Company had $185.1 million of total debt and $203.8 million of total debt on a
pro forma basis after giving effect to the Offering and the use of proceeds
therefrom. 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 has entered into an
agreement with General Electric Capital Corporation ("GECC") with respect to a
revolving credit facility under which GECC and other lenders have agreed to
provide Dana with a senior secured revolving credit facility for working capital
purposes with a maximum committed amount of $75.0 million subject to a borrowing
base calculation based upon eligible inventories and accounts receivable (the
"New Revolving Credit Facility"). The New Revolving Credit Facility prohibits
the Company from making acquisitions without the consent of 66 2/3% the lenders
thereto. Any default under this facility would have a material adverse effect on
the Company including its ability to implement its current business plan. See
"Recent Developments -- New Revolving Credit Facility" and "Description of
Certain Other Indebtedness -- New Revolving Credit Facility."
The Company experienced net losses applicable to common stockholders of
$19.9 million, $13.4 million and $6.2 million in the nine months ended December
31, 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 Notes 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; (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 Indenture (or any replacement thereof) and the
New Revolving Credit Facility (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.
STRUCTURAL SUBORDINATION AND LIMITS ON PAYMENTS FROM SUBSIDIARIES
The Company is a holding company and its assets consist primarily of
investments in its subsidiaries. The Company's ability to pay principal of and
interest on the Notes and to purchase Notes in the event of a Change of Control
(as defined herein) is dependent primarily upon the earnings of its
subsidiaries, and the
13
<PAGE> 17
distribution or other payment of such earnings to the Company. The New Revolving
Credit Facility restricts (and any replacement thereof will likely restrict) the
ability of the Company's subsidiaries (other than the Guarantor) to pay
dividends to the Company. Except for the Guarantor, the Company's subsidiaries
have not guaranteed and will not be required to guarantee the Company's
obligations under the Notes. The Company's rights and the rights of its
stockholders and creditors to participate in the distribution of assets of any
person in which the Company owns only 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 New Revolving
Credit Facility). Accordingly, the rights of holders of the Notes will be
effectively subordinated to such claims.
The New Revolving Credit Facility contains a provision which permits the
lenders thereunder to block payments to the Company from its subsidiaries (other
than the Guarantor) following a payment default, or for a period of 179 days
following a non-payment default, under the New Revolving Credit Facility. This
provision will not affect the ability of the holders of the Notes to accelerate
the maturity of the Notes or to seek other available remedies in the event of
any resulting payment default on the Notes. See "Description of Certain Other
Indebtedness -- New Revolving Credit Facility."
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 or sufficient
financing for such 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. The New Revolving Credit
Facility prohibits the Company from making acquisitions without the consent of
66 2/3% of the lenders thereto. Also, the Indenture will generally require that
the Company comply with the covenant described under "Description of the Notes
- -- Certain Covenants -- Limitation on Additional Indebtedness" in order to incur
indebtedness to complete acquisitions, including any borrowings under the New
Revolving Credit Facility. The Indenture, however, does allow the use of
borrowings under the New Revolving Credit Facility to complete acquisitions to
the extent permitted by the terms of the New Revolving Credit Facility if the
Company meets certain EBITDA targets. See "Description of the Notes -- Certain
Covenants -- Financing of Certain 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 declined 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 $201.3 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.
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<PAGE> 18
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 New Revolving Credit Facility contain (and any
replacement thereof 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
New Revolving Credit Facility also contain (and any replacement thereof likely
will contain) provisions relating to a change of control of the Company. The New
Revolving Credit Facility also requires (and any replacement thereof likely will
require) 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 New
Revolving Credit Facility, in which event the lenders under the New Revolving
Credit Facility could elect to declare all outstanding amounts borrowed
thereunder, together with accrued interest thereon, to be due and payable. Such
acceleration could also constitute an event of default under the Notes. As a
result of the priority and security afforded to the New Revolving Credit
Facility, there can be no assurance that the Company would have sufficient funds
to pay indebtedness outstanding under both the New Revolving Credit Facility and
the Notes in the event of such acceleration. Acceleration of such indebtedness
would have a material adverse effect on the Company.
PRIORITY OF SECURED INDEBTEDNESS
The Company's obligations under the New Revolving Credit Facility are
secured by substantially all of the assets of the Company, all of its material
domestic subsidiaries (other than the Guarantor) and all directly-owned Canadian
subsidiaries of the Company and its domestic subsidiaries. In addition, the
Indenture does not limit the extent to which future indebtedness of the Company
or its subsidiaries, to the extent such indebtedness is permitted under the
Indenture, may be secured by liens on the assets and properties of the Company
or its subsidiaries (other than the Guarantor). See "Description of the
Notes -- Certain Covenants -- Limitation on Liens; and -- Limitation on
Dividends and Other Payment Restrictions Affecting Subsidiaries."
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 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 could have a material
adverse effect on the Company's operations. 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 of their equity interests in the Company. See
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<PAGE> 19
"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"), owned 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
of December 31, 1996. 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, any person, other than KKEP and certain other permitted
holders, own more than 35% of the voting power of the Company and the permitted
holders, together with officers and 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 purchase the Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest thereon. The New Revolving
Credit Facility includes provisions regarding a change of control. Under the New
Revolving Credit Facility, a change of control would be triggered if, for among
other reasons, any person, other than KKEP and certain other permitted holders,
own more than 35% of the voting power of the Company, or the permitted holders
together with the officers and employees of the Company beneficially own a
lesser percentage of the total voting power of the Company and do not have the
right or ability to elect a majority of the board of directors of the Company,
thereby allowing the indebtedness thereto to be accelerated. See "Description of
Certain Other Indebtedness -- New Revolving Credit Facility."
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
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<PAGE> 20
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. 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."
RISK ASSOCIATED WITH CONSOLIDATIONS, RESTRUCTURINGS, OWNERSHIP CHANGES AND OTHER
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 AND VARIATION IN QUARTERLY OPERATING RESULTS
Sales of fragrances, which for Fiscal 1995 and for the nine months ended
December 31, 1996 represented 63.4% and 67.8%, 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 may fluctuate during
the year. In addition, lower than expected sales during the calendar year-end
holiday season would have a material adverse effect on the Company. Sales of the
Company's cosmetics products are relatively stable throughout the year.
RISK ASSOCIATED WITH CHANGES IN SOCIAL, POLITICAL, ECONOMIC AND OTHER CONDITIONS
AFFECTING
FOREIGN OPERATIONS
The Company has manufacturing operations in four foreign countries and
sells its products in 61 foreign countries as of February 24, 1997. In Fiscal
1995 and for the nine month period ended December 31, 1996, net sales from the
Company's products sold abroad accounted for approximately 17.5% and 25.2%,
respectively, of its total net sales. Risks inherent in foreign operations
include changes in social, political and economic
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<PAGE> 21
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.
RISK OF DETERMINATION OF A FRAUDULENT CONVEYANCE AND BANKRUPTCY
If the court in a lawsuit brought by an unpaid creditor or representative
of creditors, such as a trustee in bankruptcy or the Company as a
debtor-in-possession, were to find under relevant federal or state fraudulent
conveyance statutes that the Company did not receive fair consideration or
reasonably equivalent value for certain of the indebtedness, including the
Notes, incurred by the Company, or for the transfer of $17.5 million of the net
proceeds of the issuance of the Notes to the Guarantor, and that, at the time of
such incurrence of debt or transfer of proceeds, the Company: (a) (i) was
insolvent; (ii) was rendered insolvent by reason of such incurrence or transfer;
(iii) was engaged in a business or transaction for which the assets remaining
with the Company constituted unreasonably small capital; or (iv) intended to
incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, and (b) did not receive fair consideration or reasonably
equivalent value, in good faith, in exchange for such incurrence or transfer,
such court, subject to applicable statutes of limitation, could void the
Company's obligations under the Notes, subordinate the Notes to other
indebtedness of the Company, recover the value of the property placed in the
Escrow Account, void the security interest of the holders of the Notes in the
Escrow Account and the property contributed to it, or take other action
detrimental to the holders of the Notes.
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction being applied. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than the fair value of all of that company's property, or if the present
fair saleable value of that company's assets is less than the amount that will
be required to pay its probable liability on its existing debts as they become
absolute and matured. Moreover, regardless of solvency, a court could void an
incurrence of indebtedness, including the Notes, or a transfer of property,
including the transfer of certain proceeds of the issuance of the Notes to the
Guarantor and the grant of a security interest in the Escrow Account for the
benefit of the holders of the Notes, if it determined that such transaction was
made with intent to hinder, delay or defraud creditors, or a court could
subordinate the indebtedness, including the Notes, to the claims of all existing
and future creditors on similar grounds. There can be no assurance as to what
standard a court would apply in order to determine whether the Company was
"insolvent" upon consummation of the sale of the Notes.
Under the federal Bankruptcy Code (title 11, United States Code), interest
accruing on unsecured or undersecured debt after the commencement of bankruptcy
proceedings does not ordinarily give rise to an allowable claim. Accordingly, in
the event that the Company becomes the subject of federal bankruptcy
proceedings, the holders of Notes are not expected to have allowable claims
against the Company for interest accruing on the Notes after the date of
commencement of such proceedings. Under the terms of the Indenture and Escrow
Agreement, however, the Guarantor will be liable upon the occurrence and during
the continuation of an Event of Default (including the entry of the Company into
bankruptcy proceedings) to make the full amount of interest payments due under
the Notes as they come due, at the regular, pre-default interest rate specified
in the Indenture, if such payments are not made by the Company, using the
proceeds of the Escrow Account for such purpose. This obligation of the
Guarantor will continue until the proceeds of the Escrow Account have been fully
exhausted in payment to the holders of the Notes. If, under these provisions,
the Guarantor makes interest payments accruing under the Notes after the date of
the commencement of bankruptcy proceedings of the Company, a court in the
Company's bankruptcy proceedings may decide to treat such interest payments as
deemed reductions of the principal balance of the Notes for purposes of
calculating the claims of the holders of the Notes in the Company's bankruptcy.
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<PAGE> 22
The Guarantor will be subject to certain restrictions intended to render it
separate from the Company and to prevent the Guarantor's own entry into
bankruptcy proceedings. However, there can be no assurance that in the event of
a bankruptcy of the Company the Guarantor will not also become the subject of
bankruptcy proceedings, or that a court in a bankruptcy proceeding of the
Company will not make the assets of the Guarantor (including the Guarantor's
interest in the Escrow Account) subject to administration in the Company's
bankruptcy under the doctrine of "substantive consolidation" or similar
equitable doctrines. If, notwithstanding the restrictions to which it is
subject, the Guarantor becomes the subject of bankruptcy proceedings or if the
doctrine of substantive consolidation is applied to its assets, the payment of
interest under the Notes by the Guarantor may be suspended, and the holders of
Notes may be held by a court not to have allowable claims in bankruptcy for such
interest payments. See "Description of the Notes -- Guarantor."
LACK OF PUBLIC MARKET FOR THE NOTES
Prior to the Exchange Offer, there has been no public market for the
Existing Notes. The Company currently does not intend to list the New Notes on
any securities exchange or to seek approval for quotation through any automated
quotation system and no active public market for the New Notes is currently
anticipated. There can be no assurance that an active public market for the New
Notes will develop.
Although the Initial Purchaser has acted as a market maker with respect to
the Existing Notes and has informed the Company that it currently intends to
make a market in the New Notes, 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 New Notes.
ADVERSE CONSEQUENCES OF FAILURE TO ADHERE TO EXCHANGE OFFER PROCEDURES
Issuance of the New Notes in exchange for Existing Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent of
such Existing Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of Existing
Notes desiring to tender such Existing Notes in exchange for New Notes should
allow sufficient time to ensure timely delivery. Neither the Company nor the
Exchange Agent is under any duty to give notification of defects or
irregularities with respect to the tenders of Existing Notes for exchange.
Existing Notes 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 restrictions upon transfer thereof and, upon consummation of the
Exchange Offer certain registration rights under the Registration Rights
Agreement will terminate.
RECEIPT OF RESTRICTED SECURITIES UNDER CERTAIN CIRCUMSTANCES
Any holder of Existing Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the New Notes 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. See "The Exchange Offer -- Consequences
of Failure to Exchange; Resales of New Notes."
ADVERSE EFFECT ON MARKET FOR EXISTING NOTES
To the extent that Existing Notes are tendered and accepted in the Exchange
Offer, the trading market for the untendered and tendered but unaccepted
Existing Notes could be adversely affected. See "The Exchange Offer."
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<PAGE> 23
RECENT DEVELOPMENTS
EQUITY FINANCING
On August 15, 1996, September 16, 1996 and September 27, 1996, the Company
issued an aggregate of 115,000 shares of Senior Redeemable Preferred Stock,
Series B, with warrants to purchase common stock of the Company (the "Series B
Preferred Stock Offering"). Concurrently with the Series B Preferred Stock
Offering, the Company sold shares of common stock to CIBC WG Argosy Merchant
Fund 2, L.L.C. (the "CIBC Fund") and to Bastion Capital Fund, L.P.
(collectively, the "New Common Stock Sale"). The Company also received a refund
from the CIBC Fund of a portion of the fee paid to 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") (such
purchase and refund are, collectively, the "CIBC Financing"). The Series B
Preferred Stock Offering, the New Common Stock Sale and the CIBC Financing are
referred to herein as the "Equity Financing."
The Company received aggregate net proceeds from the Equity Financing of
$119.1 million.
ACQUISITION OF GREAT AMERICAN COSMETICS, INC.
On August 21, 1996, the Company, through its wholly-owned subsidiary
Cosmar, 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 in
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. 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
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<PAGE> 24
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 February 7, 1997, the Company closed MEM's facilities in Northvale, New
Jersey and in Boucherville, Quebec. 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."
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 was $43.0 million, of which $9.9 million
related to inventory (net of a receivable of approximately $283,000 for
inventory not purchased) and $33.1 million related to the licenses and rights to
market such fragrances. 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. 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."
Direct revenues from the P&G Brands for the year ended June 30, 1996 were $56.8
million and for the three months ended September 30, 1996 were $11.4 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.
NEW REVOLVING CREDIT FACILITY
On March 12, 1997, the Company entered into the New Revolving Credit
Facility. The New Revolving Credit Facility contains certain financial
covenants, affirmative and negative covenants, representations, warranties,
conditions and events of default. See "Description of Certain Other
Indebtedness -- New Revolving Credit Facility."
RESTATEMENT OF OPERATING RESULTS
In January 1997, the Company restated (a) its previously-reported results
of operations for the three and 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, and (b) its previously-reported
results of operations for the three months ended June 30, 1996 and June 30, 1995
and its previously-reported balance sheet data as of June 30, 1996 and June 30,
1995 (the "Prior Restatements"). See the Quarterly Reports on Form 10-Q/A for
the three- and six-months ended June 30, 1996 and September 30, 1996. The Prior
Restatements 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.
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<PAGE> 25
USE OF PROCEEDS
No proceeds will be received by the Company from the Exchange Offer. The
aggregate net proceeds of the Offering, after deducting discounts to the Initial
Purchaser and fees and expenses of the Offering, were approximately $192.1
million. Such net proceeds, together with $23.7 million of the Company's
available cash were used as follows: (i) $80.0 million was used to finance the
purchase of all of the then-outstanding $65.0 million principal amount of Old
Senior Notes, which was tendered and purchased by the Company pursuant to the
Old Senior Notes Offer, at a price of $1,165 for each $1,000 principal amount
thereof (plus accrued interest thereon); (ii) $118.3 million was used to repay
all outstanding indebtedness under the Senior Secured Credit Agreement; and
(iii) $17.5 million was used to fund the Escrow Account.
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. All of the outstanding indebtedness
under the Senior Secured Credit Facility was repaid from a portion of the net
proceeds of the sale of the Existing Notes in the Offering.
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.
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<PAGE> 26
CAPITALIZATION
The following table sets forth the historical and pro forma capitalization
of the Company as of December 31, 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 discounts have been added
back to amounts in the Pro Forma as Adjusted column. The Equity Financing, the
GAC Acquisition, the MEM Acquisition, the P&G Acquisition and net borrowings
under the Senior Secured Credit Facility have been reflected in the historical
capitalization of the Company as these transactions were completed prior to
December 31, 1996. The Pro Forma Capitalization of the Company gives effect to
the sale of the Notes and the use of proceeds therefrom (including the
repurchase of the Old Senior Notes and the repayment of all indebtedness under
the Senior Secured Credit Facility), as if such transactions had occurred as of
December 31, 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>
DECEMBER 31, 1996
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PRO FORMA
HISTORICAL PRO FORMA ADJUSTMENTS AS ADJUSTED
--------------- --------- ----------- ----------------
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents.................. $ 51,513 $ 45,517 $ -- $ 45,517
======== ======== ======== ========
Senior Secured Credit Facility............. 117,500 -- -- --
Old Senior Notes(a)........................ 63,759 -- -- --
Notes...................................... -- 200,000 -- 200,000
Subordinated Seller Notes(b)............... 3,829 3,829 1,171 5,000
-------- -------- -------- --------
Total debt....................... 185,088 203,829 1,171 205,000
-------- -------- -------- --------
Senior Redeemable Preferred Stock (350,000
shares authorized; 119,018 shares issued
and outstanding)(c)...................... 82,576 82,576 39,546 122,122
Redeemable Preferred Stock (40,000 shares
authorized; 12,485 shares issued and
outstanding)(d)(e)....................... 12,783 12,783 350 13,133
-------- -------- -------- --------
Total preferred stock............ 95,359 95,359 39,896 135,255
-------- -------- -------- --------
Common Stockholders' Equity (3,000,000
shares authorized; 825,086 shares issued
and outstanding)......................... 28,139 6,262 (41,067) (34,805)
-------- -------- -------- --------
Total capitalization............. $ 308,586 $305,450 $ -- $305,450
======== ======== ======== ========
</TABLE>
See accompanying Notes to Capitalization.
23
<PAGE> 27
NOTES TO CAPITALIZATION
(a) The $65.0 million of Old Senior Notes are presented in the Historical column
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
Old Senior Notes were repaid from the proceeds of the Existing Notes.
(b) 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 $1.2 million. The
Pro Forma as Adjusted column reflects the aggregate principal amount of the
Seller Notes, adding back the unamortized discount at December 31, 1996.
(c) 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
December 31, 1996 and related fees.
(d) 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 December 31, 1996.
(e) 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 issued under the Old
Indenture, 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> 28
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data of Cosmar (Predecessor) and the
Company set forth below have been derived from and should be read in conjunction
with the historical financial statements of the Company 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 nine months ended December 31, 1996 include the
results of GAC MEM and P&G Brands from the dates of their acquisitions.
<TABLE>
<CAPTION>
COMPANY
------------------------------------------------------
COSMAR (PREDECESSOR) PERIOD FROM
----------------------------------------- APRIL 15, 1994
JANUARY 1 TO (INCEPTION) TO YEAR ENDED NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, AUGUST 17, MARCH 31, MARCH 31, DECEMBER 31,
-------------------------- ------------ --------------- ---------- ---------------------
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 $ 94,339 $124,590
Operating income............ 1,378 3,899 5,063 3,326 2,744 8,450 8,137 6,299
Interest expense............ 14 37 132 61 8,694 19,458 14,241 17,206
Net income (loss)........... 1,357 3,768 4,801 3,364 (5,459) (12,057) (6,880) (10,028)
Net income (loss) applicable
to common stockholders.... 1,357 3,768 4,801 3,364 (6,174) (13,390) (7,872) (19,866)
Income (loss) before
extraordinary items per
common share.............. -- -- -- -- $ (8.50) $ (18.62) $ (10.93) $ (25.95)
BALANCE SHEET DATA (END OF
PERIOD):
Total assets................ $3,907 $ 7,216 $ 8,489 -- $ 162,253 $184,619 $178,185 $367,732
Intangible assets -- net.... -- -- -- -- 82,499 76,895 79,800 160,953
Long-term debt, excluding
current maturities........ 146 181 294 -- 97,032(a) 67,323(a) 121,244(a) 185,088(a)
Senior Redeemable Preferred
Stock -- Series B......... -- -- -- -- -- -- -- 82,576
Redeemable Preferred
Stock..................... -- -- -- -- 10,365 11,698 11,357 12,783
Common stockholders'
equity(b)................. 2,973 4,278 5,390 -- 20,189 6,452 12,110 28,139
Deficiency of earnings to
combined fixed charges and
preferred dividends....... -- -- -- -- (6,209) (12,086) (6,899) (19,297)
OTHER DATA:
EBITDA(c)................... -- -- -- -- $ 5,576 $ 16,501 $ 13,576 $ 14,155
Depreciation and
amortization.............. -- -- -- -- 2,832 8,051 5,439 7,856
Capital expenditures........ -- -- -- -- 629 8,166 5,426 2,826
</TABLE>
- ---------------
(a) Excludes (i) outstanding indebtedness under the Old Credit Facility of
$57,000 at March 31, 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 $4,899 and $6,924 at December 31, 1996 and
1995, respectively.
(b) No cash dividends have been paid since April 15, 1994 (Inception).
(c) 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> 29
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 and
the statement of direct revenues and direct expenses for the mass fragrances
business of P&G, in each case included elsewhere in this Prospectus, and have
been prepared by the application of pro forma adjustments giving effect to (i)
in the case of the unaudited condensed pro forma consolidated balance sheet
data, the Offering and the use of proceeds therefrom, including the Senior Notes
Offer and the repayment of all indebtedness under the Senior Secured Credit
Facility, in each case as if such transactions had occurred December 31, 1996,
and (ii) in the case of the unaudited pro forma consolidated statement of
operations data, the foregoing transactions, the Equity Financing and the
Acquisitions, as if such transactions had occurred at the beginning of the
periods presented. The Equity Financing and the Acquisitions have been reflected
in the Company's historical balance sheet information at December 31, 1996, as
these transactions were completed prior to that date. The adjustments are
described in the accompanying notes.
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 statement of
direct revenues and direct expenses for the mass fragrances business of P&G and
the related notes thereto and the Company's "Management's Discussion and
Analysis of Financial Condition and Results of Operations," in each case
included elsewhere in this Prospectus.
26
<PAGE> 30
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 P&G BRANDS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRO FORMA(b)
MARCH 31, DECEMBER 31, DECEMBER 31, JUNE 30, -----------------------------
1996 1995(a) 1995(a) 1996(a) ADJUSTMENTS COMBINED
----------- ------------- ------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
NET SALES............................. $ 131,286 $ 7,886 $44,825 $56,777 $ -- $240,774
COST OF GOODS SOLD.................... 51,169 4,538 25,618 22,787 (1,346)(c) 102,766
-------- ------ ------- ------- -------- --------
GROSS PROFIT.......................... 80,117 3,348 19,207 33,990 1,346 138,008
OPERATING EXPENSES:
Selling............................. 52,781 838 14,742 24,374 (1,200)(d) 91,535
General and administrative.......... 13,679 617 5,215 2,199 (480)(e) 21,230
Amortization of intangible and other
assets............................ 5,207 224 478 -- 3,649(f) 9,558
-------- ------ ------- ------- -------- --------
Total operating expenses.......... 71,667 1,679 20,435 26,573 1,969 122,323
-------- ------ ------- ------- -------- --------
OPERATING INCOME (LOSS)............... 8,450 1,669 (1,228) 7,417 (623) 15,685
INTEREST EXPENSE (INCOME):
Interest expense.................... 19,458 8 1,773 -- 5,240(g) 26,479
Interest and other income........... (255) -- (19) -- (909)(h) (1,183)
-------- ------ ------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES..... (10,753) 1,661 (2,982) 7,417 (4,954) (9,611)
INCOME TAX PROVISION.................. 1,304 609 -- -- 1,514(i) 3,427
-------- ------ ------- ------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS............................... (12,057) 1,052 (2,982) 7,417 (6,468) (13,038)
PREFERRED STOCK DIVIDENDS............. 1,333 -- -- -- 18,169(j) 19,502
-------- ------ ------- ------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS APPLICABLE TO COMMON
STOCKHOLDERS........................ $ (13,390) $ 1,052 $(2,982) $ 7,417 $(24,637) $(32,540)
======== ====== ======= ======= ======== ========
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS PER COMMON SHARE.............. $ (18.62) $ (39.54)
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING... 719,138 823,056(k)
======== ========
OTHER DATA:
Deficiency of earnings to combined
fixed charges and preferred
dividends........................... ($29,113)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of
Operations Data.
27
<PAGE> 31
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 a fiscal year which ended on December 31 and P&G has a
fiscal year which ended on June 30.
(b) Does not reflect severance and stay bonus payments and payments in respect
of 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......................................................... 375
-------
Total................................................................ $(1,346)
=======
</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................................................................... 456
-------
Total................................................................ $(1,200)
=======
</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...................................................... 663
------
Total................................................................ $(480)
======
</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....... $ 845
Amortization of excess of assets acquired over liabilities assumed -- MEM....... 1,293
Amortization of excess of assets acquired over liabilities assumed -- P&G
Brands........................................................................ 2,213
Elimination of historical amortization -- GAC................................... (224)
Elimination of historical amortization -- MEM................................... (478)
------
Total................................................................. $3,649
======
</TABLE>
- ---------------
(1) The preliminary estimates of excess of assets acquired over liabilities
assumed include the Company's initial estimates of certain assumed
liabilities at the date of the Acquisitions. 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.
28
<PAGE> 32
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS DATA -- (CONTINUED)
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(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 historical interest expense -- Old Senior Notes.................. (8,943)
Elimination of amortization of deferred financing costs -- Old Credit
Facility...................................................................... (1,157)
Elimination of amortization of deferred financing costs -- Old Senior Notes..... (1,106)
Elimination of accretion of interest expense -- Old Senior Notes................ (158)
Interest expense -- Notes(1).................................................... 23,500
Amortization of deferred financing costs -- Notes............................... 833
------
Total................................................................. $5,240
======
---------------
(1) Reflects the interest rate of 11.75% on the Notes.
</TABLE>
(h) Reflects interest income on the Escrow Account of $909.
(i) Reflects an adjustment to income taxes for a full year as if the
Acquisitions had occurred on April 1, 1995.
(j) Reflects dividends on the Series B Preferred Stock as if such shares had
been issued on April 1, 1995. The Company is obligated to exchange shares
of its Senior Redeemable Preferred Stock, Series C ("Series C Preferred
Stock"), for all outstanding shares of its Series B Preferred Stock. The
dividends on the Series C Preferred Stock will be the same as the dividends
on the Series B Preferred Stock.
(k) 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> 33
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------------------
COMPANY GAC MEM P&G BRANDS
NINE MONTHS PERIOD FROM PERIOD FROM PERIOD FROM
ENDED APRIL 1, 1996 TO APRIL 1, 1996 JANUARY 1, 1996 PRO FORMA(a)
DECEMBER 31, AUGUST 20, TO DECEMBER 4, TO SEPTEMBER 30, -----------------------
1996 1996 1996 1996 ADJUSTMENTS COMBINED
------------ ---------------- -------------- ---------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
NET SALES..................... $124,590 $8,633 $ 32,559 $ 29,993 $ -- $195,775
COST OF GOODS SOLD............ 48,082 3,057 21,928 11,292 (1,010)(b) 83,349
-------- ------ ------- ------- -------- --------
GROSS PROFIT.................. 76,508 5,576 10,631 18,701 1,010 112,426
OPERATING EXPENSES:
Selling..................... 48,341 1,692 10,068 11,540 (900)(c) 70,741
General and
administrative............ 16,727 1,306 3,467 1,512 (360)(d) 22,652
Amortization of intangible
and other assets.......... 5,141 87 305 -- 2,300(e) 7,833
-------- ------ ------- ------- -------- --------
Total operating
expenses................ 70,209 3,085 13,840 13,052 1,040 101,226
-------- ------ ------- ------- -------- --------
OPERATING INCOME (LOSS)....... 6,299 2,491 (3,209) 5,649 (30) 11,200
INTEREST EXPENSE (INCOME):
Interest expense............ 17,206 46 1,217 -- 2,305(f) 20,774
Interest and other income... (1,448) (7) (58) -- (765)(g) (2,278)
-------- ------ ------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES....................... (9,459) 2,452 (4,368) 5,649 (1,570) (7,296)
INCOME TAX PROVISION.......... 569 836 -- -- 961(h) 2,366
-------- ------ ------- ------- -------- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY
ITEMS....................... (10,028) 1,616 (4,368) 5,649 (2,531) (9,662)
PREFERRED STOCK DIVIDENDS..... 9,838 -- -- -- 6,089(i) 15,927
-------- ------ ------- ------- -------- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS
APPLICABLE TO COMMON
STOCKHOLDERS................ (19,866) $1,616 $ (4,368) $ 5,649 $(8,620) $(25,589)
======== ====== ======= ======= ======== ========
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS PER
COMMON SHARE................ (25.95) $(31.01)
======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING................. 765,569 825,086 (j)
======== ========
OTHER DATA:
Deficiency of earnings to
combined fixed charges and
preferred dividends......... $(23,223)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of
Operations Data.
30
<PAGE> 34
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS DATA
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(a) 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."
(b) 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........................................ $(1,078)
Identified Canadian personnel terminations.................................... (213)
Less: Corresponding incremental additions to personnel at the Company's
Mountaintop facility.......................................................... 281
-------
Total............................................................... $(1,010)
=======
</TABLE>
(c) 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........................................ $(1,242)
Identified Canadian personnel terminations.................................... --
Less: Corresponding incremental additions to personnel at the Company's Dana
subsidiary.................................................................... 342
-------
Total............................................................... $ (900)
=======
</TABLE>
(d) 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.......................................... $(735)
Identified Canadian personnel terminations...................................... (100)
Less: Corresponding incremental additions to personnel at the Company's
Mountaintop facility............................................................ 475
------
-
Total................................................................. $(360)
=======
</TABLE>
(e) 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...... $ 634
Amortization of excess of assets acquired over liabilities assumed -- MEM...... 970
Amortization of excess of assets acquired over liabilities assumed -- P&G
Brands......................................................................... 1,660
Elimination of historical amortization -- GAC.................................. (87)
Elimination of historical amortization -- MEM.................................. (305)
Less: amortization relating to the Acquisitions included in the Company
historical column.............................................................. (572)
-----
Total................................................................ $2,300
=====
</TABLE>
- ---------------
(1) The preliminary estimates of excess of assets acquired over liabilities
assumed include the Company's initial estimates of certain assumed
liabilities at the date of the Acquisitions. 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.
31
<PAGE> 35
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS DATA -- (CONTINUED)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(f) Reflects the following adjustments to interest expense:
<TABLE>
<S> <C>
Elimination of historical interest expense -- GAC............................... $ (46)
Elimination of historical interest expense -- MEM............................... (1,217)
Elimination of historical interest expense -- Old Credit Facility............... (4,912)
Elimination of historical interest expense -- Old Senior Notes.................. (6,706)
Elimination of historical interest expense -- Senior Secured Credit Facility.... (1,090)
Elimination of amortization of deferred financing costs -- Old Credit
Facility...................................................................... (1,089)
Elimination of historical accretion of debt discount -- Old Senior Notes........ (136)
Elimination of amortization of deferred financing costs -- Old Senior Notes..... (1,455)
Elimination of amortization of deferred financing costs -- Senior Secured Credit
Facility...................................................................... (335)
Interest expense -- Notes....................................................... 17,625
Amortization of deferred financing costs -- Notes............................... 1,666
-------
Total................................................................. $ 2,305
=======
</TABLE>
(g) Reflects interest income on the Escrow Account of $765.
(h) Reflects an adjustment to income taxes for the nine month period as if the
Acquisitions each had occurred on April 1, 1996.
(i) Reflects dividends on the Series B Preferred Stock as if such shares had
been issued on April 1, 1996. The Company is obligated to exchange shares
of its Series C Preferred Stock for all outstanding shares of its Series B
Preferred Stock. 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> 36
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET DATA
AS OF DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
DECEMBER
31,
1996 ADJUSTMENTS PRO FORMA
----------- ----------- ---------
<S> <C> <C> <C> <C>
Total Current Assets................................. $ 157,207 $ (5,996) (a) $ 151,211(b)
Total Long-Term Assets............................... 210,525 (1,582) (c) 208,943
-------- -------- --------
Total Assets............................... $ 367,732 $ (7,578) $ 360,154
======== ======== ========
Current Liabilities.................................. $ 54,247 $ (4,442) (d) $ 49,805
Long-Term Liabilities................................ 189,987 18,741 (e) 208,728
Preferred Stock...................................... 95,359 -- 95,359
Common Stockholders' Equity.......................... 28,139 (21,877) (f) 6,362
-------- -------- --------
Total Liabilities and Stockholders'
Equity................................... $ 367,732 $ (7,578) $ 360,154
======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Pro Forma Balance
Sheet Data.
33
<PAGE> 37
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
BALANCE SHEET DATA
AS OF DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(a) Reflects the following adjustments to cash and cash equivalents:
<TABLE>
<S> <C>
Gross proceeds from the Notes................................................ $ 200,000
Repayment of the Senior Secured Credit Facility, including accrued interest
thereon.................................................................... (118,590)
Repayment of the Old Senior Notes, including accrued interest thereon(1)..... (79,077)
Deferred financing costs -- Notes............................................ (8,329)
---------
Total.............................................................. $ (5,996)
=========
</TABLE>
--------------------
(1) Actual accrued interest paid at closing was $4,270.
(b) Includes $17,500 of cash set aside in the Escrow Account.
(c) Reflects the following adjustments to deferred financing costs:
<TABLE>
<S> <C>
Deferred financing costs -- Notes............................................ $ 8,329
Write-off of deferred financing costs -- Old Senior Notes.................... (6,033)
Write-off of deferred financing costs -- Senior Secured Credit Facility...... (3,878)
---------
Total.............................................................. $ (1,582)
=========
</TABLE>
(d) Reflects the elimination of accrued interest on the Old Senior Notes and the
Senior Secured Credit Facility. See note (a)(1) above.
(e) Reflects the following adjustments to long-term debt:
<TABLE>
<S> <C>
Gross proceeds from the Notes................................................ $ 200,000
Repayment of the Senior Secured Credit Facility.............................. (117,500)
Repayment of the Old Senior Notes(1)......................................... (63,759)
---------
Total.............................................................. $ 18,741
=========
</TABLE>
--------------------
(1) Reflects carrying value of Old Senior Notes at December 31, 1996.
(f) Reflects the following adjustments to retained earnings (deficit):
<TABLE>
<S> <C>
Write-off of deferred financing costs -- Old Senior Notes.................... $ (6,033)
Write-off of deferred financing costs -- Senior Secured Credit Facility...... (3,878)
Write-off additional accretion of interest -- Old Senior Notes............... (1,241)
Premium paid to redeem Old Senior Notes...................................... (10,725)
---------
Total.............................................................. $ (21,877)
=========
</TABLE>
34
<PAGE> 38
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 from the date of such acquisitions.
1. The Houbigant acquisition in July and August 1994, the Cosmar
acquisition in August 1994, the Dana acquisition in December 1994, the ACB
acquisition in December 1994 and Great American Cosmetics, Inc. acquisition
in August 1996;
2. The MEM Acquisition in December 1996 (see "--Liquidity and Capital
Resources"), the domestic operations of which are being integrated into
Dana; and
3. The P&G Acquisition in December 1996 (see "--Liquidity and Capital
Resources"), the domestic operations of which are being integrated into
Dana.
OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AS COMPARED TO THE
NINE MONTHS ENDED DECEMBER 31, 1995
Net Sales. The Company's net sales were as follows (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
-------------------------------------------------------------------
1996 1995
------------------------------- -------------------------------
DIVISION NET SALES % OF TOTAL NET SALES % OF TOTAL
------------------------------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Fragrance..................... $ 55,624 44.6% $ 50,582 53.6%
Cosmetics..................... 37,597 30.2 28,512 30.2
International................. 31,369 25.2 15,245 16.2
------- ------ ------- ------
Total.................... $124,590 100.0% $ 94,339 100.0%
======= ====== ======= ======
</TABLE>
Total sales increased 32.1% or $30,251,000 from $94,339,000 to
$124,590,000. Fragrance sales increased 10.0% from $50,582,000 to $55,624,000.
This increase was due principally to increased orders for promotional items and
Christmas items, sales of Navigator from Canoe and DREAMS BY TABU, which were
launched subsequent to December 1995 and sales of MEM and P&G Brand products,
after the completion of the Acquisitions. Cosmetics sales increased by 31.9%
from $28,512,000 to $37,597,000. Contributing to this increase were current year
sales of UltraGel and Nail Fetish,which were launched subsequent to December
1995, and the impact of Nat Robbins' sales since the date of the GAC Acquisition
in August 1996. International sales increased $16,124,000 attributable
principally to the Company's Canadian operations and to Dana Brazil (which was
acquired by the Company in December 1995).
Gross Profit. The Company's gross profit was as follows (dollars in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
-------------------------------------------------------------------
1996 1995
------------------------------- -------------------------------
DIVISION GROSS PROFIT % OF NET SALES GROSS PROFIT % OF NET SALES
-------------------------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Fragrance....................... $ 36,682 65.9% $ 32,263 63.8%
Cosmetics....................... 21,892 58.2 17,865 62.7
International................... 17,834 57.2 8,159 53.5
------- ------ ------- ---- --
Total...................... $ 76,508 61.4% $ 58,287 61.8%
======= ====== ======= ======
</TABLE>
Fragrance gross profit margin improved to 65.9% from 63.8%. This increase
was due principally to changes in product mix, and an increase in sales.
35
<PAGE> 39
Cosmetics gross profit margin decreased to 58.2% from 62.7%, resulting
principally from the introduction into the product mix of Nat Robbins products
which have lower gross margins and an increase in lower-margin promotional sales
on the Company's base products.
International gross profit margin increased to 57.2% from 53.5% principally
because of higher sales in Brazil (which was acquired in December 1995) and in
Canada, which increased the proportion of direct international sales (versus
exports) to total international sales.
Selling Expenses. The Company's selling expenses in the first nine months
of Fiscal 1996 and Fiscal 1995 were $48,341,000 (38.8% of Net Sales) and
$33,388,000 (35.4% of Net Sales), respectively. The increase in selling expenses
as a percentage of sales was principally attributable to increased advertising
(media, artwork and production costs for a new expanded advertising campaign)
and increased promotional spending relative to the sales increase, both of which
continued the Company's strategy of reinvigorating existing brand equities.
General and Administrative Expenses. The Company's general and
administrative expenses in the first nine months of Fiscal 1996 and Fiscal 1995
were $16,727,000 (13.4% of Net Sales) and $13,198,000 (14.0% of Net Sales),
respectively. The increase in general and administrative expenses was
attributable in part to the addition of key personnel at both the Company's
corporate and operating levels in order to operate a larger organization. The
decrease in general and administrative costs as a percentage of sales, reflects
the effort by management to control overhead costs.
Amortization of Intangible and Other Assets. Amortization of intangible
and other assets during the first nine months of Fiscal 1996 was $5,141,000
(4.1% of Net Sales) compared to $3,564,000 (3.8% of Net Sales) during the first
nine months of Fiscal 1995. This increase reflects the amortization of
intangible assets relating to the GAC Acquisition, the MEM Acquisition, and the
P&G Acquisition (beginning from the date of such Acquisitions), and an increase
in amortization of minimum royalty agreements as such minimum payments increase
in later years.
Operating Income. Operating income was $6,299,000 (5.1% of Net Sales) for
the first nine months of Fiscal 1996 and $8,137,000 (8.6% of Net Sales) for the
first nine months of Fiscal 1995. The decrease in operating income for the first
nine months of Fiscal 1996 compared to the first nine months of Fiscal 1995 was
attributable to the increase in selling, general and administrative 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>
NINE MONTHS ENDED DECEMBER
31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Operating Income........................................ $ 6,299 $ 8,137
Plus: Amortization...................................... 5,141 3,564
Plus: Depreciation...................................... 2,715 1,875
------- -------
EBITDA.................................................. $14,155 $13,576
======= =======
EBITDA as a % of Net Sales.............................. 11.4% 14.4%
</TABLE>
36
<PAGE> 40
Interest Expense. The Company's total interest expense was $17,206,000 for
the first nine months of Fiscal 1996 and $14,241,000 for the first nine months
of Fiscal 1995, while cash interest for the periods was $13,185,000 and
$11,391,000, respectively. Interest expense consisted of the following (dollars
in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER
31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH INTEREST PAID OR ACCRUED:
Interest on Old Senior Notes.......................... $ 6,706 $ 6,708
Interest on Seller Notes (payable in 2002)............ 337 311
Interest on Old Credit Facility....................... 4,912 4,242
Interest on Senior Secured Credit Facility............ 1,090 --
Other Interest........................................ 140 130
------- -------
Total Cash Interest Expense................. $13,185 $11,391
------- -------
NON-CASH INTEREST EXPENSE:
Accretion of Existing Senior Notes and Seller Notes... $ 265 $ 211
Amortization of Deferred Financing Costs.............. 2,918 1,874
Accretion of Interest on Obligations for Minimum
Royalty Payments.................................... 838 765
------- -------
Total Non-Cash Interest Expense............. 4,021 2,850
------- -------
Total Interest Expense...................... $17,206 $14,241
======= =======
</TABLE>
Income Tax Expense. Income tax expense was $569,000 for the first nine
months of Fiscal 1996 and $973,000 for the first nine months 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.
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>
37
<PAGE> 41
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.
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, 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>
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>
38
<PAGE> 42
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 Existing 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 Existing 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 in/Provided by Operating, Investing and Financing Activities.
Net cash used by the Company in operating activities for the nine months
ended December 31, 1996 was $22,607,000, consisting primarily of a net loss of
$10,028,000, less the impact of non-cash items impacting the net loss of
$11,877,000, increases in accounts receivable, inventories and prepaid expenses
of $921,000, $6,986,000, and $9,357,000, respectively, and decreases in accounts
payable, other current liabilities and other of $11,135,000, $2,700,000 and
$1,098,000, respectively, offset by an increase in accrued expenses of
$7,741,000.
Net cash used in investing activities was $97,346,000, consisting primarily
of the cash paid for the Acquisitions of $94,109,000, net of cash acquired.
Net cash provided by financing activities was $170,034,000, consisting
primarily of the proceeds from the Equity Financing, consisting of $119.1
million, net of issuance costs, and the proceeds from the issuance of the Senior
Secured Credit Facility of $113.2, net of issuance costs offset by the repayment
of the Old Credit Facility. The net increase in cash and cash equivalents was
$50,081,000.
Recent Acquisitions.
On December 4, 1996, the Company acquired all of the issued and outstanding
stock of MEM for $19.8 million. In addition, in connection with the MEM
Acquisition, the Company repaid all of MEM's outstanding indebtedness in the
amount of $18.1 million and incurred fees and expenses of approximately
$800,000. See "Recent Developments -- Acquisition of MEM Company, Inc."
On February 7, 1997, the Company closed MEM's facilities in Northvale, New
Jersey, and Boucherville, Quebec. The Company expects to incur costs in
connection with the closings and the consolidation of MEM's operations in an
amount of approximately $6.1 million, including severance payments, ERISA
withdrawal liability and stay bonuses for selected employees of MEM. The
severance payments and stay bonuses
39
<PAGE> 43
(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 based upon a
1996 withdrawal, and the Company has been advised that its 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. 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 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.
See "Business -- Employees."
On December 6, 1996, the Company acquired from P&G the worldwide rights to
manufacture and market the P&G Brands. The cash portion of the purchase price
was $43.0 million, of which $9.9 million related to inventory (net of a
receivable of approximately $283,000 for inventory not purchased) and $33.1
million related to the licenses and rights to market such fragrances. In
addition, the Company assumed certain specified trade-related obligations of
P&G, including the liability for returns of products under the P&G Brands sold
prior to the closing and liabilities under certain advertising and business
development commitments. See "Recent Developments -- Acquisition of the P&G
Brands."
Concurrent with the P&G Acquisition, the Company entered into transition
services agreements, 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 midpoint of a calendar month, the net amount of revenues earned from
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.
Equity and Debt Financing Transactions.
On December 4, 1996, Cosmar entered into a 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 thereon); (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 (iv) the remainder was used
for general corporate purposes. The indebtedness under the Senior Secured Credit
Facility was repaid in full on February 7, 1997 and all liens thereunder were
released at such time.
On February 7, 1997, the Company completed the Old Senior Notes Offer and
purchased all of the outstanding $65.0 million aggregate principal amount of the
Old Senior Notes at a price of $1,165 for each $1,000 principal amount, plus
accrued and unpaid interest thereon.
On February 7, 1997, the Company completed the sale of $200.0 million
aggregate principal amount of the Existing Notes. The net proceeds from the sale
of the Existing Notes, together with approximately $23.7 million of the
Company's available cash, were used (i) to finance the Old Senior Notes Offer,
(ii) to repay all outstanding indebtedness under the Senior Secured Credit
Facility (discussed above) and (iii) to fund an escrow account which will be
used to pay a portion of the interest expense on the Notes for two years.
Interest on the Notes is payable at the rate of 11 3/4% per year in cash.
The Notes mature on February 15, 2004. In connection with the sale of the
Existing Notes, the Company transferred $17.5 million to an escrow account
maintained by the Guarantor, a newly-formed single-purpose subsidiary, in
exchange for a limited guarantee by the Guarantor of the Company's obligations
under the Notes. The Notes are general unsecured obligations of the Company
except to the extent that they are collateralized by a first priority security
interest in the escrow account.
40
<PAGE> 44
Liquidity Requirements.
Because of the nature of the fragrance/cosmetics industry, both the
Company's need for working capital and its income streams are seasonal. The most
significant liquidity requirements occur in connection with the production of
inventory prior to the sales surge and related shipments to customers in advance
of the calendar year-end holiday sales season and other events such as new
product launches.
As a result of the repayment of all outstanding indebtedness under, and the
termination of, the Old Credit Facility on December 4, 1996, at December 31,
1996 the Company no longer had a revolving credit facility to fund working
capital needs. The completion of the GAC Acquisition, the MEM Acquisition and
the P&G Acquisition has resulted in a significant increase in the Company's
working capital needs.
In order to address its working capital needs, on March 12, 1997 the
Company entered into the New Revolving Credit Facility.
Amounts borrowed under the New Revolving Credit Facility bear interest, at
the option of Dana, at either (i) the Index Rate (i.e., the higher of the prime
rate or the overnight Federal funds rate plus 0.50%) plus 1.00% or (ii) absent a
default, the LIBOR rate plus 2.25%. The interest rate will be subject to
adjustment, on a quarterly basis, based on the Company's interest coverage ratio
during each fiscal quarter.
The New Revolving Credit Facility contains a number of covenants that
restrict the operation of the Company, including restrictions on, among other
things: (i) certain mergers, acquisitions or sales of the Company's assets or
stock (other than the stock of the Company); (ii) cash dividends and other
distributions to equity holders and to the Company; (iii) payments in respect of
subordinated debt; (iv) transactions with affiliates; and (v) indebtedness and
liens. The New Revolving Credit Facility prohibits the Company from making any
acquisitions without the consent of 66 2/3% of the Lenders. In addition, the New
Revolving Credit Facility limits the amount of dividends and similar payments
that Dana and other subsidiary guarantors can make to the Company to the amount
required to pay interest on the Notes (after application of amounts held in the
Escrow Account), taxes, holding company operating expense and certain other
matters specified in the New Revolving Credit Facility. The New Revolving Credit
Facility contains a provision which permits the Lenders thereunder to block
payments to the Company following a payment default, or for a period of 179 days
following a non-payment default, under the New Revolving Credit Facility.
The Company's ability to borrow under the New Revolving Credit Facility is
subject to, among other conditions, the satisfaction of certain financial
conditions.
41
<PAGE> 45
THE 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 up to $200.0 million
aggregate principal amount of New Notes for a like aggregate principal amount of
Existing Notes properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The Exchange
Offer is being made with respect to all of the Existing Notes: the total
aggregate principal amount of Existing Notes and New Notes will in no event
exceed $200.0 million.
The Existing Notes were issued in the Offering on February 7, 1997. As of
the date of this Prospectus, $200.0 million aggregate principal amount of the
Existing Notes was outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1997 to all
holders of Existing Notes known to the Company. The Company's obligation to
accept Existing Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth under "-- Conditions to the Exchange Offer"
below.
PURPOSE OF THE EXCHANGE OFFER
The Existing Notes were issued by the Company on February 7, 1997 in a
transaction exempt from the registration requirements of the Securities Act.
Accordingly, the Existing Notes may not be reoffered, resold, or otherwise
transferred in the United States unless so registered or unless an applicable
exemption from the registration and prospectus delivery requirements of the
Securities Act is available.
In connection with the issuance and sale of the Existing Notes, the Company
entered into a Note Registration Rights Agreement, dated as of February 7, 1997
(the "Registration Rights Agreement"), which requires the Company to (x) file on
or before March 24, 1997 (45 days after the date of issuance of the Existing
Notes) a registration statement relating to the Exchange Offer (the "Exchange
Offer Registration Statement") and (y) use its best efforts to (i) cause the
Exchange Offer Registration Statement to become effective on or before June 22,
1997 (135 days after the date of issuance of the Existing Notes); (ii) keep the
Exchange Offer open for at least 30 days (or longer if required by applicable
law) after the date notice of the Exchange Offer is mailed to the holders of the
Existing Notes and (iii) consummate the Exchange Offer on or prior to the 60th
day following the date the Exchange Offer Registration Statement is declared
effective (or if such day is not a business day on the next succeeding business
day). In the event that (i) the Exchange Offer Registration Statement or a shelf
registration statement relating to resales of the Existing Notes (the "Shelf
Registration Statement") is not filed by March 24, 1997, (ii) the Exchange Offer
Registration Statement or Shelf Registration Statement is not declared effective
by June 22, 1997, or (iii) the Exchange Offer Registration Statement ceases to
be effective prior to the time the Exchange Offer is consummated, or the Company
has not exchanged the New Notes for the Existing Notes validly tendered under
the Exchange Offer by the 60th day after the Exchange Offer Registration
Statement has been declared effective, or a Shelf Registration Statement which
has been declared effective ceases to be effective during the effectiveness
period (each, a "Registration Default"), the annual interest rate on the Notes
will immediately increase by 0.5% per annum and the interest 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 interest rate of
2.0% per annum. Upon the Registration Default being cured the interest rate
borne by the Notes will be reduced to the original interest rate. The Exchange
Offer is being made by the Company to satisfy its obligations with respect to
the Registration Rights Agreement.
Based on no-action letters issued by the staff of the Commission to third
parties in unrelated transactions, the Company believes that the New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes from the Company
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes and are not
participating in, and do not intend to participate in, the distribution of such
New Notes. Any holder of Existing Notes who tenders in the Exchange Offer for
the purpose of participating in a distribution of the New Notes
42
<PAGE> 46
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 a secondary resale transaction. Thus, any
New Notes acquired by such holders will not be freely transferable except in
compliance with the Securities Act. See "-- Consequences of Failure to Exchange;
Resale of New Notes."
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
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 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 Existing Notes, by giving oral notice (promptly confirmed in
writing) or written notice to United States Trust Company of New York (the
"Exchange Agent") and by giving written notice of such extension to the holders
thereof no later than 9:00 A.M. New York City time, on the next business day
after the previously scheduled Expiration Date. During any such extension, all
Existing Notes previously tendered will remain subject to the Exchange Offer
unless properly withdrawn.
In addition, the Company expressly reserves the right to terminate or amend
the Exchange Offer and not to accept for exchange any Existing Notes not
theretofore accepted for exchange upon the occurrence of any of the events
specified below under "-- Conditions to the Exchange Offer." If any such
termination or amendment occurs, the Company will notify the Exchange Agent and
will either issue a press release or give oral or written notice to the holders
of the Existing Notes as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 A.M. through 12:00 midnight, New York City time.
PROCEDURES FOR TENDERING EXISTING NOTES
The tender to the Company of Existing Notes 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 Existing Notes 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 Existing Notes being tendered and any required
signature guarantees, to the Exchange Agent at its address set forth below on or
prior to 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 EXISTING NOTES, LETTERS 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, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO INSURE TIMELY DELIVERY. NO EXISTING NOTES OR LETTERS 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 Existing Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the
Existing Notes 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 below). 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 clearing agency, an
insured credit union, a savings association or a commercial bank or trust
company having an office or correspondent in the United States (collectively,
"Eligible Institutions"). If Existing Notes are registered in the name of a
person other than a signer of the Letter of Transmittal, the Existing Notes
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of
43
<PAGE> 47
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 within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the
Existing Notes 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 Existing
Notes by causing such book-entry transfer facility to transfer such Existing
Notes into the Exchange Agent's account with respect to the Existing Notes in
accordance with the book-entry transfer facility's procedures for such transfer.
Although delivery of Existing Notes may be effected through book-entry transfer
into the Exchange Agent's account at the book-entry transfer facility, an
appropriate Letter of Transmittal with any required signature guarantee and all
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.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Existing Note 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 set forth below on or prior to the Expiration Date a letter,
telegram or facsimile transmission from an Eligible Institution setting forth
the name and address of the tendering holder, the names in which the Existing
Notes are registered and, if possible, the certificate numbers of the Existing
Notes to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the Expiration Date the
Existing Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Existing Notes 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 Existing Notes 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 Eligible Institutions 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 Existing Notes (or a confirmation of book-entry transfer of
such Existing Notes 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 transmission to similar effect (as
provided above) from an Eligible Institution is received by the Exchange Agent.
Issuances of New Notes in exchange for Existing Notes tendered pursuant to a
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission 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 Existing Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Existing Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Existing Notes not properly tendered or to not accept
any particular Existing Notes which acceptance 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 conditions of the Exchange Offer
as to any particular Existing Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Existing Notes in the Exchange Offer). The interpretation of the terms
and conditions of the Exchange Offer as to any particular Existing Notes either
before or after the Expiration Date (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
Existing Notes for exchange must be cured within such reasonable period of time
as the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of any defect
44
<PAGE> 48
or irregularity with respect to any tender of Existing Notes for exchange, nor
shall any of them incur any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Existing Notes, such Existing Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names of the registered holder or holders appear on the
Existing Notes.
If the Letter of Transmittal or any Existing Notes 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 will represent to the Company in the Letter of
Transmittal that, among other things, the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the holder, that
neither the holder nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such New Notes, that
neither the holder nor any such other person is participating in or intends to
participate in the distribution of such New Notes and that neither the holder
nor any such other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company.
Each broker-dealer that receives New Notes for its own account in exchange
for Existing Notes, where such Existing Notes were 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 New Notes. See "Plan of Distribution."
WITHDRAWAL RIGHTS
Tenders of Existing Notes may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent prior to the Expiration Date at its address
set forth below. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Existing Notes to be withdrawn (the "Depositor"),
(ii) identify the Existing Notes to be withdrawn (including the certificate
number or numbers and principal amount of such Existing Notes), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Existing Notes were tendered or as otherwise described
above (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee under the Indenture
register the transfer such Existing Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Existing
Notes 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 notices will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. Any Existing Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Existing Notes which have been tendered for
exchange and which are properly withdrawn will be returned to the holder thereof
without cost to such holder as soon as practicable after such withdrawal.
Properly withdrawn Existing Notes may be retendered by following one of the
procedures described under "-- Procedures for Tendering Existing Notes" above at
any time on or prior to the Expiration Date.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the expiration Date, all Existing Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Existing Notes. See "-- Conditions to the Exchange Offer" below. For purposes of
the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Existing Notes for exchange when, as and if the Company has given oral
and written notice thereof to the Exchange Agent.
For each Existing Note accepted for exchange, the holder of such Existing
Note will receive a New Note having a principal amount equal to that of the
surrendered Existing Note.
In all cases, issuance of New Notes for Existing Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Existing Notes or a
timely Book-Entry Confirmation of such Existing Notes into the Exchange Agent's
account at the
45
<PAGE> 49
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Existing Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Existing Notes are submitted for a greater principal amount
than the holder desires to exchange, such unaccepted or non-exchanged Existing
Notes will be returned without expense to the tendering holder thereof (or, in
case of Existing Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such non-exchanged Existing Notes will be credited
to an account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration of the Exchange Offer.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Existing Notes and may terminate or amend the Exchange Offer if at any
time before the acceptance of such Existing Notes for exchange or the exchange
of the New Notes for such Existing Notes any of the following events shall
occur:
(i) any injunction, order or decree shall have been issued by any
court or any governmental agency that would prohibit, prevent or otherwise
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(ii) the Exchange Offer shall violate any applicable law or any
applicable interpretation of the staff of the Commission.
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 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.
In addition, the Company will not accept for exchange any Existing Notes
tendered, and no New Notes will be issued in exchange for any such Existing
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the indenture under the Trust Indenture Act of 1939
(the "Trust Indenture Act"). In any such event the Company is required to use
every reasonable effort to obtain the withdrawal of any stop order at the
earliest possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange.
EXCHANGE AGENT
has been appointed as the Exchange Agent for the Exchange Offer.
All executed Letters of Transmittal should be directed to the Exchange Agent at
one of the addresses set forth below. Questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notices of Guaranteed Delivery should be directed
to the Exchange Agent addressed as follows:
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Mail or Courier:
United States Trust United States Trust United States Trust
Company of New York Company of New York Company of New York
P.O. Box 844-Cooper Station 111 Broadway-Lower Level 770 Broadway, 13th Floor
New York, NY 10276 New York, NY 10006 New York, NY 10003
Attn: Corporate Trust Services Attn: Corporate Trust Services Attn: Corporate Trust Services
</TABLE>
For information, call:
(800) 548-6565
Fax: (212) 420-6152
DELIVERY OF THE EXISTING NOTES, LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS 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.
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<PAGE> 50
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 payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it 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.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $ , which includes fees and expenses of the Exchange Agent,
Trustee, registration fees, accounting, legal, printing and related fees and
expenses.
No person has been authorized to give any information or to make any
representations 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 Existing Notes 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
Holders who tender their Existing Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith except that holders who
instruct the Company to register New Notes in the name of, or request that
Existing Notes not tendered or not accepted in the Exchange Offer be returned
to, a person other than the registered tendering holder will be responsible for
the payment of any applicable transfer tax thereon.
ACCOUNTING TREATMENT
The New Notes will be recorded at the carrying value of the Existing Notes
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company upon the exchange of New Notes for Existing Notes. Expenses incurred in
connection with the issuance of the New Notes will be amortized over the term of
the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Existing Notes who do not exchange their Existing Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws.
Existing Notes not exchanged pursuant to the Exchange Offer will continue to
remain outstanding in accordance with their terms. In general, the Existing
Notes may not be altered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Existing Notes under the
Securities Act. However, (i) if the Initial Purchaser so requests with respect
to Existing Notes not eligible to be exchanged for New Notes in the Exchange
Offer and held by it following consummation of the Exchange Offer or (ii) if any
holder of Existing Notes is not eligible to participate in the Exchange Offer
or, in the case of any holder of Existing Notes that participates in the
Exchange Offer, does not receive freely tradable New Notes in exchange for
Existing Notes, the Company is obligated to file a registration statement on the
appropriate form under the Securities Act relating to the Existing Notes held by
such persons.
Based on certain no-action letters issued by the staff of the Commission to
third parties in unrelated transactions, the Company believes that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder which
is an "affiliate"
47
<PAGE> 51
of the Company within the meaning of Rule 405 under the Securities Act or (ii)
any broker-dealer that purchases Notes from the Company to resell pursuant to
Rule 144A or any other available exemption) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement or understanding with any person
to participate in the distribution of such New Notes and are not participating
in, and do not intend to participate in, the distribution of such New Notes. If
any holder has any arrangement or understanding with respect to the distribution
of the New Notes to be acquired pursuant to the Exchange Offer, such holder (i)
could not rely on the applicable interpretations of the staff of the Commission
and (ii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction. A
broker-dealer who holds Existing Notes that were acquired for its own account as
a result of market making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of New Notes. Each such broker-dealer that receives
New Notes for its own account in exchange for Existing Notes, where such
Existing Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the New Notes for offer or
sale under the securities or blue sky laws of such jurisdictions as any holder
of the Notes reasonably requests in writing.
Participation in the Exchange Offer is voluntary, and holders of Existing
Notes should carefully consider whether to participate. Holders of the Existing
Notes are urged to consult their financial and tax advisors in making their own
decision on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Existing Notes pursuant to the terms of, this Exchange Offer,
the Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Existing Notes who do not tender their Existing Notes in
the Exchange Offer will continue to hold such Existing Notes and will be
entitled to all the rights, and limitations applicable thereto, under the
Indenture, except for any such rights under the Registration Rights Agreement
that by their terms terminate or cease to have further effectiveness as a result
of the making of this Exchange Offer. See "Description of Exchange Notes." All
untendered Existing Notes will continue to be subject to the restrictions on
transfer set forth in the Indenture. To the extent that Existing Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
Existing Notes could be adversely affected.
The Company may in the future seek to acquire untendered Existing Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plan to acquire any Existing
Notes which are not tendered in the Exchange Offer.
48
<PAGE> 52
BUSINESS OF THE COMPANY
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 61 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 nine months ended December 31, 1996, the Company generated net sales of
$131.3 million and $124.6 million, respectively, and EBITDA of $16.5 million and
$14.2 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 the first 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 nine months ended December 31, 1996 between fragrance and cosmetics (dollars
in millions):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL 1995 DECEMBER 31, 1996
-------------------------- --------------------------
NET SALES % OF TOTAL NET SALES % OF TOTAL
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Fragrance......................... $ 83.2 63.4% $ 84.5 67.8%
Cosmetics......................... 48.1 36.6 40.1 32.2
------ ---- ----- -----
Total................... $ 131.3 100.0% $ 124.6 100.0%
====== ==== ===== =====
</TABLE>
BACKGROUND
Based on management's estimates, 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, generated sales of approximately $4.5 billion in 1995 and is
the largest
- ---------------
(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.
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<PAGE> 53
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
50
<PAGE> 54
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. Subject to the limitations imposed by the New Revolving Credit
Facility and the Indenture, 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 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 recently 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
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<PAGE> 55
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. 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 (61 as of February 24, 1997) 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> 56
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 according to management's estimates. The entire mass-market segment of
the retail fragrance industry generated sales of $1.4 billion in 1995 based on
management's estimates. 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
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<PAGE> 57
usage of the product, which is evidenced by industry growth rates which have
varied between negative 5% to positive 5% over the last ten years according to
management's estimates. 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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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 is relaunching this classic fragrance following an extensive packaging
and positioning change. The Company has commenced 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> 60
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> 61
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 four foreign countries and
sells its products in 61 foreign countries as of February 24, 1997. In Fiscal
1995 and for the nine-month period ended December 31, 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 $31.4 million ($5.8 million of which
were export sales from the United States), respectively, accounting for
approximately 17.5% and 25.2%, respectively, of its total net sales for Fiscal
1995 and for the nine-month period ended December 31, 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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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 49% of direct revenues 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.
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 61 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. 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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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 December 31, 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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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 December 31, 1996, the Company had a staff of five people dedicated
specifically to the process and annual expenditures of approximately $2.0
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 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. The P&G Brands that the Company acquired in the P&G Acquisition are
currently being manufactured by a contract packer. Additionally, four of the
Company's 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 closed MEM's facilities in New Jersey and in
Boucherville, Quebec on February 7, 1997. The Company plans to consolidate the
Canadian manufacturing operations for Houbigant (1995) Limited and MEM at a new
location.
The Company's strategy for sourcing, producing and distributing its
fragrance products generally 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
As of February 1, 1997, the Company employed 1,027 people, of whom 313 were
general and administrative personnel and 46 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 agreements for the Company's production employees at its Mountaintop,
Pennsylvania and Brazilian manufacturing facilities expire in February 1999 and
November 1997, respectively. There can be no assurance that the Company will be
able to negotiate extensions to such agreements on terms acceptable to it and
the failure to obtain such extensions 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.................... 29 -- -- -- 29
RCI -- Tinkerbell................ 2 1 -- -- 3
Cosmar -- California............. 38 6 50 62 156
Cosmar -- Nevada................. 4 -- 51 122 177
Dana -- Connecticut.............. 14 15 -- -- 29
Dana -- Illinois................. 3 -- -- -- 3
Dana -- Pennsylvania............. 66 -- 133 131 330
Dana -- Brazil................... 88 9 63 -- 160
Dana -- Argentina................ 14 8 10 -- 32
Dana -- Spain.................... 25 4 2 6 37
Houbigant -- Canada.............. 30 3 24 14 71
--- --- --- ---
--
Total 313 333 335 1,027
46
=== === === ===
==
</TABLE>
- ---------------
(1) The Company terminated most of the MEM employees in connection with the
closing of the MEM facilities and plans to terminate the remaining MEM
employees who are staying with the Company temporarily after the closing of
the MEM facilities. Accordingly, all of the MEM employees have been excluded
from this table.
On February 7, 1997, the Company closed the Northvale, New Jersey and
Boucherville, Quebec facilities of MEM and Tom Fields which were acquired in the
MEM Acquisition and terminated substantially all of the employees working at
such facilities. In connection with the closures in the United States, 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
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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 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 facilities in Calumet
City, Illinois which the Company uses as its company store and will use as its
returns processing center, pursuant to a lease agreement that will expire in
February 2000.
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 was located in a 53,000
square-foot building in Northvale, New Jersey and is owned by a subsidiary of
MEM. Manufacturing facilities in Canada were 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. On February 7, 1997, the Company closed MEM's facilities in Northvale,
New Jersey and in Boucherville, Quebec. 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 Calumet City, IL 1997 -- 42,000 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 Folkestone, United Kingdom -- -- 9,500 Leased
-------
508,676
=======
</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, Ambush, French Vanilla by Dana, Classic Gardenia, Monsieur Musk,
French Garden Flowers, English Waterlilys, Canoe, Canoe-Sport, Herbissimo,
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 Demi-Jour, Navigator, 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 rights for the Houbigant Fragrances in Canada in December 1994
through the purchase of the assets of Houbigant ACB and 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 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. 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 $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
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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, through Cosmar, has various patent rights and a pending
application 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; and (iii) 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.
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
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without merit, because of the expense of continued legal proceedings, MEM has
entered into a settlement agreement 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, 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.
BUSINESS OF THE GUARANTOR
The Guarantor was incorporated in the State of Delaware on February 6, 1997
for the purpose of receiving a portion of the proceeds of the Offering, issuing
the Subsidiary Guarantee (as defined herein) and establishing the Escrow
Account. Under the terms of its certificate of incorporation and the Indenture,
the permissible activities of the Guarantor are subject to limitations intended
to preserve its separateness from the Company and the Company's other
subsidiaries, and to prevent the Guarantor's becoming the subject of bankruptcy
proceedings, and, in the event of the Company or its other subsidiaries becoming
the subject of bankruptcy proceedings, to permit the payment of interest under
the Subsidiary Guarantee. Among other things, these resolutions preclude the
Guarantor from engaging in any business transaction, acquiring any assets or
incurring or guaranteeing any debt, other than as contemplated and required in
connection with the issuance and guarantee of the Notes and the maintenance of
the Escrow Account. In addition, the certificate of incorporation of the
Guarantor and the Indenture requires that the assets, properties and liabilities
of the Guarantor be at all times maintained separately from the assets,
properties, liabilities and business of the Company and the Company's other
subsidiaries, and that the Company and its other subsidiaries not hold out or
treat the Guarantor or its assets as available to pay the debts of the Company
or its other subsidiaries (other than the Notes). Further, under such
certificate of incorporation and the Indenture, the board of directors of the
Guarantor is required at all times to include at least two "independent"
directors who have no interest in or relationship with the Company or its other
subsidiaries, and the affirmative vote of both independent directors is
required, among other things, to authorize the filing of a bankruptcy petition
with respect to the Guarantor or the making of any other act of bankruptcy by
the Guarantor or the amendment or modification of any term of the Indenture or
the Escrow Agreement. No assurance can be given, however, that these
restrictions will be sufficient to prevent the entry of the Guarantor into
bankruptcy proceedings, or, in the event that the Company or its other
subsidiaries become the subject of bankruptcy proceedings, that these
restrictions will be sufficient to prevent a court in such proceedings from
making the assets of the Guarantor (including the Guarantor's interest in the
Escrow Account) subject to such proceedings under the doctrine of "substantive
consolidation" or similar equitable doctrines. See "Risk Factors -- Risk of a
Determination of Fraudulent Conveyance and Bankruptcy."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following table sets forth certain information concerning the executive
officers, directors and certain key employees of the Company as of March 1,
1997:
<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.................. 45 General Manager, Cosmar
Keith H. Wagner................. 48 Group Vice President, Operations
Eric R. Hamburg................. 34 Director
Kurt L. Kamm.................... 54 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> 73
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. Zale Corporation 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
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<PAGE> 74
additional capacity of director of manufacturing during the period of ownership
by Beecham PLC. From 1979 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. Mr.
Hamburg is the founder and President of Industrial Renaissance Inc., which was
founded in September 1996 and has been active since November 1996. 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.
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 January
1997, Mr. Kamm formed a separate entity for future investments, Kamm Theodore,
LLC.
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 January 1997, Mr. Kidd formed 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 January 1997, Mr. Theodore formed a separate entity for future
investments, Kamm Theodore, LLC.
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 since October 1996 on the Board of Directors of
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> 75
EXECUTIVE OFFICERS AND DIRECTORS OF THE GUARANTOR
The following table sets forth certain information concerning the executive
officers, directors and certain key employees of the Guarantor as of March 20,
1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Thomas V. Bonoma................. 50 Chief Executive Officer and President
Vice President, General Counsel, Secretary and
John R. Jackson.................. 38 Director
Thomas T.S. Kaung................ 59 Vice President, Chief Financial Officer and Director
Anthony J. Wesley................ 40 Vice President, Treasurer and Director
Martin Byman..................... 38 Director
Mary Ellen Spiegel............... 48 Director
</TABLE>
Anthony J. Wesley, Vice President, Treasurer and a director, joined the
Guarantor in March 1997. Mr. Wesley has also been Vice President and Treasurer
of the Company since February 1997. From 1990 to 1997, Mr. Wesley was founder
and shareholder in Wesley Mills and Company, an accountancy practice in
Cleveland, Ohio. Prior thereto, he spent six years as the Manager, Tax Planning
of Cole National Corporation, a leading specialty retailer. Mr. Wesley holds a
B.B.A. from the University of Notre Dame and is a Certified Public Accountant.
Martin Byman, Director, was elected as a director of the Guarantor in March
1997. Mr. Byman has been the General Counsel of Odyssey Partners, L.P., a
leading private investment firm, since January 1994. From 1984 to 1987 and from
1988 to 1994, he was engaged in the practice of law at Paul, Weiss, Rifkind,
Wharton & Garrison. Mr. Byman was elected to the board of directors of the
Guarantor as one of the "independent directors."
Mary Ellen Spiegel, Director, was elected as a director of the Guarantor in
March 1997. Ms Spiegel has been Director of Planned Giving of the Catholic
Archdiocese of New York since September 1996. From 1995 through such date, she
was a licensed agent of The Equitable Life Insurance Company of New York. She is
the founder and, since January 1994, has been the principal of Fiscal Plus, a
financial planning firm that specializes in assisting women to achieve long-term
financial security. From April 1986 to December 1993, Ms. Spiegel was a managing
director of Maurice & Associates, Inc., a marketing consulting firm to clients
in the healthcare publishing industry. She was elected to the board of directors
of the Guarantor as one of the "independent directors."
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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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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 and directors of the Guarantor (other than
"independent" directors) are not compensated for their services as directors.
The "independent" directors of the Guarantor, however, are each compensated for
their services $1,500 annually and $500 for each meeting the director attends.
All non-employee directors of the Company and the Guarantor 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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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 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> 79
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. Certain employees have earned and the remaining selected employees will
earn 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.
CERTAIN OTHER MATTERS
From March 1994 to August 1995, Dr. Bonoma was a director (including
chairman of the board from September 1994 to August 1995) of Brothers Gourmet
Coffees, Inc. ("Brothers"). During September and October 1995, three shareholder
suits were commenced against Brothers, naming, among others, Dr. Bonoma as a
defendant. These suits alleged, among other things, that Brothers and the
individual defendants violated federal securities laws in connection with the
initial public offering of Brothers's common stock in December 1993 (prior to
the time Dr. Bonoma became a director) and certain public statements made by
Brothers through May 1995. Dr. Bonoma believes that the allegations made in the
suits as they concern him are without merit. The parties to the suits have
entered into a stipulation of settlement under which the plaintiffs will receive
a total of approximately $8 million in cash and Brothers common stock, although
there is no admission of wrongdoing. Dr. Bonoma is not required to contribute
any amounts in respect of the settlement.
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<PAGE> 80
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 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. The Company is the beneficial owner of 100% of the
Guarantor's Common Stock.
<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 table Mr. Noonan may be considered to be the owner of
these shares. As of December 31, 1996, Triumph-Connecticut and the Lanes
also hold approximately
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<PAGE> 81
12,442,000 shares and approximately 43,700 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 table 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
Indenture governing the Company's Senior Notes, is entitled to 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. At the closing of
the Offering, Kidd Kamm received management fees equal to $1.35 million for the
previous two fiscal years. 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, formed separate entities
for future investments, including the formation of two firms, Kidd & Company,
LLC and Kamm Theodore, LLC in January, 1997. 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 for which it has received
customary compensation. 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, purchased a portion of the notes issued in the
initial funding under the Senior Secured Credit Facility, and acted as initial
purchaser of the Existing Notes 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. In addition, Triumph-Connecticut received a
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<PAGE> 82
finder's fee of $1.0 million from the Initial Purchaser in connection with the
Offering and may receive additional fees from the Initial Purchaser from time to
time.
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.
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<PAGE> 83
DESCRIPTION OF THE NOTES
Except as otherwise indicated, the following description relates both to
the Existing Notes issued in the Offering and the New Notes to be issued in
exchange for Existing Notes in connection with the Exchange Offer. The form and
terms of the New Notes are the same as the form and terms of the Existing Notes,
except that the New Notes have been registered under the Securities Act and
therefore will not bear legends restricting the transfer thereof. The New Notes
will be obligations of the Company evidencing the same indebtedness as the
Existing Notes, and will be entitled to the benefits of the Indenture, dated as
of February 7, 1997 (the "Indenture") between the Company and United States
Trust Company of New York, as trustee (the "Trustee"). The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act as in effect on the date of the Indenture.
The Notes are subject to all such terms, and holders of the Notes are referred
to the Indenture and the Trust Indenture Act for a statement of them. The
following is a summary of the material terms and provisions of the Notes. This
summary does not purport to be a complete description of the Notes and is
subject to the detailed provisions of, and qualified in its entirety by
reference to, the Notes and the Indenture (including the definitions contained
therein). A copy of the Indenture may be obtained from the Company by any holder
or prospective investor upon request. In addition, the Company has filed the
Indenture with the Commission as an exhibit to the registration statement of
which this Prospectus is a part. The definitions of certain capitalized terms
are set forth under "-- Certain Definitions" and throughout this description.
Capitalized terms that are used but not otherwise defined herein have the
meanings assigned to them in the Indenture and such definitions are incorporated
herein by reference. For purposes of this section, references to the "Company"
include only the Company and not its Subsidiaries.
GENERAL
The Notes are general unsecured obligations of the Company except to the
extent they are collateralized by a first priority security interest in the
Escrow Account granted by the Guarantor. The Notes rank pari passu in right of
payment to all existing or future senior indebtedness of the Company (except as
to future senior secured indebtedness of the Company) and rank senior in right
of payment to any current or future subordinated indebtedness of the Company.
The Notes are effectively subordinated to all existing and future indebtedness
of the Company's Subsidiaries (other than the Guarantor), which indebtedness, to
the extent permitted to be incurred under the Indenture, is also permitted to be
secured by Liens on the assets and properties of such Subsidiaries. See
"Limitation on Additional Indebtedness," "Limitation on Liens" and "Description
of Other Indebtedness -- New Revolving Credit Facility." The New Revolving
Credit Facility contains a provision which permits the lenders thereunder to
block all payments to the Company from Dana and the Subsidiaries of the Company
that are guarantors thereunder either (i) following the occurrence and during
the continuation of a payment default under the New Revolving Credit Facility or
(ii) for a period of up to 179 days following the occurrence and during the
continuation of any event of default for reasons other than failure to make
payments due thereunder. This provision will not affect the ability of the
holders of the Notes to accelerate the maturity of the Notes or to seek other
remedies available to them under the Indenture in the event of any payment
default on the Notes.
The Trustee and, by their acceptance thereof, the holders of the Notes will
be deemed to have agreed not to contest the Liens granted to the lenders under
the New Revolving Credit Facility.
MATURITY, PRINCIPAL AND INTEREST
The Notes will mature on February 15, 2004 and are limited in aggregate
principal amount to $200.0 million. The Notes will bear interest at a rate of
11 3/4% per annum from the date of issuance of the Notes (the "Issue Date")
until maturity. Interest will be payable in cash semiannually in arrears on each
February 15 and August 15, commencing on August 15, 1997, to holders of record
of the Notes at the close of business on the immediately preceding February 1,
and August 1, respectively.
DISBURSEMENT OF FUNDS; ESCROW ACCOUNT
In connection with the closing of the Offering, the Company transferred
$17.5 million of the net proceeds from the Offering to Renaissance Guarantor,
Inc., a single-purpose corporation (the "Guarantor"), which is a
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<PAGE> 84
wholly-owned subsidiary of the Company, in exchange for a limited guarantee by
the Guarantor of the Company's obligations under the Notes to the extent of the
value of the property owned by the Guarantor (the "Subsidiary Guarantee"). The
Guarantor then placed such amount into an escrow account (the "Escrow Account")
for the benefit of the holders of the Notes. Until disbursed in accordance with
the related escrow and disbursement agreement (the "Escrow Agreement") among the
Guarantor, the Trustee and U.S. Trust Company of New York, as escrow agent (the
"Escrow Agent"), and the Indenture, the Escrow Account is designed to provide
security for a portion of the Company's obligations under the Notes. The
Subsidiary Guarantee constitutes a limited guarantee by the Guarantor of all
sums due under the Notes limited in amount to the value of the property held in
the Escrow Account. In addition, the Indenture provides that, so long as no
Event of Default has occurred and is continuing, the Guarantor will be obligated
to pay to the Trustee for the benefit of the holders of the Notes, on each
interest payment date, an amount equal to the amount of interest then due on
$79.0 million aggregate principal amount of the Notes (or, if less than $79.0
million aggregate principal amount of the Notes are outstanding, funds
representing the interest payment then due on the amount by which $79.0 million
exceeds the outstanding aggregate principal of the Notes may be paid to the
Company) (such amount, the "Interest Portion"). The Indenture provides that upon
the occurrence and during the continuation of an Event of Default the Guarantor
must pay the full amount of interest on the Notes at the regular, pre-default
rate, as the same becomes due and payable, unless paid from another source. The
Escrow Agreement will provide, among other things, that funds will be disbursed
from the Escrow Account (i) on any interest payment date, to pay the Interest
Portion and (ii) upon an Event of Default, to pay the full amount due on the
Notes under the Subsidiary Guarantee. Pending such disbursement, the Escrow
Agent will cause all funds contained in the Escrow Account to be invested in
Temporary Cash Investments. Interest earned on these Temporary Cash Investments
will be added to the Escrow Account. The Indenture provides that the proceeds of
the Escrow Account will be applied first to the payment of interest on the Notes
so long as interest thereon is due or will become due under the Notes and that
only in the event that interest is no longer due and will not become due
(whether because the full principal amount of the Notes is to be repaid or
otherwise) will the proceeds of the Escrow Account be applied to principal or
premium, if any.
The Guarantor's obligations under the Subsidiary Guarantee are secured by a
first priority security interest in the Escrow Account and the Temporary Cash
Investments held therein. See "Security."
GUARANTOR
Under the terms of its certificate of incorporation and the Indenture, the
permissible activities of the Guarantor are subject to limitations intended to
preserve its separateness from the Company and the Company's other subsidiaries,
and to prevent the Guarantor's becoming the subject of bankruptcy proceedings,
and, in the event of the Company or its other subsidiaries becoming the subject
of bankruptcy proceedings, to permit the payment of interest under the
Subsidiary Guarantee. Among other things, these restrictions preclude the
Guarantor from engaging in any business transaction, acquiring any assets or
incurring or guaranteeing any debt, other than as contemplated and required in
connection with the issuance and guarantee of the Notes and the maintenance of
the Escrow Account. In addition, the certificate of incorporation of the
Guarantor and the Indenture requires that the assets, properties and liabilities
of the Guarantor be at all times maintained separately from the assets,
properties, liabilities and business of the Company and the Company's other
subsidiaries, and that the Company and its other subsidiaries not hold out or
treat the Guarantor or its assets as available to pay the debts of the Company
or its other subsidiaries (other than the Notes). Further, under such
certificate of incorporation and the Indenture, the board of directors of the
Guarantor is required at all times to include at least two "independent"
directors who have no interest in or relationship with the Company or its other
subsidiaries, and the affirmative vote of both independent directors is
required, among other things, to authorize the filing of a bankruptcy petition
with respect to the Guarantor or the making of any other act of bankruptcy by
the Guarantor or the amendment or modification of any term of the Indenture or
the Escrow Agreement. No assurance can be given, however, that these
restrictions will be sufficient to prevent the entry of the Guarantor into
bankruptcy proceedings, or, in the event that the Company or its other
subsidiaries become the subject of bankruptcy proceedings, that these
restrictions will be sufficient to prevent a court in such proceedings from
making the assets of the Guarantor (including the Guarantor's
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<PAGE> 85
interest in the Escrow Account) subject to such proceedings under the doctrine
of "substantive consolidation" or similar equitable doctrines. See "Risk
Factors -- Fraudulent Conveyance and Bankruptcy."
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after February 15, 2002, at the following redemption
prices (expressed as a percentage of principal amount), together, in each case,
with accrued and unpaid interest thereon to the redemption date, if redeemed
during the twelve-month period beginning on February 15, of each year listed
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------------------------------- ----------
<S> <C>
2002...................................................................... 103.358%
2003 and thereafter....................................................... 101.679%
</TABLE>
Notwithstanding the foregoing, the Company, at its option, may redeem, at
any time and from time to time on or prior to February 15, 2000, in the
aggregate up to 35% of the original principal amount of the Notes at a
redemption price equal to 111.75% of the aggregate principal amount thereof,
plus accrued and unpaid interest thereon to the redemption date with the Net
Proceeds of one or more Public Equity Offerings or Strategic Equity Investments;
provided, that at least $130.0 million of the principal amount of the Notes
originally issued remains outstanding immediately after the occurrence of any
such redemption and that any such redemption occurs within 90 days following the
closing of any such Public Equity Offering or Strategic Equity Investment.
In the event of redemption of fewer than all of the Notes, the Trustee
shall select by lot or in such other manner as it shall deem fair and equitable
the Notes to be redeemed; provided, however, that if a partial redemption is
made with the Net Proceeds of a Public Equity Offering or Strategic Equity
Investment, selection of the Notes for redemption shall be made by the Trustee
only on a pro rata basis, unless such method is otherwise prohibited. The Notes
will be redeemable in whole or in part upon not less than 30 nor more than 60
days' prior written notice, mailed by first class mail to a holder's last
address as it shall appear on the register maintained by the Registrar of the
Notes. On and after any redemption date, interest shall cease to accrue on the
Notes or portions thereof called for redemption unless the Company shall fail to
redeem any such Note.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Additional Indebtedness
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, incur (as defined) any Indebtedness (including Acquired
Indebtedness), other than Permitted Indebtedness, unless (a) after giving effect
to the incurrence of such Indebtedness and the receipt and application of the
proceeds thereof, the ratio of total Indebtedness (which, for purposes of
determining this ratio only, shall not include any shares of the Existing
Preferred Stock) of the Company and its Subsidiaries as of the date of any
determination (the "Determination Date") to the Company's Adjusted EBITDA
(including Acquisition EBITDA) for the four fiscal quarters ended immediately
prior to the Determination Date (the "Reference Period") is less than (i) 6.00
to 1 if the Indebtedness is incurred prior to February 15, 2000 and (ii) 5.75 to
1 if the Indebtedness is incurred thereafter; provided, however, that if the
Indebtedness which is the subject of a determination under this provision is
Acquired Indebtedness, or Indebtedness incurred in connection with the
simultaneous acquisition of any Person, business, property or assets, then such
ratio will be determined by giving effect (on a pro forma basis, as if the
transaction had occurred at the beginning of the four quarter period used to
make such calculation) to the incurrence or assumption of such Acquired
Indebtedness or such other Indebtedness by the Company or one of its
Subsidiaries; and (b) no Default or Event of Default will have occurred and be
continuing at the time or as a consequence of the incurrence of such
Indebtedness. In determining the Company's total Indebtedness for purposes of
this covenant, borrowings under the New Revolving Credit Facility will be
computed based on the lowest amount outstanding during a period of 30
consecutive days during the four quarter period used to make the calculations
referred to in this paragraph.
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<PAGE> 86
The Company will not, directly or indirectly, incur any Indebtedness that
is expressly subordinated to any other Indebtedness of the Company unless such
Indebtedness is also expressly subordinated to the Notes to the same extent and
in the same manner as such Indebtedness is subordinated to such other
Indebtedness of the Company.
Limitation on Restricted Payments
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, make any Restricted Payment, unless:
a. no Default or Event of Default will have occurred and be
continuing, at the time of or immediately after giving effect to such
Restricted Payment;
b. immediately after giving pro forma effect to such Restricted
Payment, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the covenant described under "Limitation
on Additional Indebtedness"; and
c. immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) 100% of the Company's Cumulative EBITDA
minus 1.6 times the Company's Cumulative Consolidated Interest Expense,
plus (2) 100% of the aggregate Net Proceeds and the fair market value of
securities or other property received by the Company from the issue or
sale, after the Issue Date, of Capital Stock (other than Disqualified
Capital Stock or Capital Stock of the Company issued to any Subsidiary of
the Company) of the Company or any Indebtedness or other securities of the
Company convertible into or exercisable or exchangeable for Capital Stock
(other than Disqualified Capital Stock) of the Company which has been so
converted or exercised or exchanged, as the case may be, plus (3) $1.0
million.
The provisions of this covenant will not prohibit: (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture; (ii) the acquisition and cancellation or retirement of any shares of
Capital Stock of the Company or Subordinated Indebtedness by conversion into, or
by or in exchange for, shares of Capital Stock (other than Disqualified Capital
Stock), or out of the Net Proceeds of the substantially concurrent sale (other
than to a Subsidiary of the Company) of shares of Capital Stock of the Company
(other than Disqualified Capital Stock); (iii) the redemption or retirement of
Subordinated Indebtedness of the Company in exchange for, by conversion into, or
out of the Net Proceeds of, a substantially concurrent sale or incurrence of
Indebtedness (other than any Indebtedness owed to a Subsidiary of the Company)
of the Company that is contractually subordinated in right of payment to the
Notes to at least the same extent as the Subordinated Indebtedness being
redeemed or retired; (iv) the retirement of any shares of Disqualified Capital
Stock by conversion into, or by exchange for, shares of Disqualified Capital
Stock, or out of the Net Proceeds of the substantially concurrent sale (other
than to a Subsidiary of the Company) of other shares of Disqualified Capital
Stock; (v) the purchase, redemption or other acquisition for value of shares of
Capital Stock of the Company (other than Disqualified Capital Stock) or options
on such shares held by the Company's or its Subsidiaries' officers or employees
or former officers or employees (or their estates or beneficiaries under their
estates) upon the death, disability, retirement or termination of employment of
such current or former officers or employees pursuant to the terms of an
employee benefit plan or any other agreement pursuant to which such shares of
Capital Stock or options were issued or pursuant to a severance, buy-sell or
right of first refusal agreement with such current or former officer or
employee; provided, that the aggregate cash consideration paid, or distributions
made, pursuant to this clause (v) shall not in any one fiscal year exceed $1.0
million; and (vi) so long as no Default or Event of Default will have occurred
and be continuing at the time of or immediately after giving effect to such
payment, the payment of management and advisory fees to KKEP and its Affiliates
and successors and assigns that, when taken together with all previous amounts
paid in respect thereof since April 15, 1994, does not exceed an average annual
amount of $675,000 per year.
Not later than the date of any Restricted Payment, the Company will deliver
to the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant described under "Limitation on Restricted Payments" were computed,
which calculations may be based upon the Company's latest available financial
statements, and that no
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Default or Event of Default exists and is continuing and no Default or Event of
Default will occur immediately after giving effect to any Restricted Payments.
Limitation on Investments
The Company will not, and will not permit any of its Subsidiaries to, make
any Investment other than (i) a Permitted Investment or (ii) an Investment that
is made as a Restricted Payment in compliance with the covenant described under
"Limitation on Restricted Payments" after the Issue Date.
Limitation on Liens
The Company will not, and will not permit any of its Subsidiaries to,
create, incur or otherwise cause or suffer to exist or become effective any
Liens of any kind (other than Permitted Liens) upon any Property of the Company
or any such Subsidiary or any shares of stock or debt of any such Subsidiary
which owns Property, now owned or hereafter acquired, unless (i) if such Lien
secures Indebtedness which is pari passu with the Notes, then the Notes are
secured on an equal and ratable basis with the obligations so secured until such
time as such obligation is no longer secured by a Lien or (ii) if such Lien
secures Subordinated Indebtedness, any such Lien will be subordinated to a Lien
granted to the holders of the Notes in the same collateral as that securing such
Lien to the same extent as such Subordinated Indebtedness is subordinated to the
Notes. Because the Notes will be effectively subordinated to all current and
future indebtedness of the Company's Subsidiaries, this covenant will not limit
the extent to which current or future indebtedness of such Subsidiaries may be
secured by Liens on the assets and properties of such Subsidiaries.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into or suffer to exist any transaction or series
of related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate (including
entities in which the Company or any of its Subsidiaries own a minority
interest) or holder of 10% or more of the Company's Common Stock (each of the
foregoing, an "Affiliate Transaction") (other than Affiliate Transactions
entered into prior to the Issue Date) or extend, renew, waive or otherwise
modify the terms of any Affiliate Transaction entered into prior to the Issue
Date unless (i) such Affiliate Transaction is between or among the Company
and/or Wholly-Owned Subsidiaries; or (ii) the terms of such Affiliate
Transaction are fair and reasonable (as determined by the Board of Directors in
good faith) to the Company or such Subsidiaries, as the case may be, and the
terms of such Affiliate Transaction are at least as favorable as the terms which
could be obtained by the Company or such Subsidiary, as the case may be, in a
comparable transaction made on an arm's-length basis between unaffiliated
parties. In any Affiliate Transaction involving an amount or having a value less
than $1.0 million which is not permitted under clause (i) above, the Company
must obtain a resolution of the Board of Directors approved by a majority of the
members of the Board of Directors (and a majority of the disinterested members
of the Board of Directors) certifying that such Affiliate Transaction complies
with clause (ii) above. In transactions with a value of $1.0 million or more
which are not permitted under clause (i) above, the Company must obtain a
written opinion as to the fairness to the Company or such Subsidiary from a
financial point of view of such a transaction from an independent investment
banking firm of nationally recognized standing.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the covenant described under "Limitation on Restricted
Payments" contained herein, (ii) any transaction, approved by the Board of
Directors or the board of directors of the Subsidiary party thereto, as the case
may be, with an officer or director of the Company or of any Subsidiary of the
Company in his or her capacity as officer or director entered into in the
ordinary course of business, including without limitation compensation, employee
benefit and indemnification agreements and arrangements with any officer or
director of the Company or of any such Subsidiary, or (iii) the payment of
management and advisory fees to KKEP and its Affiliates and successors and
assigns permitted by the covenant described under "Limitation on Restricted
Payments."
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Limitation on Creation of Subsidiaries
The Company will not create or acquire, or permit any of its Subsidiaries
to create or acquire, any Subsidiary other than (i) a Subsidiary existing as of
the Issue Date, or (ii) a Subsidiary conducting a business similar or reasonably
related, ancillary or incidental to the business of the Company and its
Subsidiaries as conducted on the Issue Date.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any such Subsidiary
to (a)(i) pay dividends or make any other distributions to the Company or any of
its Subsidiaries (A) on its Capital Stock or (B) with respect to any other
interest or participation in, or measured by, its profits, or (ii) pay any
Indebtedness owed to the Company or any of its Subsidiaries or (b) make loans or
advances or capital contributions to the Company or any of its Subsidiaries or
(c) transfer any of its properties or assets to the Company or any of its
Subsidiaries (any such restriction or encumbrance, other than those excepted in
clauses (i) through (ix) below, a "Payment Restriction"), except for such
encumbrances or restrictions existing under or by reason of: (i) encumbrances or
restrictions existing on the Issue Date; (ii) any instruments governing Ratio
Indebtedness or Permitted Indebtedness, in either case other than Subordinated
Indebtedness; provided, that such encumbrance or restriction is as described in
"Description of Other Indebtedness -- New Revolving Credit Facility"; (iii) the
Indenture and the Notes; (iv) applicable law; (v) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Subsidiaries or of any Person that becomes a Subsidiary of the Company as in
effect at the time of such acquisition or such Person becoming such a
Subsidiary, which encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person, or the property
or assets of the Person (including any Subsidiary of the Person), so acquired;
provided, that the EBITDA of such Person is not taken into account (to the
extent of such restriction) in determining whether any financing or Restricted
Payment in connection with such acquisition was permitted by the terms of the
Indenture; (vi) customary non-assignment provisions in leases or other
agreements entered into in the ordinary course of business and consistent with
past practice; (vii) Refinancing Indebtedness; provided, that such restrictions
are not materially less favorable, taken as a whole, to the holders of the Notes
than those contained in the agreements governing the Indebtedness being amended,
extended, refinanced, renewed, replaced, defeased or refunded; (viii) customary
restrictions in security agreements or mortgages securing Indebtedness of the
Company or any of its Subsidiaries to the extent such restrictions restrict the
transfer of the property subject to such security agreements and mortgages; or
(ix) customary covenants to maintain a minimum net worth or ratio of net worth
to other financial measures contained in leases and other agreements entered
into in the ordinary course of business.
Limitation on Certain Asset Sales
The Company will not, and will not permit any of its Subsidiaries to,
consummate an Asset Sale unless (i) the Company or such Subsidiary, as the case
may be, receives consideration at the time of such sale or other disposition at
least equal to the fair market value thereof (as determined in good faith by the
Board of Directors, and evidenced by a board resolution); (ii) not less than 80%
of the consideration received by the Company or such Subsidiary, as the case may
be, is in the form of cash or cash equivalents (meaning those equivalents
allowed under "Temporary Cash Investments"); provided, however, that the amount
of (x) any liabilities of the Company or any of its Subsidiaries that are
assumed by the transferee of such assets, including any Indebtedness of such a
Subsidiary whose stock is purchased by the transferee and (y) any notes or other
securities received by the Company or any such Subsidiary which are converted
into cash within 180 days of such Asset Sale (to the extent of cash received)
will be deemed to be cash for purposes of this provision; provided, further,
that the Company or such Subsidiary will not be required to comply with this
clause (ii) with respect to a Permitted Asset Swap; and (iii) an amount at least
equal to the Asset Sale Proceeds received by the Company or such Subsidiary are
applied (a) first, to the extent the Company is required to prepay, repay or
purchase Indebtedness (other than Subordinated Indebtedness) of the Company or
any of its Subsidiaries, or elects to prepay, repay or purchase other senior
Indebtedness of the Company,
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within 180 days following the receipt of the Asset Sale Proceeds from any Asset
Sale, to the prepayment, repayment or purchase of such Indebtedness; provided,
that any such repayment will result in a permanent reduction of the commitments
thereunder in an amount at least equal to the principal amount so repaid; and,
provided, further, that in the event no Indebtedness under the New Revolving
Credit Facility is outstanding at the time of such Asset Sale, or to the extent
the Asset Sale Proceeds exceed the amount of Indebtedness outstanding under the
New Revolving Credit Facility, a permanent reduction in the commitments
thereunder will constitute a repayment for purposes hereof; (b) second, to the
extent of the balance of Asset Sale Proceeds after application as described
above, to the extent the Company elects, to an investment in assets (including
Capital Stock or other securities purchased in connection with the acquisition
of Capital Stock or property of another Person) used or useful in businesses
similar or ancillary to the business of the Company and its Subsidiaries as
conducted at the time of such Asset Sale; provided, that such investment occurs
or the Company or one of its Subsidiaries enters into contractual commitments to
make such investment, subject only to customary conditions (other than the
obtaining of financing), on or prior to the 181st day following receipt of such
Asset Sale Proceeds (the "Reinvestment Date") and Asset Sale Proceeds
contractually committed are so applied within 270 days following the receipt of
such Asset Sale Proceeds; and (c) third, if on the Reinvestment Date with
respect to any Asset Sale, the Available Asset Sale Proceeds exceed $5.0
million, the Company shall apply an amount equal to such Available Asset Sale
Proceeds to an offer to purchase the Notes, at a purchase price in cash equal to
100% of the principal amount thereof plus accrued and unpaid interest thereon to
the purchase date (an "Available Proceeds Offer"). If an Available Proceeds
Offer is not fully subscribed, the Company may retain the portion of the
Available Asset Sale Proceeds not required to purchase Notes, and such amount
shall not be considered in the calculation of "Available Asset Sale Proceeds"
with respect to any subsequent offer to purchase Notes.
If the Company is required to make an Available Proceeds Offer, the Company
shall mail, within 30 days following the Reinvestment Date, a notice to the
Holders stating, among other things: (i) that such Holders have the right to
require the Company to apply the Available Asset Sale Proceeds to purchase such
Notes at a purchase price in cash equal to 100% of the principal amount thereof
plus accrued and unpaid interest, if any, to the purchase date; (ii) the
purchase price and the purchase date, which shall be no less than 30 days and no
more than 60 days after the notice is mailed; (iii) the instructions, determined
by the Company, that each Holder must follow in order to have such Notes
purchased; and (iv) the calculations used in determining the amount of Available
Asset Sale Proceeds to be applied to the purchase of such Notes.
Limitation on Preferred Stock of Subsidiaries
The Company will not permit any of its Subsidiaries to issue any Preferred
Stock (except to the Company or a Subsidiary of the Company) or permit any
Person (other than the Company or a Subsidiary of the Company) to hold any such
Preferred Stock unless the Company or such Subsidiary would be entitled to incur
or assume Indebtedness under the covenant described under "Limitation on
Additional Indebtedness" in the aggregate principal amount equal to the
aggregate liquidation value of the Preferred Stock to be issued.
Limitation on Capital Stock of Subsidiaries
The Company will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Subsidiary of the Company or (ii) permit any
Subsidiary to issue any Capital Stock, other than to the Company or a
Wholly-Owned Subsidiary. The foregoing restrictions will not apply to (i) an
Asset Sale made in compliance with the covenant described under "Limitation on
Certain Asset Sales," (ii) the issuance of Preferred Stock in compliance with
the covenant described under "Limitation on Preferred Stock of Subsidiaries" or
(iii) Liens securing Permitted Indebtedness or Ratio Indebtedness.
Limitation on Sale and Lease-Back Transactions
The Company will not, and will not permit any of its Subsidiaries to, enter
into any Sale and Lease-Back Transaction unless (i) the consideration received
in such Sale and Lease-Back Transaction is at least equal to the fair market
value of the property sold, as determined by the Board of Directors in good
faith and (ii) the Company could incur the Attributable Indebtedness in respect
of such Sale and Lease-Back Transaction in compliance with the covenant
described under "Limitation on Additional Indebtedness."
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Financing of Certain Acquisitions
The Company will not, and will not permit any of its Subsidiaries to, use
either proceeds from Indebtedness incurred under the New Revolving Credit
Facility or cash (whether alone, together or in combination with other
Indebtedness) to finance acquisitions unless the amount of such Indebtedness or
cash, as the case may be, could be incurred (in the case of cash, as if the
amount of such cash were Indebtedness) as Ratio Indebtedness; provided, that the
foregoing covenant shall be of no further force or effect at such time as the
Company's actual EBITDA (without giving effect to any EBITDA generated by the
acquired entities or assets subsequent to the acquisition thereof for
acquisitions consummated after the Issue Date) for the last four quarters for
which financial statements are available equals or exceeds $34.0 million as
determined in good faith by the Board of Directors, as evidenced by a board
resolution certified by an Officers' Certificate filed with the Trustee and
accompanied by a certificate of the Chief Financial Officer to the effect that
such actual EBITDA was calculated without giving effect to any EBITDA generated
by the acquired entities or assets and that the resulting adjustments were
reasonable in the circumstances; and, provided, further, that the foregoing
covenant shall not apply to cash constituting the Net Proceeds of an issuance by
the Company of its Capital Stock (other than Disqualified Capital Stock) after
the Issue Date.
Payments for Consent
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration whether by way
of interest, fee or otherwise, to any holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
agreed to be paid to all holders of the Notes which so consent, waive or agree
to amend in the time frame set forth in solicitation documents relating to such
consent, waiver or agreement.
CHANGE OF CONTROL OFFER
Within 30 days of the occurrence of a Change of Control, the Company will
notify the Trustee in writing of such occurrence and will make an offer to
purchase (the "Change of Control Offer") the outstanding Notes at a purchase
price equal to 101% of the principal amount thereof plus any accrued and unpaid
interest thereon to the Change of Control Payment Date (such applicable purchase
price being referred to herein as the "Change of Control Purchase Price") in
accordance with the procedures set forth below.
Within 30 days of the occurrence of a Change of Control, the Company also
will (i) cause a notice of the Change of Control Offer to be sent at least once
to the Dow Jones News Service or similar business news service in the United
States and (ii) send by first-class mail, postage prepaid, to the Trustee and to
each holder of the Notes, at the address appearing in the register maintained by
the Registrar of the Notes, a notice stating:
(i) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment, and
otherwise subject to the terms and conditions set forth herein;
(ii) the Change of Control Purchase Price and the purchase date (which
will be a business day no earlier than 30 days nor later than 60 days from
the date such notice is mailed (the "Change of Control Payment Date"));
(iii) that any Note not tendered will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer will cease to accrue interest after the Change of
Control Payment Date;
(v) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the business day preceding the Change of Control
Payment Date;
(vi) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
business day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount
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of the Notes delivered for purchase, and a statement that such holder is
withdrawing his election to have such Notes purchased;
(vii) that holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered; provided that each Note purchased and each such new
Note issued shall be in an original principal amount in denominations of
$1,000 and integral multiples thereof;
(viii) any other procedures that a holder must follow to accept a
Change of Control Offer or effect withdrawal of such acceptance; and
(ix) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Company will, to the extent
lawful: (i) accept for payment Notes or portions thereof or beneficial interests
under a Global Note (as defined herein) properly tendered pursuant to the Change
of Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof or beneficial interests so
tendered; and (iii) deliver or cause to be delivered to the Trustee Notes so
accepted together with an Officers' Certificate stating the Notes or portions
thereof tendered to the Company. The Paying Agent will promptly (1) mail to each
holder of Notes so accepted and (2) cause to be credited to the respective
accounts of the holders under a Global Note of beneficial interests so accepted,
payment in an amount equal to the purchase price for such Notes, and the Company
will execute and issue, and the Trustee will promptly authenticate and mail to
such holder, a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered; provided, that each such new Note will be issued in an
original principal amount in denominations of $1,000 and integral multiples
thereof.
The Indenture will provide that, (A) if the Company or any of its
Subsidiaries has issued any outstanding Indebtedness that is subordinated in
right of payment to the Notes or the Company has issued any Preferred Stock, and
the Company or such Subsidiary is required to make a Change of Control Offer or
to make a distribution with respect to such subordinated Indebtedness or
Preferred Stock in the event of a Change of Control, the Company or such
Subsidiary will not consummate any such offer or distribution with respect to
such subordinated Indebtedness or Preferred Stock until such time as the Company
will have paid the Change of Control Purchase Price in full to the holders of
Notes that have accepted the Company's Change of Control Offer and will
otherwise have consummated the Change of Control Offer made to holders of the
Notes and (B) except for shares of Existing Preferred Stock issued in accordance
with the terms thereof (including as dividends) as in effect on the Issue Date,
the Company or any of its Subsidiaries will not issue Indebtedness that is
subordinated in right of payment to the Notes and the Company will not issue
Preferred Stock with change of control provisions requiring the payment of such
Indebtedness or Preferred Stock prior to the payment of the Notes in the event
of a Change of Control under the Indenture.
In the event that a Change of Control occurs and the holders of Notes
exercise their right to require the Company to purchase Notes, if such purchase
constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act
at that time, the Company will comply with the requirements of Rule 14e-1 as
then in effect with respect to such purchase.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company will not consolidate with, merge with or into, or transfer all
or substantially all of its assets (as an entirety or substantially as an
entirety in one transaction or a series of related transactions), to any Person,
and the Company will not permit any Subsidiary to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions would result in a transfer of all or substantially all of
the assets of the Company and its Subsidiaries, taken as a whole, to another
Person, unless: (i) the Company or such Subsidiary, as the case may be, will be
the continuing Person, or the Person (if other than the Company or such
Subsidiary) formed by such consolidation or into which the Company or such
Subsidiary, as the case may be, is merged or to which the properties and assets
of the Company or such Subsidiary, as the case may be, are transferred will be a
corporation, partnership, limited liability company, joint-stock company or
business trust organized and existing under the laws of the United States or any
State thereof or the District of Columbia and will expressly assume, by a
supplemental indenture, executed and
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delivered to the Trustee, in form satisfactory to the Trustee, all of the
obligations of the Company or such Subsidiary, as the case may be, under the
Notes and the Indenture, and the obligations under the Indenture will remain in
full force and effect; provided, that at any time the Company or its successor
is a partnership, limited liability company, joint-stock company or business
trust, there will be a co-issuer of the Notes that is a corporation; (ii)
immediately before and immediately after giving effect to such transaction and
the assumption contemplated by clause (i) above (including, without limitation,
giving effect to any Indebtedness and Acquired Indebtedness incurred or
anticipated to be incurred and any Lien granted in connection with the
transaction), no Default or Event of Default will have occurred and be
continuing; and (iii) immediately after giving effect to such transaction and
the assumption contemplated by clause (i) above (including, without limitation,
giving effect to any Indebtedness and Acquired Indebtedness incurred or
anticipated to be incurred in connection with the transaction), the Company or
the continuing Person, as the case may be, could incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the covenant
described under "Limitation on Additional Indebtedness."
Notwithstanding clause (ii) above, the Company may merge with an Affiliate
incorporated for the purpose of reincorporating the Company in another
jurisdiction to realize tax or other benefits.
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Company will deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
SECURITY
The Guarantor's obligations under the Subsidiary Guarantee are secured,
pending disbursement pursuant to the Indenture and the Escrow Agreement, by a
pledge of the Escrow Account and the Temporary Cash Investments held therein
(the "Collateral"). $17.5 million of the net proceeds from the sale of the Notes
was deposited in the Escrow Account in connection with the closing of the
Offering.
The Guarantor is a party to the Escrow Agreement, which provides for the
grant by the Subsidiary Guarantor to the Trustee for the benefit of the holders
of the Notes of security interests in the Collateral. All such security
interests secure the payment and performance when due of the obligations of the
Guarantor under the Subsidiary Guarantee with respect to the Notes. The Liens
created by the the Escrow Agreement are first priority security interests in the
Collateral. The ability of holders of the Notes to realize upon any such funds
or securities may be subject to certain bankruptcy law limitations in the event
of the bankruptcy of the Subsidiary Guarantor or the Company. See "Risk
Factors -- Fraudulent Conveyance and Bankruptcy."
Funds will be disbursed from the Escrow Account as described under
"-- Disbursement of Funds; Escrow Account." Pending such disbursements, all
funds contained in the Escrow Account will be invested in Temporary Cash
Investments.
Upon the acceleration of the maturity of the Notes or the failure to pay
principal at maturity or upon certain redemptions and purchases of Notes by the
Company, the Escrow Agreement provides for the foreclosure by the Trustee upon
the net proceeds of the Escrow Account, to be applied first to the continued
payment of the full amount of interest on the Notes in accordance with the
Indenture.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(a) default in payment of any principal of, or premium, if any, on the
Notes;
(b) default for 30 days in payment of any interest on the Notes;
(c) default by the Company in the observance or performance of any
other covenant in the Notes, the Indenture or the Escrow Agreement for 60
days after written notice from the Trustee or the holders of not less than
25% in aggregate principal amount of the Notes then outstanding;
(d) default in the payment at final maturity of principal in an
aggregate amount of $5.0 million or more with respect to any Indebtedness
of the Company or any of its Subsidiaries which default shall not
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be cured, waived or postponed pursuant to an agreement with the holders of
such Indebtedness within 60 days after written notice, or the acceleration
of any such Indebtedness aggregating $5.0 million or more which
acceleration will not be rescinded or annulled within 20 days after written
notice as provided in the Indenture;
(e) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $5.0 million (not paid or covered by
third party insurance provided by financially sound insurers that have not
disclaimed coverage) shall be rendered against the Company or any of its
Subsidiaries and will not be discharged for any period of 60 consecutive
days during which a stay of enforcement shall not be in effect;
(f) certain events involving bankruptcy, insolvency or reorganization
of the Company or any of its Significant Subsidiaries;
(g) repudiation by the Company of its obligations under the Escrow
Agreement for any reason; and
(h) repudiation by the Guarantor of its obligations under, or the
unenforceability of, the Subsidiary Guarantee.
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if any,
or interest on the Notes) if the Trustee considers it to be in the best interest
of the holders of the Notes to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, then the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding may declare to be immediately due and payable the entire principal
amount of all the Notes then outstanding plus accrued interest thereon to the
date of acceleration following five business days' prior notice to the lenders
under the New Revolving Credit Facility; provided, however, that after such
acceleration but before a judgment or decree based on acceleration is obtained
by the Trustee, the holders of a majority in aggregate principal amount of
outstanding Notes may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than nonpayment of accelerated
principal, premium or interest, have been cured or waived as provided in the
Indenture. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization with respect to the Company shall
occur, the principal, premium and interest amount with respect to all of the
Notes shall be due and payable immediately without any declaration or other act
on the part of the Trustee or the holders of the Notes.
The holders of a majority in principal amount of the Notes then outstanding
have the right to waive any existing default or compliance with any provision of
the Indenture or the Notes and to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as a trustee,
and unless the Trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and will have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted on such Note
on or after the respective due dates expressed in such Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides the Company may elect either (a) to defease and be
discharged from any and all obligations with respect to the outstanding Notes
(except for the obligations to register the transfer or exchange of such Notes,
to replace temporary or mutilated, destroyed, lost or stolen Notes, to maintain
an office or agency in respect of the Notes and to hold monies for payment in
trust) ("legal defeasance") or (b) to be released from its obligations with
respect to the Notes under certain covenants contained in the Indenture and
described above under "Certain Covenants" ("covenant defeasance"), upon the
deposit with
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the Trustee (or other qualifying trustee), in trust for such purpose, of money
and/or U.S. Government Obligations (as defined in the Indenture) which through
the payment of principal and interest in accordance with their terms will
provide money, in an amount sufficient to pay the principal of, premium, if any,
and interest on the Notes, on the scheduled due dates therefor or on a selected
date of redemption in accordance with the terms of the Indenture. Such a trust
may only be established if, among other things, the Company has delivered to the
Trustee an opinion of counsel (as defined in the Indenture) (i) to the effect
that neither the trust nor the Trustee will be required to register as an
investment company under the Investment Company Act of 1940, as amended, and
(ii) in the case of a legal defeasance, describing either a private ruling
concerning the Notes or a published ruling of the Internal Revenue Service, to
the effect that, and in the case of a covenant defeasance, stating that, holders
of the Notes or persons in their positions will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amount and in
the same manner and at the same times, as would have been the case if such
deposit, defeasance and discharge had not occurred.
MODIFICATION OF INDENTURE
From time to time, the Company, the Guarantor and the Trustee may, without
the consent of holders of the Notes, amend the Indenture or the Notes or
supplement the Indenture for certain specified purposes, including providing for
uncertificated Notes in addition to certificated Notes, and curing any
ambiguity, defect or inconsistency, or making any other change that does not
materially and adversely affect the rights of any holder. The Indenture contains
provisions permitting the Company, the Guarantor and the Trustee, with the
consent of holders of at least a majority in principal amount of the outstanding
Notes, to modify or supplement the Indenture or the Notes, except that no such
modification will, without the consent of each holder affected thereby: (i)
reduce the amount of Notes whose holders must consent to an amendment,
supplement, or waiver to the Indenture or the Notes; (ii) reduce the rate of or
change the time for payment of interest on any Note; (iii) reduce the principal
of or premium on or change the stated maturity of any Note; (iv) make any Note
payable in money other than that stated in the Note; (v) change the amount or
time of any payment required by the Notes or reduce the premium payable upon any
redemption of Notes, or change the time before which no such redemption may be
made; (vi) waive a default on the payment of the principal of, interest on, or
redemption payment with respect to any Note; (vii) amend, alter, change or
modify the obligation of the Company to make and consummate a Change of Control
Offer in the event of a Change of Control or make and consummate an Available
Proceeds Offer after such obligation has arisen, or waive any Default in the
performance of any such offers or modify any of the provisions or definitions
with respect to any such offers; (viii) affect the ranking of the Notes in a
manner adverse to the holders of the Notes; (ix) take any other action for which
the Indenture requires the consent of each holder affected thereby; or (x)
directly or indirectly release Liens on all or substantially all of the
Collateral except as permitted by the Escrow Agreement.
REPORTS TO HOLDERS
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it will continue to furnish the information required thereby
to the Commission and to the holders of the Notes. The Indenture provides that
even if the Company is entitled under the Exchange Act not to furnish such
information to the Commission or to the holders of the Notes, it will
nonetheless continue to furnish such information to the Commission (if then
permissible), the Trustee and holders of the Notes on or before 100 days after
the end of the Company's fiscal year and on or before 50 days after the end of
each of the first, second and third fiscal quarter in each year.
COMPLIANCE CERTIFICATE
The Company will deliver to the Trustee on or before 100 days after the end
of the Company's fiscal year and on or before 50 days after the end of each of
the first, second and third fiscal quarters in each year an Officers'
Certificate stating whether or not the signers know of any Default or Event of
Default that has occurred. If they do, the certificate will describe the Default
or Event of Default and its status.
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THE TRUSTEE
The Trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under such Indenture may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
is not required to transfer or exchange any Note selected for redemption. Also,
the Registrar is not required to transfer or exchange any Note for a period of
15 days before selection of the Notes to be redeemed.
The Notes will be issued in a transaction exempt from registration under
the Act and will be subject to the restrictions described in "Notice to
Investors."
The registered holder of a Note may be treated as the owner of it for all
purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for the
full definition of all such terms as well as any other capitalized terms used
herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Subsidiary or assumed in connection with the acquisition
of assets from such Person.
"Acquisition EBITDA" means, without duplication, (i) EBITDA for the last
four fiscal quarters for which financial statements are available at the
Determination Date (the "Acquisition EBITDA Period") with respect to a business
or Person which has been acquired by the Company or one of its Subsidiaries or
which is the subject of a binding acquisition agreement requiring the
calculation of EBITDA for purposes of the covenant restricting the incurrence of
Indebtedness and, in each case, with respect to which financial results on a
consolidated basis with the Company have not been made available for all or any
portion of the related Reference Period; plus (ii) in connection with any such
acquisition, projected quantifiable improvements in operating results due to an
established program of cost reductions (reasonably consistent with the cost
reductions actually achieved by the Company in connection with prior
acquisitions) adopted, in good faith, by the Company or one of its Subsidiaries
through a board resolution certified by an Officers' Certificate filed with the
Trustee (calculated on a pro forma basis for the Acquisition EBITDA Period as if
the program had been implemented at the beginning of the Acquisition EBITDA
Period), without giving effect to any operating losses of the acquired Person.
Such Officers' Certificate will confirm that any such anticipated cost
reductions in excess of $4.0 million have been reviewed for reasonableness and
consistency with past practice by an independent nationally recognized
investment banking firm or one of the "Big Six" firms of independent public
accountants and such firm will not have raised any material objections thereto.
Each such Officers' Certificate will be signed by the Chief Financial Officer
and another officer of the Company. Acquisition EBITDA of a business will be a
fixed number determined as of the date the calculation of EBITDA for purposes of
the covenant restricting the incurrence of Indebtedness is first required with
respect to the acquisition of such business (the "First Determination Date") and
will be utilized from the First Determination Date through the date financial
results are available for the four full fiscal quarters following the
acquisition (except to the extent that the EBITDA of such acquired Person or
business will have been included for one or more full fiscal quarters in the
calculation of the Company's EBITDA, in which case the actual EBITDA of such
business or Person will be included in the EBITDA of the Company for such
period). For purposes of determining Acquisition EBITDA with respect to the
acquisition of a particular business or Person, Acquisition EBITDA will include
not only the Acquisition EBITDA of such business or Person, but also the
Acquisition EBITDA of any business previously acquired by the Company or the
subject of a pending
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acquisition agreement to the extent that, as of the First Determination Date,
the financial results for such business or Person have not been included in the
calculation of the Company's EBITDA for the entire Reference Period.
"Acquisition Indebtedness" means Indebtedness incurred by the Company or by
any of its Subsidiaries the proceeds of which are used for the acquisition of a
mass-market fragrance or cosmetics business and related facilities and assets.
"Adjusted EBITDA" means the sum, without duplication, of (a)(i) from the
Issue Date until (but not including) the date on which financial statements are
first available for the second quarter of the Company's fiscal year ending March
31, 1998 ("Fiscal 1997"), actual EBITDA of the Company for the four fiscal
quarters ending with the most recent fiscal quarter for which financial
statements are available; (ii) beginning on the date on which the financial
statements referred to in clause (i) are first available until (but not
including) the date on which financial statements for the third quarter of
Fiscal 1997 are first available, an amount equal to the greater of (A) actual
EBITDA of the Company for the four fiscal quarters ending with the most recent
fiscal quarter for which financial statements are available or (B) if the actual
EBITDA of the Company for the two most recently completed fiscal quarters equals
or exceeds $17.0 million, $34.0 million; (iii) beginning on the date on which
the financial statements referred to in clause (ii) are first available until
(but not including) the date on which financial statements for the fourth
quarter of Fiscal 1997 are first available, an amount equal to the greater of
(x) actual EBITDA for the Company for the four fiscal quarters ending with the
most recent fiscal quarter for which financial statements are available or (y)
if the actual EBITDA of the Company for the three most recently completed fiscal
quarters equals or exceeds $25.5 million, $34.0 million; and (iv) thereafter,
actual EBITDA of the Company for the four fiscal quarters ending with the most
recent fiscal quarter for which internal financial statements are available,
plus (b) Acquisition EBITDA.
"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 the 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.
"Asset Sale" means the sale, transfer or other disposition (other than to
the Company or any of its Subsidiaries) in any single transaction or series of
related transactions having a fair market value in excess of $1.0 million of (a)
any Capital Stock of or other equity interest in any Subsidiary, (b) all or
substantially all of the assets of the Company or of any Subsidiary, (c) real
property; provided, that any sale, transfer or other disposition of real estate
should not be deemed an "Asset Sale" if and for so long as the proceeds thereof
are used by the Company and its Subsidiaries to purchase, make improvements to
or commence operations on any real property owned or acquired by the Company and
its Subsidiaries promptly but in any event no later than 90 days after such
sale, transfer or other disposition, or (d) all or substantially all of the
assets of any business owned by the Company or any Subsidiary or a division,
line of business or comparable business segment of the Company or any Subsidiary
thereof; provided, that Asset Sales shall not include sales, leases,
conveyances, transfers or other dispositions to the Company, to a Subsidiary, to
a Permitted Joint Venture or to any other Person if after giving effect to such
sale, lease, conveyance, transfer or other disposition such other Person becomes
a Subsidiary or a Permitted Joint Venture.
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Company or any of its Subsidiaries from such Asset Sale
(including cash received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes measured by or resulting from such Asset
Sale, (b) payment of all brokerage commissions, underwriting and other fees and
expenses (including without limitation fees, disbursements and other charges of
attorneys, accountants and appraisers) related to such Asset Sale, (c) provision
for minority interest holders in any Subsidiary of the Company as a result of
such Asset Sale and (d) deduction of appropriate amounts to be provided by the
Company or such Subsidiary as a reserve, in accordance with GAAP, against any
liabilities associated with the assets sold or disposed of in such Asset Sale
and retained by the Company or such
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Subsidiary after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and
other non-cash consideration received by the Company or any of its Subsidiaries
from such Asset Sale or other disposition upon the liquidation or conversion of
such notes or non-cash consideration into cash.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the greater of (i) the fair value of the
property subject to such arrangement (as determined by the Board of Directors)
and (ii) the present value (discounted according to GAAP at the cost of
indebtedness implied in the lease) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such Sale and
Lease-Back Transaction (including any period for which such lease has been
extended).
"Available Asset Sale Proceeds" means, with respect to an Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in
accordance with clauses (iii)(a) or (iii)(b), and which have not yet been the
basis for an Available Proceeds Offer in accordance with clause (iii)(c), of the
first paragraph of "Limitation on Certain Asset Sales."
"Board of Directors" means the board of directors of the Company or any
duly constituted committee thereof which is authorized to make determinations
under the Indenture.
"Capital Stock" means, 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.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
will be the capitalized amount of such obligations determined in accordance with
GAAP.
"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 Company's Common Stock, (ii) prior
to a Public Equity Offering, the Permitted Holders collectively shall dispose of
more than 50% of the shares of the Company's Common Stock owned by the Permitted
Holders in the aggregate as of the Issue Date (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 Company's Common Stock, and the
Permitted Holders together with the officers and employees of the Company
beneficially own, in the aggregate, a lesser percentage of the total voting
power of the Company's 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 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
Company's Common Stock would be converted into cash, securities or other
property, other than a merger or consolidation of the Company in which the
holders of the Company's 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, or (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 Company (together with any new
directors whose election by such Board of Directors or whose nomination for
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 for election was previously so
approved) cease to constitute a majority of the Board of Directors of the
Company.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise
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participate in the selection of the governing body, partners, managers or others
that will control the management and policies of such Person.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such Person and its Subsidiaries on a consolidated basis,
imputed interest included in Capitalized Lease Obligations, all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, the net costs associated with hedging
obligations, the interest portion of any deferred payment obligation,
amortization of discount or premium, if any, and all other non-cash interest
expense (other than interest amortized to cost of sales), plus, without
duplication, all net capitalized interest for such period and all interest
incurred or paid under any guarantee of Indebtedness (including a guarantee of
principal, interest or any combination thereof) of any Person, plus the amount
of all dividends or distributions paid on Disqualified Capital Stock (other than
dividends paid or payable in shares of Capital Stock of the Company); provided,
however, that, solely for purposes of the calculation of 1.6 times the Company's
Cumulative Consolidated Interest Expense in clause (c) of the "Limitation on
Restricted Payments" covenant, Consolidated Interest Expense will exclude the
amortization of deferred financing costs.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income (before preferred stock dividends) of
such Person and its Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP; provided, however, that (a) the Net Income
of any Person (the "other Person") in which the Person in question or any of its
Subsidiaries has less than a 100% interest (which interest does not cause the
net income of such other Person to be consolidated into the net income of the
Person in question in accordance with GAAP) will be included only to the extent
of the amount of dividends or distributions paid to the Person in question or
such Subsidiary, (b) the Net Income of any Subsidiary of the Person in question
the distribution of which for the relevant period was restricted by any Payment
Restriction (as defined under "Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries") will be excluded to the extent of such
Payment Restriction, (c)(i) the Net Income of any Person acquired in a pooling
of interests transaction for any period prior to the date of such acquisition
and (ii) any net gain (but not loss) resulting from an Asset Sale by the Person
in question or any of its Subsidiaries other than in the ordinary course of
business shall be excluded, and (d) extraordinary gains and losses shall be
excluded.
"Cumulative Consolidated Interest Expense" means, as of any date of
determination, Consolidated Interest Expense of the Company from January 1, 1997
to the end of the Company's most recently ended full fiscal quarter prior to
such date, taken as a single accounting period.
"Cumulative EBITDA" means, as of any date of determination, EBITDA of the
Company from January 1, 1997 to the end of the Company's most recently ended
full fiscal quarter prior to such date, taken as a single accounting period.
"Disqualified Capital Stock" means any Capital Stock of the Company or any
of its Subsidiaries which, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable at the option of the
holder), or upon the happening of any event (other than an event which
constitutes 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 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 will be deemed to be
Disqualified Capital Stock; provided, however, that Preferred Stock of the
Company that is issued with the benefit of provisions requiring a change of
control offer to be made for such Preferred Stock in the event of a change of
control of the Company, which provisions have substantially the same effect as
the provisions of the Indenture described under "Change of Control," will not be
deemed to be Disqualified Capital Stock solely by virtue of such provisions.
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"EBITDA" means, for any Person, for any period, an amount equal to (a) the
sum of, without duplication, (i) Consolidated Net Income for such period, plus
(ii) the provision for taxes for such period based on income or profits to the
extent such income or profits were included in computing Consolidated Net Income
and any provision for taxes utilized in computing net loss under clause (i)
hereof, plus (iii) Consolidated Interest Expense for such period (but only
including Redeemable Dividends in the calculation of such Consolidated Interest
Expense to the extent that such Redeemable Dividends have been deducted in the
calculation of Consolidated Net Income), plus (iv) depreciation for such period
on a consolidated basis, plus (v) amortization of intangible and other assets
for such period on a consolidated basis, plus (vi) any other non-cash items
reducing Consolidated Net Income for such period, minus (b) all non-cash items
increasing Consolidated Net Income for such period, all for such Person and its
Subsidiaries determined in accordance with GAAP; provided, however, that, for
purposes of calculating EBITDA during any fiscal quarter, cash income from a
particular Investment of such Person (other than Investments in Subsidiaries of
such Person or Investments in Permitted Joint Ventures) will be included only
(x) to the extent cash income has been received by such Person with respect to
such Investment, or (y) if the cash income derived from such Investment is
attributable to Temporary Cash Investments.
"Equity Market Capitalization" of any Person means the aggregate market
value of the outstanding Capital Stock (other than Preferred Stock and excluding
any Capital Stock held in treasury by such Person) of such Person of a class
that is listed or admitted to unlisted trading privileges on a United States
national securities exchange or included for trading on the Nasdaq National
Market System. For purposes of this definition the "market value" of any such
Capital Stock shall be the average of the high and low sale prices, or if no
sales are reported, the average of the high and low bid prices, as reported on
the principal national securities exchange on which such Capital Stock is listed
or admitted to trading or, if such Capital Stock is not listed or admitted to
trading on a national securities exchange, as reported by Nasdaq, for each
trading day in a 20 consecutive trading day period ending not more than 45 days
prior to the date such Person commits to make an investment in the Capital Stock
of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Preferred Stock" means (i) all shares of the Company's Cumulative
Exchangeable Redeemable Preferred Stock, Series B, par value $.01 per share, and
14% Senior Redeemable Preferred Stock, Series B and C, par value $.01 per share,
outstanding on the Issue Date, (ii) all shares of 14% Senior Redeemable
Preferred Stock, Series C, par value $.01 per share, issued in exchange for
shares of 14% Senior Redeemable Preferred Stock, Series B, after the Issue Date
and (iii) any shares thereof issued thereafter as payment of dividends on such
outstanding shares.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
"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," "incurable," and "incurring" will have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business) if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, and will also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations, (ii) obligations secured by a lien to which the
property or assets owned or held by such Person is subject, whether or not the
obligation or obligations secured thereby shall have been assumed, (iii)
guarantees
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of items of other Persons which would be included within this definition for
such other Persons (whether or not such items would appear upon the balance
sheet of the guarantor), (iv) all obligations for the reimbursement of any
obligor on any banker's acceptance, letter of credit or similar transaction, (v)
in the case of the Company, Disqualified Capital Stock of the Company or any of
its Subsidiaries, and (vi) obligations of any such Person under any Interest
Rate Agreement applicable to any of the foregoing (if and to the extent such
Interest Rate Agreement obligations would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP). The amount of
Indebtedness of any Person at any date will be the outstanding balance at such
date of all unconditional obligations as described above and, with respect to
contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligations; provided, that (i) the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the principal amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP and (ii) Indebtedness will not include any
liability for federal, state, local or other taxes. Notwithstanding any other
provision of the foregoing definition, (a) any trade payable arising from the
purchase of goods or materials or for services obtained in the ordinary course
of business will not be deemed to be Indebtedness of the Company or any of its
Subsidiaries for purposes of this definition and (b) guarantees of (or
obligations with respect to letters of credit supporting) Indebtedness otherwise
included in the determination of such amount will not also be included.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"Investments" means, directly or indirectly, any advance, account
receivable (other than an account receivable arising in the ordinary course of
business), loan or capital contribution to (by means of transfers of property to
others, payments for property or services for the account or use of others or
otherwise), the purchase of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities of, or the acquisition, by purchase
or otherwise, of all or substantially all of the business or assets or stock or
other evidence of beneficial ownership of, any Person. Investments will exclude
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices. The amount of an Investment will be equal to the
original cost thereof plus the cost of all additions thereto less the sum of all
amounts received as a return on such Investment.
"Issue Date" means the date the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.
"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 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, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by the
Company, the aggregate net proceeds received by the Company, after payment of
expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in property (valued at the fair market value
thereof, as determined in good faith by the Board of Directors, at the time of
receipt) and (b) in the case of any exchange, exercise, conversion or surrender
of outstanding securities of any kind for or into shares of Capital Stock of the
Company which is not Disqualified Capital Stock, the net book value of such
outstanding securities on the date of such exchange, exercise, conversion or
surrender (plus any additional amount required to be paid by the holder to the
Company upon such exchange, exercise, conversion or surrender, less any and all
payments made to the holders, e.g., on account of fractional shares and less all
expenses incurred by the Company in connection therewith).
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"New Revolving Credit Facility" means a revolving credit facility to be
entered into between one or more subsidiaries of the Company (other than the
Guarantor) and an institutional lender or lenders as the same may be amended,
extended, renewed, restated, supplemented, replaced, refinanced or otherwise
modified from time to time.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the Indenture.
"Peak Amount" of acquired accounts receivable or inventory, as the case may
be, means the amount thereof shown on the quarterly financial statements of the
acquired entity (or the entity from which such assets were acquired) on which
the accounts receivable and inventory reflected thereon from among the financial
statements for the four most recent fiscal quarters of such entity prior to such
acquisition would result in the highest level of availability under the New
Revolving Credit Facility.
"Permitted Asset Swap" means any transfer of properties or assets in which
90% of the consideration received by the transferor consists of properties or
assets (other than cash) that will be used in the business of the transferor;
provided, that (i) the aggregate fair market value (as determined in good faith
by the Board of Directors of the Company) of the property or assets being
transferred by the Company or such Subsidiary is not greater than the aggregate
fair market value (as determined in good faith by the Board of Directors) of the
property or assets received by the Company or such Subsidiary in such exchange
and (ii) the aggregate fair market value (as determined in good faith by the
Board of Directors) of all property or assets transferred by the Company and any
of its Subsidiaries in connection with exchanges in any period of twelve
consecutive months shall not exceed $5.0 million.
"Permitted Holders" means (i) KKEP or Thomas V. Bonoma, (ii) the heirs,
executors, administrators, testamentary trustees, legatees or beneficiaries of
KKEP 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 KKEP and (v) any Subsidiary of
either KKEP or Thomas V. Bonoma or both of them jointly.
"Permitted Indebtedness" means any:
(i) Indebtedness of the Company or any of its Subsidiaries pursuant to
the New Revolving Credit Facility in an amount not to exceed (a) until such
time as the covenant described under "Financing of Certain Acquisitions" is
by its terms of no further force and effect, $75.0 million (less any
mandatory prepayments actually made thereunder to the extent the
corresponding commitments thereunder have been permanently reduced);
provided, that such amount will be increased in the event the Company or
any of its Subsidiaries consummates an acquisition including inventory and
receivables by an amount equal to the sum of (1) the product of the Peak
Amount of accounts receivable acquired in such acquisition times the
advance rate provided in the New Revolving Credit Facility applicable to
accounts receivable in effect at the time of such acquisition plus (2) the
product of the Peak Amount of inventory acquired in such acquisition times
the advance rate provided in the New Revolving Credit Facility applicable
to inventory in effect at the time of such acquisition; and provided,
further, that until such time as the covenant described under "Financing of
Certain Acquisitions" is by its terms of no further force and effect,
Indebtedness pursuant to the New Revolving Credit Facility incurred for the
purpose of acquisition financing will not be deemed Permitted Indebtedness;
and (b) thereafter, the greater of (1) $75.0 million (less any mandatory
prepayments actually made thereunder to the extent the corresponding
commitments thereunder have been permanently reduced) or (2) the sum of (x)
85% of gross eligible accounts receivable of the Company and its
Subsidiaries and (y) 75% of gross eligible inventory (valued at the lower
of cost (first-in, first-out) or market) of the Company and its
Subsidiaries, in either case less reserves;
(ii) Indebtedness under the Notes and the Subsidiary Guarantee;
(iii) Indebtedness not covered by any other clause of this definition
which is outstanding on the Issue Date;
(iv) Indebtedness of the Company to any Wholly-Owned Subsidiary and
Indebtedness of any Subsidiary of the Company to the Company or another
Subsidiary of the Company;
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(v) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred to acquire property in the ordinary course of business and
additional Indebtedness of foreign subsidiaries of the Company for working
capital purposes, which Purchase Money Indebtedness, Capitalized Lease
Obligations and additional Indebtedness do not in the aggregate at any one
time outstanding exceed 5% of the Company's consolidated total assets as of
the end of the last preceding fiscal quarter for which financial statements
are available;
(vi) Interest Rate Agreements;
(vii) commercial documentary letters of credit issued for the account
of the Company or any of its Subsidiaries in the ordinary course of
business in an aggregate amount not to exceed the greater of $5.0 million
or 1.5% of the Company's consolidated total assets as of the end of the
last preceding fiscal quarter for which financial statements are available,
in either case at any one time outstanding;
(viii) additional Indebtedness of the Company or any of its
Subsidiaries not to exceed $2.0 million in aggregate principal amount
outstanding at any time;
(ix) any guarantees by the Company or its Subsidiaries of otherwise
Permitted Indebtedness or Ratio Indebtedness; and
(x) Refinancing Indebtedness.
"Permitted Investments" means, for any Person, Investments made on or after
the Issue Date consisting of:
(a) Investments by the Company or by a Subsidiary of the Company in
(i) the Company or a Subsidiary of the Company or (ii) Permitted Joint
Ventures;
(b) Temporary Cash Investments;
(c) Investments by the Company or by any of its Subsidiaries in a
Person (or in all or substantially all of the business or assets of such
Person), if as a result of such Investment (i) such Person becomes a
Subsidiary of the Company or a Permitted Joint Venture, (ii) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Subsidiary or (iii) such business or assets are owned by the Company or a
Subsidiary of the Company;
(d) reasonable and customary loans made to employees not to exceed
$1.0 million in the aggregate at any one time outstanding;
(e) an Investment that is made by the Company or any of its
Subsidiaries in the form of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities that are issued
by a third party to the Company or such Subsidiary solely as partial
consideration for the consummation of an Asset Sale that is otherwise
permitted under the covenant described under "Limitation on Certain Asset
Sales";
(f) accounts receivable of the Company and its Subsidiaries generated
in the ordinary course of business;
(g) miscellaneous Investments in the ordinary course of business in an
aggregate amount not to exceed $1.0 million at any one time outstanding;
and
(h) Investments existing on the Issue Date.
"Permitted Joint Venture" means a Person (other than an individual or
government) that is not a Subsidiary of the Company and a majority of whose
revenues are derived or will, as a consequence of the Company's or one of its
Subsidiaries' Investment therein, be derived from the operation of any line of
business engaged in or reasonably related to a line of business engaged in by
the Company and its Subsidiaries as of the Issue Date; provided that the
aggregate amount of the Company's and its Subsidiaries' Investments in Permitted
Joint Ventures (including transfers of tangible assets otherwise excluded from
the definition of Asset Sale) at any one time outstanding will not exceed: (i)
until the first anniversary of the Issue Date, 4% of the Company's consolidated
total assets as of the end of the last preceding fiscal quarter for which
financial statements are available; (ii) until the second anniversary of the
Issue Date, 5% of the Company's consolidated total assets as of the end of the
last preceding fiscal quarter for which financial statements are
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available; and (iii) thereafter, 6% of the Company's consolidated total assets
as of the end of the last preceding fiscal quarter for which financial
statements are available.
"Permitted Liens" means: (i) Liens existing on the Issue Date; (ii) Liens
on property or assets of, or any shares of stock of or secured debt of, any
corporation existing at the time such corporation becomes a Subsidiary of the
Company or at the time such corporation is merged into the Company or any of its
Subsidiaries; provided, that such Liens are not incurred in connection with, or
in contemplation of, such corporation becoming a Subsidiary of the Company or
merging into the Company or any of its Subsidiaries; (iii) Liens securing
Permitted Indebtedness or Ratio Indebtedness; (iv) Liens in favor of the Company
or any of its Subsidiaries; (v) statutory liens or landlords', carriers',
warehouseman's, mechanics', suppliers', materialmen's, repairmen's or other like
Liens arising in the ordinary course of business which do not secure any
Indebtedness and with respect to amounts not yet delinquent or being contested
in good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor; (vi) other Liens securing obligations incurred in the ordinary
course of business which obligations do not exceed $500,000 in the aggregate at
any one time outstanding; (vii) Liens for taxes, assessments or governmental
charges that are being contested in good faith by appropriate proceedings;
(viii) easements or minor defects or irregularities in title and other similar
charges or encumbrances on property not interfering in any material respect with
the Company's or any of its Subsidiaries' use of such property and (ix) Liens
for the benefit of the Holders created by the Escrow Agreement. Notwithstanding
the foregoing, Permitted Liens may not extend to the Escrow Account or the
Escrow Agreement.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government (including any agency or political
subdivision thereof).
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Public Equity Offering" means a public offering by the Company of shares
of its common stock (however designated and whether voting or non-voting) and
any and all rights, warrants or options to acquire such common stock pursuant to
a registration statement registered pursuant to the Act.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"Ratio Indebtedness" means Indebtedness of the Company or any of its
Subsidiaries (other than Permitted Indebtedness) incurred in compliance with the
first paragraph of the covenant "Limitation on Additional Indebtedness."
"Redeemable Dividend" means, for any dividend or distribution with regard
to Disqualified Capital Stock, the quotient of the dividend or distribution
divided by the difference between one and the maximum statutory federal income
tax rate (expressed as a decimal number between 1 and 0) then applicable to the
issuer of such Disqualified Capital Stock.
"Reference Period" has the meaning set forth in the covenant described
under "Limitation on Additional Indebtedness."
"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends (a) any Indebtedness of the Company or its Subsidiaries outstanding on
the Issue Date or (b) any other Indebtedness permitted to be incurred by the
Company or its Subsidiaries pursuant to the terms of the Indenture, but only to
the extent that: (i) the Refinancing Indebtedness is subordinated to the Notes
to at least the same extent that the Indebtedness being refunded, refinanced or
extended is so subordinated, if at all; (ii) the Refinancing Indebtedness is
scheduled to mature either (A) no earlier than the Indebtedness being refunded,
refinanced or
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extended, or (B) after the maturity date of the Notes; (iii) the portion, if
any, of the Refinancing Indebtedness that is scheduled to mature on or prior to
the maturity date of the Notes has a weighted average life to maturity at the
time such Refinancing Indebtedness is incurred that is equal to or greater than
the weighted average life to maturity of the portion of the Indebtedness being
refunded, refinanced or extended that is scheduled to mature on or prior to the
maturity date of the Notes; (iv) such Refinancing Indebtedness is in an
aggregate principal amount that is equal to or less than the sum of (x) the
aggregate principal amount then outstanding under the Indebtedness being
refunded, refinanced or extended (or, in the case of a credit or other facility
represented by commitments (such as, but not limited to, the New Revolving
Credit Facility), the sum of the outstanding principal amount plus the maximum
amount of the unused commitments thereunder), (y) the amount of accrued and
unpaid interest, if any, and premiums owed, if any, not in excess of preexisting
prepayment provisions on such Indebtedness being refunded, refinanced or
extended and (z) the amount of customary fees, expenses and costs related to the
incurrence of such Refinancing Indebtedness; and (v) such Refinancing
Indebtedness is not incurred by a Subsidiary to refinance Indebtedness of the
Company. Refinancing Indebtedness does not include any Indebtedness permitted to
be incurred under any other provision of the Indenture.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Company or any of its Subsidiaries or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the Company
or any such Subsidiary (other than (x) dividends or distributions payable solely
in Capital Stock (other than Disqualified Capital Stock) or in options, warrants
or other rights to purchase Capital Stock (other than Disqualified Capital
Stock), (y) dividends on shares of the Company's preferred stock outstanding on
the Issue Date payable solely in shares of preferred stock of the same series
(whether or not Disqualified Capital Stock) and dividends on such additional
dividend shares, and (z) in the case of Subsidiaries of the Company, dividends
or distributions payable to the Company or to a Wholly-Owned Subsidiary); (ii)
the purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company or any of its Subsidiaries (other than Capital
Stock owned by the Company or a Wholly-Owned Subsidiary, excluding Disqualified
Capital Stock); (iii) the making of any principal payment on, or the purchase,
defeasance, repurchase, redemption or other acquisition or retirement for value,
prior to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, of any Subordinated Indebtedness (other than Subordinated Indebtedness
acquired in anticipation of satisfying a scheduled sinking fund obligation,
principal installment or final maturity, in each case due within one year of the
date of acquisition); (iv) the making of any Investment or guarantee of any
Investment in any Person other than a Permitted Investment; and (v) forgiveness
of any Indebtedness of an Affiliate of the Company to the Company or any of its
Subsidiaries. For purposes of determining the amount expended for Restricted
Payments, cash distributed or invested shall be valued at the face amount
thereof and property other than cash shall be valued at its fair market value,
as determined in good faith by the Board of Directors.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any of its Subsidiaries of any real
or tangible personal property, which property has been or is to be sold or
transferred by the Company or such Subsidiary to such Person in contemplation of
such leasing.
"Significant Subsidiary" means any Subsidiary which would be a "significant
subsidiary" as defined in Article I, Rule 1-02 of Regulation S-X, promulgated
under the Act and the Exchange Act, as in effect on the Issue Date.
"Strategic Equity Investment" means the issuance and sale of Capital Stock
(other than Disqualified Capital Stock) of the Company to a Person substantially
engaged in the business of manufacturing or marketing fragrances or cosmetics
through the mass-market distribution channel or any other business reasonably
related to the Company's business that has an Equity Market Capitalization of at
least $200.0 million.
"Subordinated Indebtedness" means any Indebtedness of the Company which is
expressly subordinated in right of payment to the Notes.
"Subsidiary" of any specified Person means 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
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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
GAAP such entity is consolidated with the first-named Person for financial
statement purposes.
"Temporary Cash Investments" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or of any
governmental agency or political subdivision thereof, maturing within 365 days
of the date of purchase; (ii) Investments in certificates of deposit issued by a
bank organized under the laws of the United States of America or any state
thereof or the District of Columbia, in each case having capital, surplus and
undivided profits totaling more than $500.0 million and rated at least A by
Standard & Poor's Corporation and A-2 by Moody's Investors Service, Inc.,
maturing within 365 days of purchase; or (iii) Investments not exceeding 365
days in duration in money market funds that invest substantially all of such
funds' assets in the Investments described in the preceding clauses (i) and
(ii).
"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.
"Wholly-Owned Subsidiary" means any Subsidiary, all of the outstanding
voting securities (other than directors' qualifying shares or an immaterial
number of shares required to be owned by other Persons pursuant to applicable
law) of which are owned, directly or indirectly, by the Company.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the New Notes will be issued in the form of one
or more registered notes in global form without coupons (each a "Global Note").
Each Global Note will be deposited with, or on behalf of, The Depository Trust
Company (the "Depository") and registered in the name of Cede & Co., as nominee
of the Depository, or will remain in the custody of the Trustee pursuant to the
FAST Balance Certificate Agreement between the Depository and the Trustee.
The Depository has advised the Company that it is (i) a limited purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the meaning
of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency"
registered pursuant to Section 17A of the Exchange Act. The Depository was
created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. The Depository's Participants include securities
brokers and dealers (including the Initial Purchaser), banks and trust
companies, clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants") that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Notes, the Depository will credit the
accounts of Participants with an interest in the Global Note and (ii) ownership
of the New Notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by the Depository (with respect to the
Interest of Participants), the Participants and the Indirect Participants. The
laws of some states require that certain persons take physical delivery in
definitive form of securities that they own and that security interests in
negotiable instruments can only be perfected by delivery of certificates
representing the instruments. Consequently, the ability to transfer New Notes to
pledge the New Notes as collateral will be limited to such extent.
So long as the Depository or its nominee is the registered owner of a
Global Note, the Depository or such nominee, as the case may be, will be
considered the sole owner or Holder of the New Notes represented by the Global
Note for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to have New Notes
represented by such Global Note registered in their
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names, will not receive or be entitled to receive physical delivery of
Certificated Securities, and will not be considered the owners or Holders
thereof under the Indenture for any purpose, including with respect to the
giving of any directions, instruction or approval to the Trustee thereunder. As
a result, the ability of a person having a beneficial interest in New Notes
represented by a Global Note to pledge such interest to persons or entities that
do not participate in the Depository's system or to otherwise take action with
respect to such interest, may be affected by the lack of a physical certificate
evidencing such interest.
Accordingly, each Person owning a beneficial interest in a Global Note must
rely on the procedures of the Depository and, if such Person is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such Person owns its interest, to exercise any rights of a Holder
under the indenture or such Global Note. The Company understands that under
existing industry practice, in the event the Company requests any action of
Holders or a Person that is an owner of a beneficial interest in a Global Note
desires to take any action that the Depository, as the Holder of such Global
Note, is entitled to take, the Depository would authorize the Participants to
take such action and the Participant would authorize Persons owning through such
Participants to take such action or would otherwise act upon the instruction of
such Persons. Neither the Company nor the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of Notes by the Depository, or for maintaining, supervising or reviewing
any records of the Depository relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest on
any New Notes represented by a Global Note registered in the name of the
Depository or its nominee on the applicable record date will be payable by the
Trustee to or at the direction of the Depository or its nominee in its capacity
as the registered Holder of the Global Note representing such New Notes under
the Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the New Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payment and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of New Notes (including principal, premium, if
any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in the Global Note as shown
on the records of the Depository. Payments by the Participants and the Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practice and will be the responsibility of the
Participants or the Indirect Participants.
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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
The following summary of the material terms of the New Revolving Credit
Facility does not purport to be complete and is qualified in it entirety by
reference to the provisions of such agreement, a copy of which has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
NEW REVOLVING CREDIT FACILITY
On March 12, 1997, Dana entered into a credit agreement with the lenders
party thereto (the "Lenders") and General Electric Capital Corporation, as agent
(the "New Revolving Credit Facility"). Capitalized terms not otherwise defined
in this section have the meanings given to them in the New Revolving Credit
Facility.
Pursuant to the New Revolving Credit Facility, the Lenders provided Dana
with a $75.0 million revolving credit facility. Availability under the New
Revolving Credit Facility is limited to the sum of 85% of gross eligible
accounts receivable and 75% of gross eligible inventory, less reserves, if any,
as specified in the New Revolving Credit Facility. The term of the New Revolving
Credit Facility is five years.
Amounts borrowed under the New Revolving Credit Facility bear interest, at
the option of Dana, at either (i) the Index Rate (i.e., the higher of prime rate
or the overnight Federal funds rate plus 0.50%) plus 1.00%, or (ii) absent a
default, the LIBOR rate plus 2.25%. The interest rate will be subject to
adjustment, on a quarterly basis, based on the Company's Interest Coverage Ratio
during each fiscal quarter.
The full and prompt payment and performance, when due, of the obligations
of Dana under the New Revolving Credit Facility are guaranteed by the Company,
all of its material domestic subsidiaries (other than the Guarantor) and all
directly-owned Canadian subsidiaries of the Company, and are secured by a
perfected first priority security interest in substantially all of the existing
and after-acquired tangible and intangible assets of Dana and the guarantors.
The Lenders do not have a security interest in the Escrow Account securing the
Notes nor in the funds in the Escrow Account. The obligations of Dana under the
New Revolving Credit Facility are also secured by a pledge of 66% of the capital
stock of all non-Canadian foreign subsidiaries of Dana and the guarantors.
The New Revolving Credit Facility contains a number of covenants that
restrict the operation of the Company, including restrictions on, among other
things: (i) certain mergers, acquisitions or sales of the Company's assets or
stock (other than the stock of the Company); (ii) cash dividends and other
distributions to equity holders and to the Company; (iii) payments in respect of
subordinated debt; (iv) transactions with affiliates; and (v) indebtedness and
liens. The New Revolving Credit Facility prohibits the Company from making any
acquisitions without the consent of the Lenders having at least 66 2/3% of the
commitments to make revolving credit advances under the New Revolving Credit
Facility. In addition, the New Revolving Credit Facility limits the amount of
dividends and similar payments that Dana and other subsidiary guarantors can
make to the Company to the amount required to pay interest on the Notes (after
application of amounts held in the Escrow Account), taxes, holding company
operating expense and certain other matter specified in the New Revolving Credit
Facility. The New Revolving Credit Facility contains a provision which permits
the Lenders thereunder to block payments to the Company following a payment
default, or for a period of 179 days following a non-payment default, under the
New Revolving Credit Facility.
The New Revolving Credit Facility also includes certain financial
covenants, affirmative and negative covenants, representations, warranties,
conditions and events of default.
Upon the occurrence of an Event of Default under the New Revolving Credit
Facility, the Lenders may accelerate the maturity of the Loans and any other
amounts due from Dana under the New Revolving Credit Facility.
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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, and 1,000,000 shares are preferred stock, par
value $.01 per share (the "Serial Preferred Stock"). As of December 31, 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 $.01 per
share. The outstanding liquidation preference of the Cumulative Exchangeable
Preferred Stock at December 31, 1996 was $12.8 million. The Cumulative
Exchangeable Preferred Stock was issued in units with warrants to purchase
50,000 shares of Common Stock. See "-- Warrants."
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
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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 Existing Senior
Notes because the Fixed Charge Coverage Ratio (as described in the Existing
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 Existing
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 Old 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 Existing 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 Existing 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 Existing 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 Existing Indenture.)
Series B Preferred Stock
350,000 shares have been designated in a Certificate of Designation 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 8,381 shares were issued on
November 15, 1996 and February 18, 1997 as dividends in respect of the Series B
Preferred Stock. Pursuant to a registration statement filed by the Company,
shares of Series B Preferred Stock will be exchangeable for shares of Series C
Preferred Stock pursuant to an exchange offer (the "Preferred Stock Exchange
Offer"). 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.
Series C Preferred Stock
350,000 shares have been designated in a Certificate of Designation as the
Series C Preferred Stock. The Series C Preferred Stock when issued in exchange
for the Series B Preferred Stock in accordance with the
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terms of the Preferred Stock Exchange Offer will be fully paid and
nonassessable, and the holders thereof will have no subscription or preemptive
rights related thereto.
The Series C Preferred Stock, with respect to dividends and distributions
upon the liquidation, winding-up and dissolution of the Company, ranks senior
to: (i) all classes of Common Stock of the Company; (ii) the Cumulative
Exchangeable Preferred Stock; and (iii) 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 on the Series C Preferred Stock are payable quarterly in arrears
on February 15, May 15, August 15 and November 15 of each year (each, a
"Dividend Payment Date") at an initial rate of 14.0% per annum. 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 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 Existing 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.
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, 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.
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.
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Upon a Change of Control of the Company only if and only to the extent
permitted by the Existing Senior Notes, the Senior Secured Credit Facility, the
Notes and the New Revolving Credit Facility and any other long-term indebtedness
outstanding at such time, the Company is obligated to 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 Existing 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 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 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
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 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 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.
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.
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 Existing Senior
Notes or the Series C Preferred Stock ("Disqualified Capital Stock")), unless
dividends on 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
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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 preference of the Series C Preferred Stock and
the Series B Preferred Stock, voting as a single class.
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 Existing
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
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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
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 (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
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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).
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
transfers 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.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of certain of the anticipated federal income tax
consequences of an exchange of Existing Notes for New Notes and of the purchase,
ownership, and disposition of the New Notes 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 New Notes 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 New Notes 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 NEW NOTES.
TAXATION OF HOLDERS ON EXCHANGE
Although the matter is not free from doubt, an exchange of Existing Notes
for New Notes should not be a taxable event to holders of Existing Notes 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 New Notes as it had in the Existing Notes immediately before the
exchange. Further, the tax consequences of ownership and disposition of any New
Notes should be the same as the tax consequences of ownership and disposition of
Existing Notes.
MARKET DISCOUNT
If a holder purchases a Note for an amount that is less than its principal
amount, the amount of the difference will be treated as "market discount" for
federal income tax purposes, unless such difference is less than a specified de
minimis amount. Under the market discount rules, a holder will be required to
treat any principal payment on, or any gain on the sale, exchange, retirement or
other disposition of, a Note as ordinary income to the extent of the market
discount which has not previously been included in income and is treated as
having accrued on such a Note at the time of such payment or disposition. In
addition, the holder may be required to defer, until the maturity of the Note or
its earlier disposition in a taxable transaction, the deduction of all or a
portion of the interest expense on any indebtedness incurred or continued to
purchase or carry such Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the holder
elects to accrue on a constant interest method. A holder of a Note may elect to
include market discount in income currently as it accrues (on either a ratable
or constant interest method), in which case the rule described above regarding
deferral of interest deductions will not apply. This election to include market
discount in income currently, once made, applies to all market discount
obligations acquired on or after the first taxable year to which the election
applies and may not be revoked without the consent of the Internal Revenue
Service (the "IRS").
AMORTIZABLE BOND PREMIUM
A holder that purchases a Note for an amount in excess of the sum of its
principal amount will be considered to have purchased the Note at a "premium." A
holder generally may elect to amortize the premium over the remaining term of
the Note on a constant yield method. The amount amortized in any year will be
treated as a reduction of the holder's interest income from the Note. Bond
premium on a Note held by a holder that does not make such an election will
decrease the gain or increase the loss otherwise recognized on disposition of
the Note. The election to amortize premium on a constant yield method once made
applies to
112
<PAGE> 116
all debt obligations held or subsequently acquired by the electing holder on or
after the first day of the first taxable year to which the election applies and
may not be revoked with the consent of the IRS.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A holder's tax basis in a Note will, in general, be the holder's cost
therefor, increased by market discount previously included in income by the
holder and reduced by any amortized premium. Upon the sale, exchange or
retirement of a Note, a holder will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange or retirement
(less any accrued interest, which will be taxable as such) and the adjusted tax
basis of the Note. Except as described above with respect to market discount,
such gain or loss will be capital gain or loss and will be long-term capital
gain or loss if at the time of sale, exchange or retirement the Note has been
held for more than one year. Under current law, long-term capital gains of
individuals are, under certain circumstances, taxed at lower rates than items of
ordinary income. The deductibility of capital losses is subject to limitations.
BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal, interest and premium paid on Notes and to the proceeds of
sale of a Note made to holders other than certain exempt recipients (such as
corporations). A 31% backup withholding tax will apply to such payments 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.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
THE FOREGOING SUMMARY OF THE PRINCIPAL FEDERAL INCOME TAX CONSEQUENCES TO
HOLDERS DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO A PARTICULAR HOLDER OF NOTES IN LIGHT OF HIS PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF NOTES SHOULD CONSULT SUCH
HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE
OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OR SUBSEQUENT VERSIONS THEREOF.
ERISA CONSIDERATIONS
Sections 406 and 407 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and Section 4975 of the Code prohibit certain
employee benefit plans, individual retirement accounts, individual retirement
annuities, and employee annuity plans ("Plans") from engaging in certain
transactions with persons who, with respect to such Plan, are "parties in
interest" under ERISA or "disqualified persons" under the Code. A violation of
these "prohibited transactions" rules may generate excise taxes under the Code
and other liabilities under ERISA for such persons. Possible violations of the
prohibited transaction rules occur if the Notes are purchased with the assets of
any Plan if the Company or any of its affiliates is a party in interest or
disqualified person with respect to such Plan, unless such acquisition is
subject to a statutory or administrative exemption.
The foregoing discussion is general in nature and is not intended to be
all-inclusive. Any fiduciary of a Plan considering the purchase of the Notes
should consult its legal advisors regarding the consequences of such purchases
under ERISA and the Code. If the Plan is not subject to ERISA, the fiduciary
should consult its legal advisors regarding the consequences of any state law or
Code considerations.
113
<PAGE> 117
PLAN OF DISTRIBUTION
Based on certain no action letters issued by the staff of the Commission to
third parties in unrelated transactions, the Company believes that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any holder who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or (ii) any broker-dealer that purchases Notes from the Company to resell
pursuant to Rule 144A under the Securities Act ("Rule 144A") or any other
available exemption) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of the holder's business and such holders have
no arrangement or understanding with any person to participate in a distribution
of such New Notes and are not participating in, and do not intend to participate
in, the distribution of such New Notes. In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdiction or an exemption from registration or qualification is
available and complied with. The Company has agreed, pursuant to the
Registration Rights Agreement and subject to certain specified limitations
therein, to register to qualify the New Notes for offer or sale under the
securities or blue sky laws of such jurisdictions as any holder of the Notes
reasonably request in writing.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. 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 New Notes received in exchange for Existing Notes
where such Existing Notes were acquired as a result of market-making activities
or other trading activities. The Company has agreed that, for a period of 180
days, it will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until
, 1997, all dealers effecting transactions in the New Notes may
be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes 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 New Notes 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 brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver 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.
For a period of 180 days after the close of the Exchange Offer the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Existing Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Existing Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York.
114
<PAGE> 118
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.
The statement of direct revenues and direct expenses of the mass fragrances
business of P&G for the year ended June 30, 1996, included in this Prospectus
has been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein and has been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
115
<PAGE> 119
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
RENAISSANCE COSMETICS INC. AND SUBSIDIARIES:
Consolidated Balance Sheets -- December 31, 1996 (Unaudited) and March 31, 1996................ F-2
Consolidated Statements of Operations -- Nine Months Ended December 31, 1996 and 1995
(Unaudited).................................................................................. F-3
Consolidated Statements of Cash Flows -- Nine Months Ended December 31, 1996 and 1995
(Unaudited).................................................................................. F-4
Notes to Consolidated Financial Statements..................................................... F-5
Independent Auditors' Report................................................................... F-9
Consolidated Balance Sheets -- March 31, 1996 and 1995......................................... F-10
Consolidated Statements of Operations -- Year Ended March 31, 1996 and Period from April 15,
1994 (Inception) to March 31, 1995........................................................... F-11
Consolidated Statements of Stockholders' Equity -- Year Ended March 31, 1996 and Period
from April 15, 1994 (Inception) to March 31, 1995............................................ F-12
Consolidated Statements of Cash Flows -- Year Ended March 31, 1996 and
Period from April 15, 1994 (Inception) to March 31, 1995..................................... F-13
Notes to Consolidated Financial Statements..................................................... F-14
COSMAR CORPORATION AND AFFILIATE (PREDECESSOR):
Independent Auditors' Report................................................................... F-27
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-28
Combined Statement of Cash Flows of Assets Acquired and Liabilities Assumed -- Period from
January 1, 1994 to August 17, 1994........................................................... F-29
Notes to the Combined Financial Statements..................................................... F-30
Independent Auditors' Report................................................................... F-32
Combined Statement of Income -- For the Year Ended December 31, 1993........................... F-33
Combined Statement of Cash Flows -- For the Year Ended December 31, 1993....................... F-34
Notes to the Combined Financial Statements..................................................... F-35
GREAT AMERICAN COSMETICS, INC.:
Balance Sheet as at June 30, 1996 (Unaudited).................................................. F-37
Statements of Income and Retained Earnings -- For the Six Months Ended June 30, 1996 and 1995
(Unaudited).................................................................................. F-38
Statements of Cash Flows -- For the Six Months Ended June 30, 1996 and 1995 (Unaudited)........ F-39
Notes to Financial Statements.................................................................. F-40
Report of Independent Accountants.............................................................. F-41
Balance Sheet as at December 31, 1995 and 1994................................................. F-42
Statements of Income and Retained Earnings -- For the Years Ended December 31, 1995
and 1994..................................................................................... F-43
Statements of Cash Flows -- For the Years Ended December 31, 1995 and 1994..................... F-44
Notes to Financial Statements.................................................................. F-45
MEM COMPANY INC. AND SUBSIDIARIES:
Consolidated Balance Sheet -- September 30, 1996 (Unaudited) and December 31, 1995............. F-48
Consolidated Statements of Operations -- Nine Months Ended September 30, 1996 and 1995
(Unaudited).................................................................................. F-49
Consolidated Statements of Cash Flows -- Nine Months Ended September 30, 1996 and 1995
(Unaudited).................................................................................. F-50
Notes to Consolidated Financial Statements..................................................... F-51
Report of Independent Auditors................................................................. F-52
Consolidated Statements of Operations -- Years Ended December 31, 1995, 1994 and 1993.......... F-53
Consolidated Balance Sheets -- December 31, 1995 and 1994...................................... F-54
Consolidated Statements of Changes in Stockholders' Equity -- Years Ended December 31, 1995,
1994 and 1993................................................................................ F-55
Consolidated Statements of Cash Flows -- Years Ended December 31, 1995, 1994 and 1993.......... F-56
Notes to Consolidated Financial Statements..................................................... F-57
THE MASS FRAGRANCES BUSINESS OF THE PROCTER & GAMBLE COMPANY:
Independent Auditors' Report................................................................... F-62
Statement of Direct Revenues and Direct Expenses -- For the Year Ended June 30, 1996 and the
Three-Month Period Ended September 30, 1996 (Unaudited)...................................... F-63
Notes to Financial Statement................................................................... F-64
</TABLE>
F-1
<PAGE> 120
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 51,513 $ 1,432
Marketable securities........................................................ 585 174
Accounts receivable -- Net................................................... 38,226 34,557
Inventories.................................................................. 55,724 30,237
Prepaid expenses and other current assets.................................... 11,159 6,540
-------- --------
Total current assets...................................................... 157,207 72,940
PROPERTY, PLANT AND EQUIPMENT -- Net........................................... 24,007 14,535
DEFERRED FINANCING COSTS -- Net................................................ 10,759 8,007
OTHER ASSETS -- Net............................................................ 14,806 12,242
INTANGIBLE ASSETS -- Net....................................................... 160,953 76,895
-------- --------
TOTAL ASSETS................................................................... $367,732 $184,619
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable................................................................ $ -- $ 57,000
Accounts payable............................................................. 14,858 19,463
Accrued expenses............................................................. 39,389 15,157
Other current liabilities.................................................... -- 2,700
-------- --------
Total current liabilities................................................. 54,247 94,320
-------- --------
LONG-TERM LIABILITIES:
Long-term debt............................................................... 185,088 67,323
Minimum royalty obligation................................................... 4,899 4,686
Deferred tax liability....................................................... -- 141
-------- --------
Total long-term liabilities............................................... 189,987 72,150
-------- --------
TOTAL LIABILITIES.............................................................. 244,234 166,470
-------- --------
COMMITMENTS AND CONTINGENCIES
SENIOR REDEEMABLE PREFERRED STOCK -- SERIES B:
Par value $.01 -- authorized, 350,000 shares; issued, 119,018 shares at
December 31, 1996......................................................... 82,576 --
-------- --------
REDEEMABLE PREFERRED STOCK:
Par value $.01 -- authorized, 40,000 shares; issued, 12,485 shares at
December 31, 1996; 11,594 shares at March 31, 1996........................ 12,783 11,698
-------- --------
COMMON STOCKHOLDERS' EQUITY:
Common stock, par value $.01 -- authorized, 3,000,000 shares; issued, 830,736
shares at December 31, 1996; 726,818 shares at March 31, 1996............. 8 7
Notes receivable from sale of common stock................................... (518) (518)
Additional paid-in capital................................................... 69,403 26,787
Treasury stock, at cost (5,650 shares)....................................... (210) (210)
Deficit...................................................................... (39,430) (19,564)
Cumulative translation adjustment............................................ (1,114) (51)
-------- --------
Total common stockholders' equity......................................... 28,139 6,451
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................... $367,732 $184,619
======== ========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 121
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
NET SALES........................................................................ $124,590 $ 94,339
COST OF GOODS SOLD............................................................... 48,082 36,052
-------- --------
GROSS PROFIT..................................................................... 76,508 58,287
-------- --------
OPERATING EXPENSES:
Selling........................................................................ 48,341 33,388
General and administrative..................................................... 16,727 13,198
Amortization of intangible and other
assets...................................................................... 5,141 3,564
-------- --------
Total operating expenses.................................................... 70,209 50,150
-------- --------
OPERATING INCOME................................................................. 6,299 8,137
INTEREST EXPENSE (INCOME):
Interest expense............................................................... 17,206 14,241
Interest income................................................................ (1,448) (197)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES................................................ (9,459) (5,907)
INCOME TAX PROVISION............................................................. 569 973
-------- --------
NET INCOME (LOSS)................................................................ (10,028) (6,880)
PREFERRED STOCK DIVIDENDS........................................................ 9,838 992
-------- --------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS....................................... $(19,866) $ (7,872)
======== ========
NET LOSS PER COMMON SHARE........................................................ $ (25.95) $ (10.93)
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING.............................................. 765,569 720,093
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 122
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31
------------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................... $(10,028) $ (6,880)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation..................................................................... 2,715 1,875
Amortization of intangible assets................................................ 2,576 2,404
Amortization of minimum royalty and other assets................................. 2,565 1,160
Amortization of deferred financing costs......................................... 2,918 1,874
Accrued interest on senior notes, subordinated seller notes and minimum royalty
obligation..................................................................... 1,103 976
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable.............................................................. (921) (17,418)
Inventories...................................................................... (6,986) (1,977)
Prepaid expenses and other assets................................................ (9,357) (3,422)
Accounts payable................................................................. (11,135) (5,685)
Accrued expenses................................................................. 7,741 3,728
Other current liabilities........................................................ (2,700) --
Other............................................................................ (1,098) 88
-------- --------
Net cash used in operating activities.......................................... (22,607) (23,277)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities................................................ (411) --
Sale of marketable securities.................................................... -- 324
Capital expenditures............................................................. (2,826) (5,426)
Acquisition of business -- net of cash acquired.................................. (94,109) --
-------- --------
Net cash used in investing activities.......................................... (97,346) (5,102)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable.................................................. 4,200 24,000
Proceeds from Senior Secured Credit Facility..................................... 117,500 --
Repayment of notes payable....................................................... (61,200) --
Payment of minimum royalty obligations........................................... (1,386) --
Net proceeds of issuance of preferred stock -- Series A.......................... 18,955 --
Payment of deferred financing costs.............................................. (5,670) (914)
Redemption of preferred stock -- Series A........................................ (20,434) --
Net proceeds of issuance of redeemable preferred stock -- Series B............... 108,319 --
Net proceeds from issuance of common stock....................................... 9,750 --
-------- --------
Net cash provided by financing activities...................................... 170,034 23,086
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................... 50,081 (5,293)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..................................... 1,432 7,001
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................................... $ 51,513 $ 1,708
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest....................................................................... $ 10,117 $ 7,141
======== ========
Income taxes................................................................... $ 463 $ 728
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING TRANSACTIONS:
Accrued dividends and accretion on redeemable preferred stocks................... $ 9,838 $ 992
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 123
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
("Cosmar"), Houbigant Ltee, and Dana Perfumes Corporation ("Dana"), Great
American Cosmetics, Inc. ("GAC") from the date of its acquisition on August 21,
1996, and MEM Company, Inc. ("MEM") from the date of its acquisition on December
4, 1996. All significant intercompany activity has been eliminated. The results
of operations for the nine months ended December 31, 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.
In January 1997, the Company restated (a) its previously-reported results
of operations for the three and 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, and (b) its previously-reported
results of operations for the three months ended June 30, 1996 and June 30, 1995
and its previously-reported balance sheet data as of June 30, 1996 and June 30,
1995 (the "Prior Restatements"). See the Quarterly Reports on Form 10-Q/A for
the three-and six-months ended June 30, 1996, and September 30, 1996. The Prior
Restatements did not require any restatement of the Company's
previously-reported audited financial statements for Fiscal 1995, did not have
any impact on the Company's results of operations for the nine-months ended
December 31, 1996 or the Company's balance sheet as of December 31, 1996, 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.
2. INVENTORIES
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ ---------
<S> <C> <C>
Raw material and advertising supplies.......................... $ 25,481 $16,957
Work in process................................................ 3,020 2,860
Finished goods................................................. 27,223 10,420
-------- -------
$ 55,724 $30,237
======== =======
</TABLE>
The above components are shown net of excess and obsolete inventory
reserves of $2,864,000 and $1,540,000 at December 31, 1996 and March 31, 1996,
respectively. At December 31, 1996 and March 31, 1996 approximately 49.8% and
60.7%, respectively, of the Company's inventories are stated at the lower of
LIFO cost or market. The excess of current replacement cost over the stated LIFO
value was $0 at December 31, 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)
F-5
<PAGE> 124
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
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.
4. RECENT ACQUISITIONS
A. MEM Acquisition. On December 4, 1996, the Company, through its
wholly-owned subsidiary, Renaissance Acquisition, Inc. ("RAI"), completed its
acquisition (the "MEM Acquisition") of MEM Company, Inc. ("MEM"), pursuant to a
Merger Agreement, dated August 6, 1996, as amended.
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.
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.
See Note 6.D., entitled "Subsequent Event -- MEM Facility Closing" below.
B. P&G Brands Acquisition. On December 6, 1996, the Company completed its
acquisition from The Proctor & Gamble Company ("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 "P&G Acquisition"). 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. Based upon information received from P&G, the amount of such
adjustment may result in an increase in the purchase price of approximately $2.5
million. In addition, in connection with the P&G Acquisition, the Company
assumed certain specified trade-related obligations of P&G, including the
liability for returns of products under the P&G Brands sold prior to the closing
and liabilities under certain advertising and business development commitments.
Concurrent with the P&G Acquisition, the Company entered into transition service
agreements under which P&G will continue the foreign marketing of the P&G Brands
through June 30, 1997.
The MEM Acquisition and the P&G Acquisition are collectively referred to
herein as the "Acquisitions." Both Acquisitions have been accounted for under
the purchase method of business combinations. The Company has not yet completed
the process of allocating the excess of assets acquired over liabilities assumed
to specific assets and liabilities, but believes that this excess will relate
principally to goodwill and trademarks which will be amortized over an average
of 20 years.
The following unaudited pro forma summary presents the consolidated results
of operations as if the Acquisitions had occurred as of the beginning of each
period presented and do not purport to be indicative of what would have occurred
had the Acquisitions been made as of those dates or of results which may occur
in the future (in millions).
F-6
<PAGE> 125
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Net Sales.................................. $196 $181
==== ====
Operating Income........................... $ 14 $ 15
==== ====
</TABLE>
5. FINANCING TRANSACTIONS
A. Senior Secured Credit Facility. On December 4, 1996, Cosmar, as
borrower, the Company and all of the Company's material domestic and Canadian
subsidiaries, as guarantors, entered into a Senior Secured Credit Facility with
the lenders named therein (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 thereon); (ii) to finance the P&G Brands Acquisition; (iii)
to repay all outstanding indebtedness under the Company's then-existing credit
facility (the "Old Credit Facility") with Nomura Holding America, Inc.
("Nomura"), which was terminated on such date; and (iv) the remainder was used
or was to be available for general corporate purposes.
The Senior Secured Credit Facility had an initial term of one year, subject
to extension under certain circumstances, and an initial interest rate of 11.5%
per annum, which was scheduled to increase 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 was secured by
substantially all of the assets of Cosmar, the Company and the other guarantors.
The indebtedness under the Senior Secured Credit Facility was repaid in full on
February 7, 1997 and the liens thereunder were released.
See Note 6.A. entitled "Subsequent Events -- New Senior Notes Offering".
6. SUBSEQUENT EVENTS
A. New Senior Notes Offering. On February 7, 1997, the Company completed
the sale of $200.0 million aggregate principal amount of its 11 3/4% Senior
Notes due 2004 (the "New Senior Notes"). The net proceeds from the sale of the
New Senior Notes, together with a portion of the Company's available cash, were
used (i) to refinance the Company's outstanding $65.0 million principal amount
of 13 3/4% Senior Notes due 2001, Series B (the "Old Senior Notes"), (ii) to
repay all outstanding indebtedness under the Senior Secured Credit Facility and
(iii) to fund an escrow account as discussed below.
The New Senior Notes may be redeemed at the option of the Company on or
after February 15, 2002, initially at 103.358% of the principal amount,
declining to 101.679% of the principal amount on or after February 15, 2003, in
each case, plus accrued and unpaid interest thereon. The Company also may redeem
up to 35% of the original principal amount of the New Senior Notes on or after
February 15, 2000, at a redemption price equal to 111.75% of the principal
amount thereof, plus accrued and unpaid interest thereon, with the net proceeds
of one or more public equity offerings or strategic equity investments that have
occurred within 90 days prior to the redemption, provided that at least $130
million of the principal amount of the New Senior Notes originally issued
remains outstanding.
In connection with the sale of the New Senior Notes, the Company
transferred $17.5 million to a newly-formed, single-purpose wholly-owned
subsidiary, Renaissance Guarantor, Inc., a Delaware corporation ("RGI"), in
exchange for a limited guarantee by RGI of the Company's obligations under the
New Senior Notes. RGI placed such amount into an escrow account (the "Escrow
Account"). The New Senior Notes will be general unsecured obligations of the
Company except to the extent that they are collateralized by a first priority
security interest in the Escrow Account.
B. Old Senior Notes Offering. On February 7, 1997, the Company completed
its offer to purchase and purchased all of the outstanding $65.0 million
aggregate principal amount of the Old Senior Notes at a price of $1,165 for each
$1,000 principal amount, plus accrued and unpaid interest (the "Old Senior Notes
Offer").
F-7
<PAGE> 126
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
In connection with the Old Senior Notes Offer, the Company received consents
from the holders of all of the aggregate principal amount of the outstanding Old
Senior Notes to amend the Old Indenture. The amendments eliminated substantially
all of the restrictive covenants contained in the Old Indenture. The Redeemable
Preferred Stock is exchangeable into notes to be issued under the Old Indenture
(i) by the Company at any time and (ii) under certain circumstances, by the
holders thereof on or after August 15, 1997.
C. New Revolving Credit Facility. The Company has received a commitment
letter from 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") with a maximum committed amount of $75.0 million.
Availability under the New Revolving Credit Facility will be based on a
borrowing base consisting of a percentage of gross eligible accounts receivable
and gross eligible inventory, less reserves, if any. The term of the New
Revolving Credit Facility is expected to be five years.
Amounts borrowed under the New Revolving Credit Facility will bear
interest, at the option of Dana, at either (i) the Index Rate (i.e., the higher
of the prime rate or the overnight Federal funds rate plus 0.50%) plus 1.00% or
(ii) absent a default, the LIBOR rate plus 2.25%. The interest rate will be
subject to adjustment, on a quarterly basis, based on the average outstanding
during each quarter.
Under the commitment letter, obligations under the New Revolving Credit
Facility would be guaranteed by the Company, all of its domestic subsidiaries
and all directly-owned Canadian subsidiaries of the Company and will be secured
by a perfected first priority security interest in substantially all of the
existing and after-acquired tangible and intangible assets of Dana and the
guarantors, other than the Escrow Account. The New Revolving Credit Facility is
expected to contain a number of convenants that restrict the operation of the
Company (including financial covenants), which covenants are typical of a
facility of this nature.
There can be no assurance as to when or whether the New Revolving Credit
Facility will be entered into or as to whether the New Revolving Credit Facility
will contain the terms and conditions described above, and such New Revolving
Credit Facility may contain terms and conditions more favorable or less
favorable to the Company than set forth above.
D. MEM Facility Closings. On February 7, 1997, the Company closed MEM'S
facilities in Northvale, New Jersey, and in Boucherville, Quebec. The Company
has estimated its costs in connection with the closure of such facilities to be
approximately $6.1 million, including severance payments, ERISA withdrawal
liability and stay bonuses for selected employees of MEM, which have been
accrued as of December 31, 1996. The Company's estimate of its ERISA withdrawal
liability costs is an estimate for a 1996 withdrawal and the Company has been
advised that its liability for a 1997 withdrawal would be higher.
E. Series C Preferred Stock. On January 31, 1997, the Company filed
Amendment No. 1 to the Company's Registration Statement on Form S-4 (the
"Registration Statement") for its 14.0% Senior Redeemable Preferred Stock,
Series C (the "Series C Preferred Stock"), filed on October 1, 1996. Pursuant to
the terms of the Registration Rights Agreement for the Company's 14.0% Senior
Redeemable Preferred Stock, Series B (the "Series B Preferred Stock"), the
annual dividend rate for the Series B Preferred Stock increased by 0.5% per
annum on January 11, 1997, to 14.5% per annum and the dividend rate will
increase by an additional 0.25% per annum for each 90-day period after January
11, 1997, until the Registration Statement is declared effective (up to a
maximum additional dividends of 2.0% per annum). When the Registration Statement
is declared effective, the dividend rate on the Series B Preferred Stock will be
reduced to the original dividend rate of 14.0% per annum. If the Exchange Offer
is not consummated by March 12, 1997, the dividend rate on the Series B
Preferred Stock will increase by 0.5% per annum and additional 0.25% per annum
for each 90-day period thereafter (up to a maximum additional dividends of 2.0%
per annum), until the Exchange Offer is consummated, at which time the dividend
rate will be reduced to 14.0% per annum.
F-8
<PAGE> 127
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-9
<PAGE> 128
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-10
<PAGE> 129
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-11
<PAGE> 130
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-12
<PAGE> 131
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-13
<PAGE> 132
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.
Revenue Recognition -- Sales are recognized when goods are shipped. An
accrual for customer returns is recorded based upon historical experience.
F-14
<PAGE> 133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-15
<PAGE> 134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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-16
<PAGE> 135
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 $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.
F-17
<PAGE> 136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-18
<PAGE> 137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $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>
F-19
<PAGE> 138
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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-20
<PAGE> 139
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.
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.
F-21
<PAGE> 140
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-22
<PAGE> 141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-23
<PAGE> 142
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-24
<PAGE> 143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<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-25
<PAGE> 144
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-26
<PAGE> 145
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-27
<PAGE> 146
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-28
<PAGE> 147
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-29
<PAGE> 148
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-30
<PAGE> 149
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-31
<PAGE> 150
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-32
<PAGE> 151
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-33
<PAGE> 152
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-34
<PAGE> 153
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-35
<PAGE> 154
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-36
<PAGE> 155
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-37
<PAGE> 156
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-38
<PAGE> 157
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-39
<PAGE> 158
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-40
<PAGE> 159
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-41
<PAGE> 160
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-42
<PAGE> 161
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-43
<PAGE> 162
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-44
<PAGE> 163
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-45
<PAGE> 164
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-46
<PAGE> 165
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-47
<PAGE> 166
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-48
<PAGE> 167
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-49
<PAGE> 168
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-50
<PAGE> 169
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-51
<PAGE> 170
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-52
<PAGE> 171
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-53
<PAGE> 172
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-54
<PAGE> 173
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-55
<PAGE> 174
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-56
<PAGE> 175
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-57
<PAGE> 176
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-58
<PAGE> 177
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-59
<PAGE> 178
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-60
<PAGE> 179
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-61
<PAGE> 180
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Management of
The Procter & Gamble Company:
We have audited the accompanying statement of direct revenues and direct
expenses of the Mass Fragrances Business of The Procter & Gamble Company
("Procter & Gamble") for the year ended June 30, 1996. This statement is the
responsibility of Procter & Gamble's management. Our responsibility is to
express an opinion on this statement 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 statement referred to above is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement referred to above. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the statement referred to above. We believe that our audit provides a reasonable
basis for our opinion.
The operations covered by the statement referred to above are a part of The
Procter & Gamble Company and have no separate legal status or existence. As
described in Note 1 to the statement, the statement referred to above has been
prepared from Procter & Gamble's consolidated financial records and allocations
of certain Procter & Gamble expenses have been made. These allocations are not
necessarily indicative of the expenses that would have been incurred by the Mass
Fragrances Business on a stand-alone basis.
In our opinion, the statement referred to above presents fairly, in all
material respects, the direct revenues and direct expenses of the Mass
Fragrances Business of The Procter & Gamble Company for the year ended June 30,
1996, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Cincinnati, Ohio
January 17, 1997
F-62
<PAGE> 181
THE MASS FRAGRANCES BUSINESS OF
THE PROCTER & GAMBLE COMPANY
STATEMENT OF DIRECT REVENUES AND DIRECT EXPENSES
FOR THE YEAR ENDED JUNE 30, 1996 AND
THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
YEAR ENDED SEPTEMBER 30,
JUNE 30, 1996 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
DIRECT REVENUES............................................. $56,777 $11,379
COST OF PRODUCTS SOLD....................................... 22,787 4,320
------ ------
GROSS MARGIN................................................ 33,990 7,059
OTHER DIRECT EXPENSES:
Marketing and promotional expenses..................... 24,374 3,549
Selling, administrative, and other..................... 2,199 412
------ ------
Total............................................. 26,573 3,961
------ ------
EXCESS OF DIRECT REVENUES OVER DIRECT EXPENSES.............. $ 7,417 $ 3,098
====== ======
</TABLE>
See accompanying notes.
F-63
<PAGE> 182
THE MASS FRAGRANCES BUSINESS OF
THE PROCTER & GAMBLE COMPANY
NOTES TO FINANCIAL STATEMENT
1. BASIS OF PRESENTATION
On December 6, 1996, The Procter & Gamble Company (Procter & Gamble) sold
various mass fragrance trademarks and select related assets (the "Mass
Fragrances Business") to Dana Perfumes Corp. The accompanying statement presents
the direct revenues, cost of products sold, gross margin and other direct
expenses for the year ended June 30, 1996 and the three-month period ended
September 30, 1996 for the Mass Fragrances Business.
Procter & Gamble did not account for this business as a separate entity.
Accordingly, the information included in the accompanying statement of direct
revenues and direct expenses has been obtained from Procter & Gamble's
consolidated financial records. The statement includes allocations of certain
Procter & Gamble corporate expenses which are directly attributable to the mass
fragrance activities. Procter & Gamble management believes the allocations are
reasonable; however, these allocated expenses are not necessarily indicative of
expenses that would have been incurred by the mass fragrance business on a
stand-alone basis, since certain selling and administrative expenses are
provided to the Mass Fragrances Business that are not directly allocable.
Direct revenues and direct expenses are presented in the accompanying
statement in accordance with generally accepted accounting principles. The
unaudited information for the three months ended September 30, 1996 contains all
adjustments, consisting only of normal recurring accruals, necessary for a
consistent presentation of the direct revenues and direct expenses for the
three-month period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition -- Revenue from the sale of products is recognized at
the time the products are shipped.
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 disclosures. Although these estimates are based on
management's best knowledge of current events and actions Procter & Gamble may
undertake in the future, actual results ultimately may differ from the
estimates.
Costs of Products Sold -- Inventories are valued at cost, which is not in
excess of current market. Cost is primarily determined by the average cost
method.
Other Direct Expenses -- Certain other direct expenses are allocated using
procedures deemed appropriate for the nature of the expenses involved, primarily
on an estimate of time and effort spent. The expenses included in the statement
include those charges that are directly attributable to the Mass Fragrances
Business.
F-64
<PAGE> 183
(This page intentionally left blank)
<PAGE> 184
===============================================================
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 EXCHANGE
OFFER 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 TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH AN 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 AN IMPLICATION
THAT THERE HAS 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........................ 1
Incorporation of Certain Documents by
Reference.................................. 1
Special Note Regarding Forward-Looking
Information................................ 2
Prospectus Summary........................... 3
Risk Factors................................. 13
Recent Developments.......................... 20
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................................. 35
The Exchange Offer........................... 42
Business of the Company...................... 49
Business of the Guarantor.................... 68
Management................................... 69
Security Ownership of Certain Beneficial
Owners and Management...................... 77
Certain Relationships and Related
Transactions............................... 78
Description of the Notes..................... 80
Description of Certain Other Indebtedness.... 104
Description of Outstanding Capital Stock..... 105
Certain Federal Income Tax Considerations.... 112
ERISA Considerations......................... 113
Plan of Distribution......................... 114
Legal Matters................................ 114
Experts...................................... 115
Index to Financial Statements................ F-1
</TABLE>
===============================================================
===============================================================
LOGO
OFFER TO EXCHANGE $200,000,000
OF ITS 11 3/4% SENIOR NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT FOR $200,000,000
OF ITS OUTSTANDING 11 3/4% SENIOR NOTES DUE 2004
-------------------------------------
PROSPECTUS
-------------------------------------
, 1997
===============================================================
<PAGE> 185
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 11.9 of the Indenture, the holders of the Existing
Notes, respectively, 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 Existing Notes or the New Indenture.
Pursuant to section 7 of the registration rights agreement relating to the
Existing 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
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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:
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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 ("RCI" or 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 (14) 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.
3.1.5 (14) Certificate of Designation of Preferences and Rights of Senior Redeemable
Preferred Stock, Series C, par value $.01 per share, of RCI filed with the
Secretary of State of the State of Delaware on August 15, 1996.
3.1.6 (14) Certificate of Increase of Certificate of Designation of Preferences and Rights
of Senior Redeemable Preferred Stock, Series C, of RCI, filed with the Secretary
of State of the State of Delaware on September 27, 1996.
3.2 (1) By-laws of RCI.
3.3 Certificate of incorporation of Renaissance Guarantor, Inc. ("RGI") filed with
the Secretary of State of the State of Delaware on February 6, 1997.
3.4 By-laws of RGI.
4.1 (15) Indenture, dated February 7, 1997, among RCI, as issuer, RGI, as guarantor, and
United States Trust Company of New York, as trustee.
4.2 (15) Escrow and Disbursement Agreement, dated February 7, 1997, among RCI, as issuer,
RGI, as guarantor, United States Trust Company of New York, as trustee, and
United States Trust Company of New York, as escrow agent.
4.3 (15) Notes Registration Rights Agreement, dated February 7, 1997, between RCI, as
issuer, and CIBC Wood Gundy Securities Corp., as initial purchaser.
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4.4 Specimen certificate of the Existing Note.
4.5 Specimen certificate of the New Note.
5.1 (16) 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.
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.
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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 (14) 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 (14) Employee Stock Option Plans.
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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.
10.53 (14) 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.
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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 (14) Non-Competition Agreement, dated as of August 18, 1994, among Renaissance
Cosmetics, Inc., Cosmar Corporation and Jerry D. Kayne.
10.67 (14) 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.
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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.
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.
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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.
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 (14) 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.
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10.115.2 Seventh Supplemental Indenture, dated as of February 7, 1997, among the Company,
certain guarantors and Firstar Bank of Minnesota, successor to American Bank
National Association, as 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.
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 (14) Securities Purchase Agreement, dated as of September 27, 1996, between
Renaissance Cosmetics, Inc. and Bastion Capital Fund, L.P.
10.128 (14) Common Stock Registration Rights Agreement, dated as of September 27, 1996,
between Renaissance Cosmetics, Inc. and Bastion Capital Fund, L.P.
10.129 (14) Voting Agreement, dated as of September 27, 1996, between Kidd, Kamm Equity
Partners, L.P. and Bastion Capital Fund, L.P.
10.130 (14) Consulting Agreement, dated December 28, 1994, between Renaissance Cosmetics,
Inc. and Robert H. Schnell.
10.131 (14) Senior Secured Credit Agreement, dated as of December 4, 1996, between the
Company, Cosmar, CIBC Wood Gundy and the Lenders named therein.
10.132 (14) Form of Bridge Note, dated December 4, 1996.
10.133 (14) Form of Term Note.
10.134 (14) 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 (14) 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.
</TABLE>
II-9
<PAGE> 194
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------
<S> <C>
10.136 (14) 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 (14) 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 (14) 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 (14) 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 (14) Specimen Certificate of share of Series C Preferred Stock.
10.141 (14) 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 (14) License Agreement, dated October 1, 1995, between The Nail Consultants, Ltd. and
Cosmar.
10.143 (14) Renaissance Employee Bonus Plan.
10.144 (14) 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 (14) 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 (14) 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 (14) 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 (14) 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 (14) 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 (14) 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 (14) 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 (14) 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 (14) 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.
</TABLE>
II-10
<PAGE> 195
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------
<S> <C>
10.154 (12) Form of Stay Bonus Agreement.
10.155 (14) Collective Bargaining Agreement between Dana Perfumes Corp. and Oil, Chemical &
Atomic Workers International Union AFL-CIO and its Local Union No. 8-782.
10.156 Collective Labor Agreement of the Union of Workers in the Chemical,
Pharmaceutical, Plastic and Related Industries of San Paulo and the Region and
other Unions of Workers and the Federation of Industries of the State of San
Paulo and Industry Unions affiliated therewith (English translation) (with
Officer's Certificate certifying accuracy of translation from Portuguese into
English).
10.157 (15) Purchase Agreement, dated February 3, 1997, between Renaissance Cosmetics, Inc.,
as issuer, and CIBC Wood Gundy Securities Corp., as initial purchaser.
10.158 Intentionally omitted.
10.159 Intentionally omitted.
10.160 Intentionally omitted.
10.161 Industrial Building Lease, dated January 1997, between Dana Perfumes
Corporation, as Lessee, and First National Bank of Illinois as Trustee under
Trust 2871, as lessor.
10.162 Credit Agreement dated as of March 12, 1997 among Dana Perfumes Corp., as
borrower, the other credit parties signatory thereto, as credit parties, the
lenders signatory thereto from time to time, as lenders, and General Electric
Capital Corporation, as agent and lender.
10.163 Pledge Agreement dated as of March 12, 1997 between General Electric Capital
Corporation, as the agent and the lender, and the pledgors thereto.
10.164 Security Agreement dated as of March 12, 1997 among General Electric Capital
Corporation, as the agent and the lender, and the grantors thereto.
10.165 Guaranty dated as of March 12, 1997 between General Electric Capital
Corporation, as the agent and the lender, and the guarantors thereto.
12.1 Calculation of deficiency of earnings to combined fixed charges and preferred
dividends.
21.1 List of subsidiaries.
23.1 (16) 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.
23.6 Consent of Deloitte & Touche, LLP.
24.1 Power of Attorney (included on signature page).
25 (16) Statement of eligibility of Trustee
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9.
</TABLE>
- ---------------
(1) Filed with RCI's Registration Statement on Form S-4 filed with the
Securities and Exchange Commission ("SEC") on December 12, 1994,
Registration No. 33-87280, and incorporated herein by reference thereto.
(2) Filed with Amendment No. 1 to RCI's Registration Statement on Form S-4
filed with the SEC on January 27, 1995, Registration No. 33-87280, and
incorporated herein by reference thereto.
(3) Filed with Amendment No. 2 to RCI's Registration Statement on Form S-4
filed with the SEC on February 9, 1995, Registration No. 33-87280, and
incorporated herein by reference thereto.
II-11
<PAGE> 196
(4) Filed with RCI's Quarterly Report on Form 10-Q filed with the SEC on March
27, 1995, and incorporated herein by reference thereto.
(5) Filed with RCI's Annual Report on Form 10-K filed with the SEC on June 29,
1995, and incorporated herein by reference thereto.
(6) Filed with RCI's Quarterly Report on Form 10-Q filed with the SEC on August
14, 1996, and incorporated herein by reference thereto.
(7) Filed with RCI's Form 8-K filed with the SEC on August 8, 1996, and
incorporated herein by reference thereto.
(8) Filed with RCI'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 RCI's Quarterly Report on Form 10-Q filed with the SEC on
February 14, 1996, and incorporated herein by reference thereto.
(10) Filed with RCI's Registration Statement on Form S-4 filed with the SEC on
October 1, 1996, Registration No. 333-13171, and incorporated herein by
reference thereto.
(11) Filed with RCI's Quarterly Report on Form 10-Q filed with the SEC on
November 14, 1996, and incorporated herein by reference thereto.
(12) Filed with RCI's Form 8-K filed with the SEC on December 19, 1996 and
incorporated herein by reference thereto.
(13) Filed with RCI's Form 8-K filed with the SEC on December 20, 1996 and
incorporated herein by reference thereto.
(14) Filed with Amendment No. 1 to RCI's Registration Statement on Form S-4
filed with the SEC on January 31, 1997, Registration No. 333-13171, and
incorporated herein by reference thereto.
(15) Filed with RCI's Form 8-K filed with the SEC on February 20, 1997 and
incorporated herein by reference thereto.
(16) To be filed by an Amendment.
(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
registrants pursuant to the foregoing provisions, or otherwise, the registrants
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 registrants of expenses
incurred or paid by a director, officer or controlling person of the registrants
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 registrants 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 registrants hereby undertake 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 registrants hereby undertake 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-12
<PAGE> 197
The undersigned registrants hereby undertake:
(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-13
<PAGE> 198
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 March 24, 1997.
RENAISSANCE COSMETICS, INC.
By /s/ THOMAS T. S. KAUNG
------------------------------------
Name: Thomas T.S. Kaung
Title: Group Vice President and
Chief Financial Officer
POWER OF ATTORNEY
Each of the undersigned officers and directors of Renaissance Cosmetics,
Inc. constitutes and appoints Thomas V. Bonoma and Thomas T.S. Kaung and each or
any of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to enable the registrant to comply
with the Securities Act and all requirements of the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.
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 March 24, 1997
- ----------------------------------------- President (principal executive
(Thomas V. Bonoma) officer) and Director
/s/ THOMAS T.S. KAUNG Group Vice President and Chief March 24, 1997
- ----------------------------------------- Financial Officer (principal financial
(Thomas T.S. Kaung) officer and principal accounting
officer)
Director March , 1997
- -----------------------------------------
(Eric R. Hamburg)
/s/ KURT L. KAMM Director March 24, 1997
- -----------------------------------------
(Kurt L. Kamm)
Director March , 1997
- -----------------------------------------
(William J. Kidd)
/s/ JOHN H. LYNCH Director March 24, 1997
- -----------------------------------------
(John H. Lynch)
</TABLE>
II-14
<PAGE> 199
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------------------------- -------------------------------------- --------------
<C> <S> <C>
/s/ E. MARK NOONAN Director March 24, 1997
- -----------------------------------------
(E. Mark Noonan)
/s/ TERRY M. THEODORE Director March 24, 1997
- -----------------------------------------
(Terry M. Theodore)
/s/ DANIEL D. VILLANUEVA Director March 24, 1997
- -----------------------------------------
(Daniel D. Villanueva)
</TABLE>
II-15
<PAGE> 200
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 March 24, 1997.
RENAISSANCE GUARANTOR, INC.
By /s/ THOMAS T. S. KAUNG
------------------------------------
Name: Thomas T.S. Kaung
Title: Vice President and
Chief Financial Officer
POWER OF ATTORNEY
Each of the undersigned officers and directors of Renaissance Guarantor,
Inc. constitutes and appoints Thomas V. Bonoma and Thomas T.S. Kaung and each or
any of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to enable the registrant to comply
with the Securities Act and all requirements of the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.
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 Chief Executive Officer and President March 24, 1997
- ----------------------------------------- (principal executive officer)
(Thomas V. Bonoma)
/s/ THOMAS T.S. KAUNG Vice President and Chief Financial March 24, 1997
- ----------------------------------------- Officer (principal financial officer
(Thomas T.S. Kaung) and principal accounting officer) and
Director
/s/ JOHN R. JACKSON Vice President and General Counsel and March 24, 1997
- ----------------------------------------- Director
(John R. Jackson)
/s/ ANTHONY J. WESLEY Vice President and Treasurer and March 24, 1997
- ----------------------------------------- Director
(Anthony J. Wesley)
Director March , 1997
- -----------------------------------------
(Martin Byman)
Director March , 1997
- -----------------------------------------
(Mary Ellen Spiegel)
</TABLE>
II-16
<PAGE> 201
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> 202
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> 203
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> 204
EXHIBIT INDEX
<TABLE>
<CAPTION>
LOCATION OF
EXHIBIT IN
SEQUENTIAL
NUMBERING
EXHIBIT NO. DESCRIPTION OF DOCUMENT SYSTEM
- ------------ -------------------------------------------------------------------- -----------
<S> <C> <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 ("RCI" or 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. ("Dana") (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 RCI 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 RCI, 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 RCI, filed with the
Secretary of State of the State of Delaware on August 15, 1996.
3.1.4 (14) Certificate of Increase of Certificate of Designation of Preferences
and Rights of Senior Redeemable Preferred Stock, Series B, of RCI,
filed with the Secretary of State of the State of Delaware on
September 27, 1996.
3.1.5 (14) Certificate of Designation of Preferences and Rights of Senior
Redeemable Preferred Stock, Series C, par value $.01 per share, of
RCI filed with the Secretary of State of the State of Delaware on
August 15, 1996.
3.1.6 (14) Certificate of Increase of Certificate of Designation of Preferences
and Rights of Senior Redeemable Preferred Stock, Series C, of RCI,
filed with the Secretary of State of the State of Delaware on
September 27, 1996.
3.2 (1) By-laws of RCI.
3.3 Certificate of incorporation of Renaissance Guarantor, Inc. ("RGI")
filed with the Secretary of State of the State of Delaware on
February 6, 1997.
3.4 By-laws of RGI
4.1 (15) Indenture, dated February 7, 1997, among RCI, as issuer, RGI, as
guarantor, and United States Trust Company of New York, as trustee.
4.2 (15) Escrow and Disbursement Agreement, dated February 7, 1997, among
RCI, as issuer, RGI, as guarantor, United States Trust Company of
New York, as trustee, and United States Trust Company of New York,
as escrow agent.
</TABLE>
<PAGE> 205
<TABLE>
<CAPTION>
LOCATION OF
EXHIBIT IN
SEQUENTIAL
NUMBERING
EXHIBIT NO. DESCRIPTION OF DOCUMENT SYSTEM
- ------------ -------------------------------------------------------------------- -----------
<S> <C> <C>
4.3 (15) Notes Registration Rights Agreement, dated February 7, 1997, between
RCI, as issuer, and CIBC Wood Gundy Securities Corp., as initial
purchaser.
4.4 Specimen certificate of Existing Note.
4.5 Specimen certificate of Exchange Note.
5.1 (16) 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.
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.
</TABLE>
<PAGE> 206
<TABLE>
<CAPTION>
LOCATION OF
EXHIBIT IN
SEQUENTIAL
NUMBERING
EXHIBIT NO. DESCRIPTION OF DOCUMENT SYSTEM
- ------------ -------------------------------------------------------------------- -----------
<S> <C> <C>
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.
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.
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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 (14) 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 RCI.
10.36 (1) Letter agreement, dated August 18, 1994, between RCI and Dr. Thomas
V. Bonoma, granting Dr. Bonoma stock options.
10.37 (6) Employment agreement, dated August 6, 1996, between RCI and Dr.
Thomas V. Bonoma.
10.38 (1) Stockholders agreement, dated August 18, 1994, among RCI and the
stockholders listed in schedule 1 thereto.
10.40 (14) Employee Stock Option Plans.
10.41 (10) Management Services Agreement, dated August 16, 1994, between Kidd,
Kamm & Company and RCI.
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, 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.
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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 (14) 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
RCI (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.
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10.63 (1) Employment Agreement, dated as of August 18, 1994, among RCI, Cosmar
Corporation and Robert H. Schnell.
10.64 (10) Letter Agreement, dated June 1, 1995, between RCI and Aldran H.
Lajoie.
10.65 (1) Employment Agreement, dated as of August 18, 1994, among RCI, Cosmar
Corporation and Marc Schnell.
10.66 (14) Non-Competition Agreement, dated as of August 18, 1994, among RCI,
Cosmar Corporation and Jerry D. Kayne.
10.67 (14) Non-Competition Agreement, dated as of August 18, 1994, among RCI,
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, RCI, 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 RCI.
10.70 (10) Amendment No. 2 to Note Purchase Agreement, dated as of September 8,
1995, among Nomura Holding America Inc., Cosmar Corporation and RCI.
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 RCI.
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 RCI.
10.73 (10) Amendment No. 5 to Note Purchase Agreement, dated as of June 14,
1995, among Nomura Holding America Inc., Cosmar Corporation and RCI.
10.74 (10) Waiver to Note Purchase Agreement, dated as of August 8, 1996, among
Nomura Holding America Inc., Cosmar Corporation and RCI.
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 RCI, 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.
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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.
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) RCI 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.
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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 RCI and the Fund, dated as of
May 29, 1996.
10.101 (8) Common Stock Registration Rights Agreement between RCI and the Fund,
dated as of May 29, 1996.
10.102 (7) Securities Purchase Agreement, dated as of August 8, 1996, between
RCI and CIBC Wood Gundy Securities Corp.
10.103 (7) Registration Rights Agreement, dated as of August 15, 1996, between
RCI and CIBC Wood Gundy Securities Corp.
10.104 (7) Common Stock Registration Rights Agreement, dated as of August 15,
1996, between RCI and CIBC Wood Gundy Securities Corp.
10.105 (10) Subscription Agreement, dated August 15, 1996, between RCI and CIBC
WG Argosy Merchant Fund 2, L.L.C.
10.106 (10) Warrant Agreement, dated as of August 18, 1994, between RCI and
American Bank National Association.
10.107 (7) Warrant Agreement, dated as of August 15 1996, between RCI and
Firstar Trust Company.
10.108 (1) Indenture, dated as of August 18, 1994, among RCI, as Issuer, the
guarantors identified therein (the "Guarantors"), and American Bank
National Association, as trustee, relating to the Old Senior Notes.
10.109 (3) Form of the Exchange Notes, relating to the Old Senior Notes.
10.110 (3) Form of the 2002 Notes, relating to the Old Senior Notes.
10.111 (2) First supplemental indenture, dated as of November 15, 1994, among
RCI, as issuer, New Dana Acquisition Corp., as guarantor, and
American Bank National Association, as trustee, relating to the Old
Senior Notes.
10.112 (2) Second supplemental indenture, dated as of December 15, 1994, among
RCI, as issuer, Houbigant (1995) Limitee, as guarantor, and American
Bank National Association, as trustee, relating to the Old Senior
Notes.
10.113 (2) Third supplemental indenture, dated as of December 23, 1994, among
RCI, as issuer, certain subsidiaries of the Company, as guarantors,
and American National Bank Association, as trustee, relating to the
Old Senior Notes.
10.114 (8) Fourth supplemental indenture, dated as of February 27, 1996, among
RCI, as issuer, SH 149 S.A.R.L., as guarantor, and American Bank
National Association, as trustee, relating to the Old Senior Notes.
10.115 (10) Fifth supplemental Indenture, dated as of August 21, 1996, among
RCI, as the issuer, GAC, as guarantor, and American Bank National
Association, as trustee, relating to the Old Senior Notes.
10.115.1 (14) Sixth Supplemental Indenture, dated as of December 4, 1996, between
RCI, Certain Guarantors and Firstar Bank of Minnesota, successor to
American Bank National Association, as trustee, relating to the Old
Senior Notes.
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10.115.2 Seventh Supplemental Indenture, dated as of February 7, 1997, among
RCI, certain guarantors and Firstar Bank of Minnesota, successor to
American Bank National Association, as trustee, relating to the Old
Senior Notes.
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 RCI.
10.120 (10) Consulting Agreement, dated August 21, 1996, by and among Pageant
Group, Ltd., Cosmar Corporation and RCI.
10.121 (6) Employment Agreement, dated August 6, 1996, by and between Gay A.
Mayer and RCI.
10.122 (6) Stockholder Agreement, dated August 7, 1996, by and among RCI, 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 RCI.
10.124 (10) First Amendment to the Warrant Agreement, dated as of September 27,
1996, between RCI and Firstar Trust Company as warrant agent.
10.125 (10) First Amendment to the Registration Rights Agreement, dated as of
September 27, 1996, between RCI 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 RCI and CIBC Wood Gundy
Securities Corp.
10.127 (14) Securities Purchase Agreement, dated as of September 27, 1996,
between RCI and Bastion Capital Fund, L.P.
10.128 (14) Common Stock Registration Rights Agreement, dated as of September
27, 1996, between RCI and Bastion Capital Fund, L.P.
10.129 (14) Voting Agreement, dated as of September 27, 1996, between Kidd, Kamm
Equity Partners, L.P. and Bastion Capital Fund, L.P.
10.130 (14) Consulting Agreement, dated December 28, 1994, between RCI and
Robert H. Schnell.
10.131 (14) Senior Secured Credit Agreement, dated as of December 4, 1996,
between RCI, Cosmar, CIBC/Wood Gundy and the Lenders named therein.
10.132 (14) Form of Bridge Note, dated December 4, 1996.
10.133 (14) Form of Term Note.
10.134 (14) Form of Guarantee, dated December 4, 1996, by RCI 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.
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10.135 (14) 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 (14) 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 (14) 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 (14) 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 (14) Security Agreement, dated December 4, 1996, between RCI, Cosmar,
Dana Perfumes Corp., GAC, Houbigant (1995) Limited, MEM and CIBC
Wood Gundy Securities Corp. as collateral agent.
10.140 (14) Specimen certificate of share of Series C Preferred Stock.
10.141 (14) 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 (14) License Agreement, dated October 1, 1995, between The Nail
Consultants, Ltd. and Cosmar.
10.143 (14) RCI Employee Bonus Plan.
10.144 (14) 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 (14) 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 (14) 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 (14) 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 (14) 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.
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10.149 (14) 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 (14) 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 (14) 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 (14) 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 (14) 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 (14) Collective Bargaining Agreement between Dana Perfumes Corp. and Oil,
Chemical & Atomic Workers International Union AFL-CIO and its Local
Union No. 8-782.
10.156 Collective Labor Agreement of the Union of Workers in the Chemical,
Pharmaceutical, Plastic and Related Industries of San Paulo and the
Region and other Unions of Workers and the Federation of Industries
of the State of San Paulo and Industry Unions affiliated therewith
(English translation) (with Officer's Certificate certifying
accuracy of translation from Portuguese into English).
10.157 (15) Purchase Agreement, dated February 3, 1997, between Renaissance
Cosmetics, Inc., as issuer, and CIBC Wood Gundy Securities Corp., as
initial purchaser.
10.158 Intentionally omitted.
10.159 Intentionally omitted.
10.160 Intentionally omitted.
10.161 Industrial Building Lease, dated January 1997, between Dana Perfumes
Corporation, as Lessee, and First National Bank of Illinois as
Trustee under Trust 2871, as lessor.
10.162 Credit Agreement dated as of March 12, 1997 among Dana Perfumes
Corp., as borrower, the other credit parties signatory thereto, as
credit parties, the lenders signatory thereto from time to time, as
lenders, and General Electric Capital Corporation, as agent and
lender.
10.163 Pledge Agreement dated as of March 12, 1997 between General Electric
Capital Corporation, as the agent and the lender, and the pledgers
thereto.
10.164 Security Agreement dated as of March 12, 1997 among General Electric
Capital Corporation, as the agent and the lender, and the grantors
thereto.
10.165 Guaranty dated as of March 12, 1997 between General Electric Capital
Corporation, as the agent and the lender, and the guarantors
thereto.
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12.1 Calculation of deficiency of earnings to combined fixed charges and
preferred dividends.
21.1 List of subsidiaries.
23.1 (16) 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.
23.6 Consent of Deloitte & Touche, LLP.
24.1 Power of Attorney (included on signature page).
25 (16) Statement of eligibility of Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery
99.3 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
</TABLE>
- ---------------
(1) Filed with RCI's Registration Statement on Form S-4 filed with the
Securities and Exchange Commission ("SEC") on December 12, 1994,
Registration No. 33-87280, and incorporated herein by reference thereto.
(2) Filed with Amendment No. 1 to RCI's Registration Statement on Form S-4
filed with the SEC on January 27, 1995, Registration No. 33-87280, and
incorporated herein by reference thereto.
(3) Filed with Amendment No. 2 to RCI's Registration Statement on Form S-4
filed with the SEC on February 9, 1995, Registration No. 33-87280, and
incorporated herein by reference thereto.
(4) Filed with RCI's Quarterly Report on Form 10-Q filed with the SEC on March
27, 1995, and incorporated herein by reference thereto.
(5) Filed with RCI's Annual Report on Form 10-K filed with the SEC on June 29,
1995, and incorporated herein by reference thereto.
(6) Filed with RCI's Quarterly Report on Form 10-Q filed with the SEC on August
14, 1996, and incorporated herein by reference thereto.
(7) Filed with RCI's Form 8-K filed with the SEC on August 8, 1996, and
incorporated herein by reference thereto.
(8) Filed with RCI'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 RCI's Quarterly Report on Form 10-Q filed with the SEC on
February 14, 1996, and incorporated herein by reference thereto.
(10) Filed with RCI's Registration Statement on Form S-4 filed with the SEC on
October 1, 1996, Registration No. 333-13171, and incorporated herein by
reference thereto.
(11) Filed with RCI's Quarterly Report on Form 10-Q filed with the SEC on
November 14, 1996, and incorporated herein by reference thereto.
(12) Filed with RCI's Form 8-K filed with the SEC on December 19, 1996, and
incorporated herein by reference thereto.
<PAGE> 216
REGISTRATION STATEMENT NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------
EXHIBIT
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
RENAISSANCE COSMETICS, INC.
RENAISSANCE GUARANTOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------
================================================================================
VOLUME I
<PAGE> 1
Exhibit 3.3
CERTIFICATE OF INCORPORATION
OF
RENAISSANCE GUARANTOR, INC.
The undersigned incorporator, in order to form a corporation
under the General Corporation Law of the State of Delaware, certifies as
follows:
1. Name. The name of the corporation is Renaissance Guarantor,
Inc.(the "Corporation").
2. Address; Registered Office and Agent. The address of the
Corporation's registered office is 9 East Lockerman, Suite 214, Dover, 19901,
State of Delaware; and its registered agent at such address is National
Corporate Research.
3. Purposes. The purposes of the Corporation shall be limited
to the following: (i) to guarantee the obligations of Renaissance Cosmetics,
Inc. ("RCI") under RCI's 11 3/4% Senior Notes due 2004 (the "Notes") and the
Indenture under which the Notes are issued (the "Indenture") in the manner
described in the Offering Memorandum relating to the Notes dated February 3,
1997 (the "Offering Memorandum"); (ii) to enter into and perform its obligations
under the Subsidiary Guarantee (as defined in the Offering Memorandum); (iii) to
enter into and perform its obligations under the Escrow Agreement (as defined in
the Offering Memorandum); and (iv) to engage in any other lawful act or activity
for which corporations may be organized under the laws of the State of Delaware
that are incidental to or necessary,
<PAGE> 2
2
suitable or convenient to accomplish the foregoing, provided that same are not
contrary to the foregoing purposes.
4. Common Stock. The total number of shares of stock which the
Corporation shall have authority to issue is One Thousand (1,000), all of which
shall be shares of Common Stock of the par value of $.01 per share.
5. Name and Address of Incorporator. The name and mailing
address of the incorporator is: Christopher Walsh, 1285 Avenue of the Americas,
New York, New York 10019-6064.
6. Election of Directors. Members of the Board of Directors
may be elected either by written ballot or by voice vote.
7. Directors; Special Director. The Board of Directors of the
Corporation shall consist of five members. The Corporation shall, at all times
following the execution of the Subsidiary Guaranty and the Escrow Agreement,
have at least two directors (the "Independent Directors"), neither of which is,
or, during the two-year period immediately preceding the time of determination,
was, an officer, director, shareholder, employee, creditor, supplier, family
member, manager, contractor or Affiliate (as defined herein) of the Corporation
or any of its Affiliates, or a direct or indirect legal or beneficial owner of
an equity interest in the Corporation or any Affiliate of the Corporation or any
creditor, supplier, manager or contractor of the Corporation or any of its
Affiliates; provided that a holder of the Notes or an officer, director,
shareholder or employee of such a holder shall not, by virtue of such status, be
disqualified from serving as an Independent Director. For purposes of this
<PAGE> 3
3
Certificate of Incorporation, an "Affiliate" of any Person (as hereinafter
defined) shall mean any Person that, directly or indirectly, controls or is
controlled by, or is under direct or indirect common control with, such Person.
"Control," as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
In the event of the death, incapacity, resignation or removal
of an Independent Director, the Board of Directors shall promptly appoint a
replacement Independent Director satisfying the requirements of the foregoing
paragraph if necessary to maintain two Independent Directors on the Board of
Directors. To the extent an Independent Director receives compensation, it will
be paid by the Corporation from its own funds and not by any Affiliate of the
Corporation.
8. Board Consent. The unanimous affirmative vote of all
members of the Board of Directors (including, without limitation, both
Independent Directors) shall be necessary to authorize the Corporation to (i)
institute proceedings to have itself adjudicated as bankrupt or insolvent, or
consent to or acquiesce in the institution of bankruptcy or insolvency
proceedings against it, or seek or consent to or acquiesce in the entry of an
order for similar relief or the appointment of a receiver, trustee or other
similar official for it or for any substantial part of its property, or seek
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or make any general
assignment for the benefit of creditors, or,
<PAGE> 4
4
except as required by law, admit in writing its inability to pay its debts
generally as they become due, or take any corporate action in furtherance of any
of the actions set forth above in this paragraph (collectively, "Insolvency
Actions"); (ii) merge or consolidate with or into any individual, corporation,
proprietorship, firm, partnership, limited partnership, trust, association or
other entity ("Person") or convey or transfer all or substantially all of its
properties and assets to any Person; (iii) act other than in its corporate name
and through its duly authorized officers or agents; (iv) engage in any
transaction or joint activity of any kind with an Affiliate or any other Person
except as otherwise expressly contemplated by Section 3 hereof; (v) agree to any
modification, amendment or restatement of the Indenture or the Escrow Agreement
or of any right of any party thereto, or (vi) act or cause the taking of any
action with respect to the dissolution and winding up of the Corporation or any
election not to continue the Corporation or the business of the Corporation.
9. Limitation of Liability. No Director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a Director, except for liability (a) for
any breach of the Director's duty of loyalty to the Corporation or its
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) under Section 174 of
the Delaware General Corporation Law or (d) for any transaction from which the
Director derived any improper personal benefits.
<PAGE> 5
5
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such repeal
or modification.
10. Indemnification.
10.1 To the extent not prohibited by law, the
Corporation shall indemnify any Person who is or was made, or threatened to be
made, a party to any threatened, pending or completed action, suit or proceeding
(a "Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Corporation
to procure a judgment in its favor, by reason of the fact that such Person, or a
Person of whom such Person is the legal representative, is or was a Director or
officer of the Corporation, against judgments, fines, penalties, excise taxes,
amounts paid in settlement and costs, charges and expenses (including attorneys'
fees and disbursements). Persons who are not Directors or officers of the
Corporation may be similarly indemnified in respect of service to the
Corporation to the extent the Board of Directors at any time unanimously
specifies that such Persons are entitled to the benefits of this Section 10. Any
indemnification, reimbursement or advancement of expenses available pursuant to
this Section 10 shall be referred to herein as "Indemnification."
10.2 The Corporation shall, from time to time,
reimburse or advance to any Director or officer or other Person entitled to
indemnification hereunder the funds necessary for payment of expenses, including
attorneys' fees and disbursements, incurred in connection with any Proceeding,
in advance of the final
<PAGE> 6
6
disposition of such Proceeding; provided, however, that, if required by the
Delaware General Corporation Law, such expenses incurred by or on behalf of any
Director or officer or other Person may be paid in advance of the final
disposition of a Proceeding only upon receipt by the Corporation of an
undertaking, by or on behalf of such Director or officer (or other Person
indemnified hereunder), to repay any such amount so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right of appeal that such Director, officer or other Person is not
entitled to be indemnified for such expenses.
10.3 The rights to Indemnification provided by, or
granted pursuant to, this Section 10 (the "Indemnification Rights") shall not be
deemed exclusive of any other rights to which a Person seeking Indemnification
may have or hereafter be entitled under any statute, this Certificate of
Incorporation, the By-laws of the Corporation, any agreement, any vote of
stockholders or disinterested Directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office.
10.4 The Indemnification Rights shall continue as to
a Person who has ceased to be a Director or officer (or other Person indemnified
hereunder) and shall inure to the benefit of the executors, administrators,
legatees and distributees of such Person.
10.5 The Corporation shall have power to purchase and
maintain insurance on behalf of any Person who is or was a Director, officer,
employee or agent of the Corporation, against any liability asserted against
such Person and incurred by
<PAGE> 7
7
such Person in any such capacity, or arising out of such Person's status as
such, whether or not the Corporation would have the power to indemnify such
Person against such liability under the provisions of this Section 10, the
By-laws or under Section 145 of the Delaware General Corporation Law or any
other provision of law.
10.6 The provisions of this Section 10 shall be a
contract between the Corporation, on the one hand, and each Director and officer
who serves in such capacity at any time while this Section 10 is in effect and
any other Person indemnified hereunder, on the other hand, pursuant to which the
Corporation and each such Director, officer, or other Person intend to be
legally bound. No repeal or modification of this Section 10 shall affect any
rights or obligations with respect to any state of facts then or theretofore
existing or thereafter arising or any proceeding theretofore or thereafter
brought or threatened based in whole or in part upon any such state of facts.
10.7 The Indemnification Rights shall be enforceable
by any Person entitled to Indemnification in any court of competent
jurisdiction. The burden of proving that Indemnification is not appropriate
shall be on the Corporation. Neither the failure of the Corporation (including
its Board of Directors, its independent legal counsel and its stockholders) to
have made a determination prior to the commencement of such action that
Indemnification is proper in the circumstances nor an actual determination by
the Corporation (including its Board of Directors, its independent legal
counsel and its stockholders) that such Person is not entitled to
Indemnification shall constitute a defense to the action or create a presumption
that such Person is not so
<PAGE> 8
8
entitled. Such a Person shall also be indemnified for any expenses incurred in
connection with successfully establishing his or her right to Indemnification,
in whole or in part, in any such proceeding.
10.8 Any Person entitled to Indemnification may elect
to have its Indemnification Right interpreted on the basis of the applicable law
in effect at the time of the occurrence of the event or events giving rise to
the applicable Proceeding, to the extent permitted by law, or on the basis of
the applicable law in effect at the time Indemnification is sought. Such
election shall be made, by a notice in writing to the Corporation, at the time
Indemnification is sought; provided, however, that if no such notice is given,
such Indemnification Right shall be determined by the law in effect at the time
Indemnification is sought.
11. Adoption, Amendment and/or Repeal of By-laws. The Board of
Directors may from time to time (after adoption by the undersigned of the
original By-laws) make, alter or repeal the By-laws by a vote of a majority of
the entire Board of Directors that would be in office if no vacancy existed,
whether or not present at a meeting; provided, however, that any By-laws made,
amended or repealed by the Board of Directors may be amended or repealed, and
any By-laws may be made, by the stockholders of the Corporation by vote of a
majority of the holders of shares of stock of the Corporation entitled to vote
in the election of Directors of the Corporation.
12. Separate Identity. The Corporation shall maintain its
assets, properties and liabilities separate from the assets, properties,
liabilities and business of RCI and RCI's subsidiaries and shall not hold out
its assets as available to pay the debts
<PAGE> 9
9
of RCI or any subsidiary of RCI (other than the Notes). The Corporation shall:
(i) pay from its assets all obligations of any kind incurred by it, and shall
not pay from its assets any obligations of any other Person, (ii) conduct
business in its own name, including holding itself out as a separate entity,
(iii) not enter into any transaction with any Person except as authorized by
Section 3 hereof, (iv) only enter into transactions with its Affiliates on an
arm's-length basis, (v) maintain its bank accounts, books, records and financial
statements on a separate basis from those of any other Person, (vi) retain it
own independent auditors and accountants, which may, however, also be the
auditors and accountants for any Affiliate thereof, and (vii) observe all
corporate formalities, including conducting regular meetings (at least once
annually) of the Board of Directors, issuing separate financial statements
prepared not less frequently than annually and in accordance with generally
accepted accounting principles, memorializing the determinations of the Board of
Directors on all significant transactions, and preparing and filing all required
tax returns and paying all taxes imposed on the Corporation.
13. Prohibited Transactions. The Corporation shall not engage
in any business transaction, acquire any assets or incur or guarantee or
otherwise be responsible for the payment of any obligation for borrowed money,
other than as contemplated and required in connection with the issuance and
guaranty of the Notes and the maintenance of the Escrow Account.
14. Prohibited Amendments. Except as may be required by
applicable law, the Corporation shall not amend Sections 3, 7, 8, 12 or 13 of
this Certificate of
<PAGE> 10
10
Incorporation or this Section 14 so long as any funds remain in the Escrow
Account (as defined in the Offering Memorandum).
15. Section 203. The Corporation elects not to be governed by
Section 203 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned incorporator has executed
this Certificate of Incorporation this 5th day of February, 1997.
-----------------
Christopher Walsh
Incorporator
<PAGE> 1
Exhibit 3.4
BY-LAWS
of
RENAISSANCE GUARANTOR, INC.
(A Delaware Corporation)
------------------------
ARTICLE 1
DEFINITIONS
As used in these By-laws, unless the context otherwise requires, the
term:
1.1 "Assistant Secretary" means an Assistant Secretary of the
Corporation.
1.2 "Assistant Treasurer" means an Assistant Treasurer of the
Corporation.
1.3 "Board" means the Board of Directors of the Corporation.
1.4 "By-laws" means the initial by-laws of the Corporation, as
amended from time to time.
1.5 "Certificate of Incorporation" means the initial certificate of
incorporation of the Corporation, as amended, supplemented or restated from time
to time.
1.6 "Chairman" means the Chairman of the Board of Directors of the
Corporation.
1.7 "Corporation" means Renaissance Guarantor, Inc.
<PAGE> 2
2
1.8 "Directors" means directors of the Corporation, including the
Special Director.
1.9 "Entire Board" means all directors of the Corporation in office,
including the Special Director, whether or not present at a meeting of the
Board, but disregarding vacancies.
1.10 "General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended from time to time.
1.11 "Office of the Corporation" means the executive office of the
Corporation, anything in Section 131 of the General Corporation Law to the
contrary notwithstanding.
1.12 "President" means the President of the Corporation.
1.13 "Secretary" means the Secretary of the Corporation.
1.14 "Special Director" has the meaning set forth in the Certificate
of Incorporation.
1.15 "Stockholders" means stockholders of the Corporation.
1.16 "Treasurer" means the Treasurer of the Corporation.
1.17 "Vice President" means a Vice President of the Corporation.
<PAGE> 3
3
ARTICLE 2
STOCKHOLDERS
2.1 Place of Meetings. Every meeting of stockholders shall be held
at the office of the Corporation or at such other place within or without the
State of Delaware as shall be specified or fixed in the notice of such meeting
or in the waiver of notice thereof.
2.2 Annual Meeting. A meeting of stockholders shall be held annually
for the election of Directors and the transaction of other business at such hour
and on such business day in April or as may be determined by the Board and
designated in the notice of meeting.
2.3 Deferred Meeting for Election of Directors, Etc. If the annual
meeting of stockholders for the election of Directors and the transaction of
other business is not held within the months specified in Section 2.2 hereof,
the Board shall call a meeting of stockholders for the election of Directors and
the transaction of other business as soon thereafter as convenient.
2.4 Other Special Meetings. A special meeting of stockholders (other
than a special meeting for the election of Directors), unless otherwise
prescribed by statute, may be called at any time by the Board or by the
President or by the Secretary. At any special meeting of stockholders only such
business may be transacted as is related to the purpose or purposes of such
meeting set forth in the
<PAGE> 4
4
notice thereof given pursuant to Section 2.6 hereof or in any waiver of notice
thereof given pursuant to Section 2.7 hereof.
2.5 Fixing Record Date. For the purpose of (a) determining the
stockholders entitled (i) to notice of or to vote at any meeting of stockholders
or any adjournment thereof, (ii) to express consent to corporate action in
writing without a meeting or (iii) to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock; or (b) any other lawful
action, the Board may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date was adopted by the Board
and which record date shall not be (x) in the case of clause (a)(i) above, more
than 60 nor less than 10 days before the date of such meeting, (y) in the case
of clause (a)(ii) above, more than 10 days after the date upon which the
resolution fixing the record date was adopted by the Board and (z) in the case
of clause (a)(iii) or (b) above, more than 60 days prior to such action. If no
such record date is fixed:
2.5.1 the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held;
<PAGE> 5
5
2.5.2 the record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no
prior action by the Board is required under the General Corporation Law,
shall be the first day on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal
place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded; and when prior action by the Board is required under the General
Corporation Law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the
close of business on the date on which the Board adopts the resolution
taking such prior action; and
2.5.3 the record date for determining stockholders for any
purpose other than those specified in Sections 2.5.1 and 2.5.2 shall be at
the close of business on the day on which the Board adopts the resolution
relating thereto.
When a determination of stockholders entitled to notice of or to vote at any
meeting of stockholders has been made as provided in this Section 2.5, such
determination shall apply to any adjournment thereof unless the Board fixes a
new record date for the adjourned meeting. Delivery made to the Corporation's
registered office in accordance
<PAGE> 6
6
with Section 2.5.2 shall be by hand or by certified or registered mail, return
receipt requested.
2.6 Notice of Meetings of Stockholders. Except as otherwise provided
in Sections 2.5 and 2.7 hereof, whenever under the provisions of any statute,
the Certificate of Incorporation or these By-laws, stockholders are required or
permitted to take any action at a meeting, written notice shall be given stating
the place, date and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called. Unless otherwise
provided by any statute, the Certificate of Incorporation or these By-laws, a
copy of the notice of any meeting shall be given, personally or by mail, not
less than two nor more than sixty days before the date of the meeting, to each
stockholder entitled to notice of or to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
with postage prepaid, directed to the stockholder at his or her address as it
appears on the records of the Corporation. An affidavit of the Secretary or an
Assistant Secretary or of the transfer agent of the Corporation that the notice
required by this Section 2.6 has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken, and at the adjourned meeting any business may be transacted that might
have been transacted at the meeting as originally called. If, however, the
adjournment is for more than thirty
<PAGE> 7
7
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
2.7 Waivers of Notice. Whenever the giving of any notice is required
by statute, the Certificate of Incorporation or these By-laws, a waiver thereof,
in writing, signed by the stockholder or stockholders entitled to said notice,
whether before or after the event as to which such notice is required, shall be
deemed equivalent to notice. Attendance by a stockholder at a meeting shall
constitute a waiver of notice of such meeting except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting has
not been lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice unless so required by statute, the
Certificate of Incorporation or these By-laws.
2.8 List of Stockholders. The Secretary shall prepare and make, or
cause to be prepared and made, at least two days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, the stockholder's
agent, or attorney, at the stockholder's expense, for any purpose germane to the
meeting, during ordinary
<PAGE> 8
8
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The Corporation shall maintain the
stockholder list in written form or in another form capable of conversion into
written form within a reasonable time. Upon the willful neglect or refusal of
the Directors to produce such a list at any meeting for the election of
Directors, they shall be ineligible for election to any office at such meeting.
The stock ledger shall be the only evidence as to who are the stockholders
entitled to examine the stock ledger, the list of stockholders or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
2.9 Quorum of Stockholders; Adjournment. Except as otherwise
provided by any statute, the Certificate of Incorporation or these By-laws, the
holders of one-third of all outstanding shares of stock entitled to vote at any
meeting of stockholders, present in person or represented by proxy, shall
constitute a quorum for the transaction of any business at such meeting. When a
quorum is once present to organize a meeting of stockholders, it is not broken
by the subsequent withdrawal of any stockholders. The holders of a majority of
the shares of stock present in person or represented by proxy at any meeting of
stockholders, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and
<PAGE> 9
9
place. Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit the right of the
Corporation to vote stock, including but not limited to its own stock, held by
it in a fiduciary capacity.
2.10 Voting; Proxies. Unless otherwise provided in the Certificate
of Incorporation, every stockholder of record shall be entitled at every meeting
of stockholders to one vote for each share of capital stock standing in his or
her name on the record of stockholders determined in accordance with Section 2.5
hereof. If the Certificate of Incorporation provides for more or less than one
vote for any share on any matter, each reference in the By-laws or the General
Corporation Law to a majority or other proportion of stock shall refer to such
majority or other proportion of the votes of such stock. The provisions of
Sections 212 and 217 of the General Corporation Law shall apply in determining
whether any shares of capital stock may be voted and the persons, if any,
entitled to vote such shares; but the Corporation shall be protected in assuming
that the persons in whose names shares of capital stock stand on the stock
ledger of the Corporation are entitled to vote such shares. Holders of
redeemable shares of stock are not entitled to vote after the notice of
redemption is mailed to such holders and a sum sufficient to redeem the stocks
has been deposited with a bank, trust company, or other financial institution
under an irrevocable
<PAGE> 10
10
obligation to pay the holders the redemption price on surrender of the shares of
stock. At any meeting of stockholders (at which a quorum was present to organize
the meeting), all matters, except as otherwise provided by statute or by the
Certificate of Incorporation or by these By-laws, shall be decided by a majority
of the votes cast at such meeting by the holders of shares present in person or
represented by proxy and entitled to vote thereon, whether or not a quorum is
present when the vote is taken. All elections of Directors shall be by written
ballot unless otherwise provided in the Certificate of Incorporation. In voting
on any other question on which a vote by ballot is required by law or is
demanded by any stockholder entitled to vote, the voting shall be by ballot.
Each ballot shall be signed by the stockholder voting or the stockholder's proxy
and shall state the number of shares voted. On all other questions, the voting
may be viva voce. Each stockholder entitled to vote at a meeting of stockholders
or to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for such stockholder by
proxy. The validity and enforceability of any proxy shall be determined in
accordance with Section 212 of the General Corporation Law. A stockholder may
revoke any proxy that is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by delivering
a proxy in accordance with applicable law bearing a later date to the Secretary.
2.11 Voting Procedures and Inspectors of Election at Meetings of
Stockholders. The Board, in advance of any meeting of stockholders, may appoint
one
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or more inspectors to act at the meeting and make a written report thereof. The
Board may designate one or more persons as alternate inspectors to replace any
inspector who fails to act. If no inspector or alternate is able to act at a
meeting, the person presiding at the meeting may appoint, and on the request of
any stockholder entitled to vote thereat shall appoint, one or more inspectors
to act at the meeting. Each inspector, before entering upon the discharge of his
or her duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall (a) ascertain the number of shares outstanding and
the voting power of each, (b) determine the shares represented at the meeting
and the validity of proxies and ballots, (c) count all votes and ballots, (d)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (e) certify their
determination of the number of shares represented at the meeting and their count
of all votes and ballots. The inspectors may appoint or retain other persons or
entities to assist the inspectors in the performance of their duties. Unless
otherwise provided by the Board, the date and time of the opening and the
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be determined by the person presiding at the meeting and shall be
announced at the meeting. No ballot, proxies or votes, or any revocation thereof
or change thereto, shall be accepted by the inspectors after the closing of the
polls unless the Court of Chancery of the State of Delaware upon application by
a stockholder shall determine otherwise.
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12
2.12 Organization. At each meeting of stockholders, the Chairman, or
in the absence of the Chairman the President, or in the absence of the President
a Vice President, and in case more than one Vice President shall be present,
that Vice President designated by the Board (or in the absence of any such
designation, the most senior Vice President, based on age, present), shall act
as chairman of the meeting. The Secretary, or in his or her absence one of the
Assistant Secretaries, shall act as secretary of the meeting. In case none of
the officers above designated to act as chairman or secretary of the meeting,
respectively, shall be present, a chairman or a secretary of the meeting, as the
case may be, shall be chosen by a majority of the votes cast at such meeting by
the holders of shares of capital stock present in person or represented by proxy
and entitled to vote at the meeting.
2.13 Order of Business. The order of business at all meetings of
stockholders shall be as determined by the chairman of the meeting, but the
order of business to be followed at any meeting at which a quorum is present may
be changed by a majority of the votes cast at such meeting by the holders of
shares of capital stock present in person or represented by proxy and entitled
to vote at the meeting.
2.14 Written Consent of Stockholders Without a Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required by
the General Corporation Law to be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders
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of outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered (by hand
or by certified or registered mail, return receipt requested) to the Corporation
by delivery to its registered office in the State of Delaware, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Every
written consent shall bear the date of signature of each stockholder who signs
the consent and no written consent shall be effective to take the corporate
action referred to therein unless, within 60 days of the earliest dated consent
delivered in the manner required by this Section 2.14, written consents signed
by a sufficient number of holders to take action are delivered to the
Corporation as aforesaid. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE 3
Directors
3.1 General Powers. Except as otherwise provided in the Certificate
of Incorporation, the business and affairs of the Corporation shall be managed
by or under the direction of the Board. The Board may adopt such rules and
regulations, not inconsistent with the Certificate of Incorporation or these
By-laws or applicable laws, as it may deem proper for the conduct of its
meetings and the management of the
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Corporation. In addition to the powers expressly conferred by these By-laws, the
Board may exercise all powers and perform all acts that are not required, by
these By-laws or the Certificate of Incorporation or by statute, to be exercised
and performed by the stockholders.
3.2 Number; Qualification; Term of Office. The Board shall initially
consist of five members. Following the execution of the Indenture and the Escrow
Agreement between the Company, Renaissance Cosmetics, Inc. and U.S. Trust
Company of New York, as escrow agent, two of the members of the Board shall be
Special Directors. Each Director shall hold office until a successor is elected
and qualified or until the Director's death, resignation or removal.
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3.3 Election. Directors shall, except as otherwise required by
statute or by the Certificate of Incorporation, be elected by a plurality of the
votes cast at a meeting of stockholders by the holders of shares entitled to
vote in the election.
3.4 Newly Created Directorships and Vacancies. Unless otherwise
provided in the Certificate of Incorporation, newly created Directorships
resulting from an increase in the number of Directors and vacancies occurring in
the Board for any other reason, including the removal of Directors without
cause, may be filled by the affirmative votes of a majority of the entire Board,
although less than a quorum, or by a sole remaining Director, or may be elected
by a plurality of the votes cast by the holders of shares of capital stock
entitled to vote in the election at a special meeting of stockholders called for
that purpose. A Director elected to fill a vacancy shall be elected to hold
office until a successor is elected and qualified, or until the Director's
earlier death, resignation or removal.
3.5 Resignation. Any Director may resign at any time by written
notice to the Corporation. Such resignation shall take effect at the time
therein specified, and, unless otherwise specified in such resignation, the
acceptance of such resignation shall not be necessary to make it effective.
3.6 Removal. Subject to the provisions of Section 141(k) of the
General Corporation Law, any or all of the Directors may be removed with or
without cause by vote of the holders of a majority of the shares then entitled
to vote at an election of Directors.
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3.7 Compensation. Directors shall not receive any stated salary for
their services as Directors, Special Directors or as members of Committees, but
by resolution of the Board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing contained in this Section 3.7 shall
preclude any Director from serving the Corporation or its subsidiaries in any
other capacity and receiving proper compensation therefor.
3.8 Times and Places of Meetings. The Board may hold meetings, both
regular and special, either within or without the State of Delaware. The times
and places for holding meetings of the Board may be fixed from time to time by
resolution of the Board or (unless contrary to a resolution of the Board) in the
notice of the meeting.
3.9 Annual Meetings. On the day when and at the place where the
annual meeting of stockholders for the election of Directors is held, and as
soon as practicable thereafter, the Board may hold its annual meeting, without
notice of such meeting, for the purposes of organization, the election of
officers and the transaction of other business. The annual meeting of the Board
may be held at any other time and place specified in a notice given as provided
in Section 3.11 hereof for special meetings of the Board or in a waiver of
notice thereof.
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3.10 Regular Meetings. Regular meetings of the Board may be held
without notice at such times and at such places as shall from time to time be
determined by the Board.
3.11 Special Meetings. Special meetings of the Board may be called
by the Chairman, the President or the Secretary or by any two or more Directors
then serving on at least one day's notice to each Director given by one of the
means specified in Section 3.14 hereof other than by mail, or on at least three
days' notice if given by mail. Special meetings shall be called by the Chairman,
President or Secretary in like manner and on like notice.
3.12 Telephone Meetings. Directors or members of any committee
designated by the Board may participate in a meeting of the Board or of such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 3.12 shall constitute
presence in person at such meeting.
3.13 Adjourned Meetings. A majority of the Directors present at any
meeting of the Board, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. At least one day's
notice of any adjourned meeting of the Board shall be given to each Director
whether or not present at the time of the adjournment, if such notice shall be
given by one of the means specified in Section 3.14 hereof other than by mail,
or at least three days'notice
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if by mail. Any business may be transacted at an adjourned meeting that might
have been transacted at the meeting as originally called.
3.14 Notice Procedure. Subject to Sections 3.11 and 3.17 hereof,
whenever, under the provisions of any statute, the Certificate of Incorporation
or these By-laws, notice is required to be given to any Director, such notice
shall be deemed given effectively if given in person or by telephone, by mail
addressed to such Director at such Director's address as it appears on the
records of the Corporation, with postage thereon prepaid, or by telegram, telex,
telecopy or similar means addressed as aforesaid.
3.15 Waiver of Notice. Whenever the giving of any notice is required
by statute, the Certificate of Incorporation or these By-laws, a waiver thereof,
in writing, signed by the person or persons entitled to said notice, whether
before or after the event as to which such notice is required, shall be deemed
equivalent to notice. Attendance by a person at a meeting shall constitute a
waiver of notice of such meeting except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Directors or a committee of Directors
need be specified in any written waiver of notice unless so required by statute,
the Certificate of Incorporation or these By-laws.
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3.16 Organization. At each meeting of the Board, the Chairman, or in
the absence of the Chairman the President, or in the absence of the President a
chairman chosen by a majority of the Directors present, shall preside. The
Secretary shall act as secretary at each meeting of the Board. In case the
Secretary shall be absent from any meeting of the Board, an Assistant Secretary
shall perform the duties of secretary at such meeting; and in the absence from
any such meeting of the Secretary and all Assistant Secretaries, the person
presiding at the meeting may appoint any person to act as secretary of the
meeting.
3.17 Quorum of Directors. The presence in person of a majority of
the Board shall be necessary and sufficient to constitute a quorum for the
transaction of business at any meeting of the Board, but a majority of a smaller
number may adjourn any such meeting to a later date.
3.18 Action by Majority Vote. Except as otherwise expressly required
by statute, the Certificate of Incorporation or these By-laws, the act of a
majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board.
3.19 Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if all Directors or members of such committee, as the case may
be, consent
<PAGE> 20
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thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE 4
COMMITTEES OF THE BOARD
The Board may, by resolution passed by a vote of the entire Board,
designate one or more committees, each committee to consist of one or more of
the Directors of the Corporation. The Board may designate one or more Directors
as alternate members of any committee to replace absent or disqualified members
at any meeting of such committee. If a member of a committee shall be absent
from any meeting, or disqualified from voting thereat, the remaining member or
members present and not disqualified from voting, whether or not such member or
members constitute a quorum, may, by a unanimous vote, appoint another member of
the Board to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in a resolution of the Board
passed as aforesaid, shall have and may exercise all the powers and authority of
the Board in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be impressed on all papers that may
require it, but no such committee shall have the power or authority of the Board
in reference to amending the Certificate of Incorporation, adopting an agreement
of merger or consolidation under Section 251 or 252 of the General Corporation
Law, selling, leasing or exchanging all or substantially all of the
Corporation's property and assets, dissolving or revoking the
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dissolution of the Corporation, amending the By-laws of the Corporation or
taking any action which the Certificate of Incorporation requires to be approved
by the affirmative vote of the Special Director; and, unless the resolution
designating it expressly so provides, no such committee shall have the power and
authority to declare a dividend, to authorize the issuance of stock or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the Board. Unless
otherwise specified in the resolution of the Board designating a committee, at
all meetings of such committee a majority of the total number of members of the
committee shall constitute a quorum for the transaction of business, and the
vote of a majority of the members of the committee present at any meeting at
which there is a quorum shall be the act of the committee. Each committee shall
keep regular minutes of its meetings. Unless the Board otherwise provides, each
committee designated by the Board may make, alter and repeal rules for the
conduct of its business. In the absence of such rules each committee shall
conduct its business in the same manner as the Board conducts its business
pursuant to Article 3 of these By-laws.
ARTICLE 5
OFFICERS
5.1 Positions. The officers of the Corporation shall be a Chairman,
a President, a Secretary, a Treasurer and such other officers as the Board may
appoint,
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including one or more Vice Presidents and one or more Assistant Secretaries and
Assistant Treasurers, who shall exercise such powers and perform such duties as
shall be determined from time to time by the Board. The Board may designate one
or more Vice Presidents as Executive Vice Presidents and may use descriptive
words or phrases to designate the standing, seniority or areas of special
competence of the Vice Presidents elected or appointed by it. Any number of
offices may be held by the same person unless the Certificate of Incorporation
or these By-laws otherwise provide.
5.2 Appointment. The officers of the Corporation shall be chosen by
the Board annually or at such other time or times as the Board shall determine.
5.3 Compensation. The compensation of all officers of the
Corporation shall be fixed by the Board. No officer shall be prevented from
receiving a salary or other compensation by reason of the fact that the officer
is also a Director.
5.4 Term of Office. Each officer of the Corporation shall hold
office until such officer's successor is chosen and qualifies or until such
officer's earlier death, resignation or removal. Any officer may resign at any
time upon written notice to the Corporation. Such resignation shall take effect
at the date of receipt of such notice or at such later time as is therein
specified, and, unless otherwise specified, the acceptance of such resignation
shall not be necessary to make it effective. The resignation of an officer shall
be without prejudice to the contract rights of the Corporation, if any. Any
officer elected or appointed by the Board may be removed at any time, with or
without cause, by vote of a majority of the entire Board. Any
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vacancy occurring in any office of the Corporation shall be filled by the Board.
The removal of an officer without cause shall be without prejudice to the
officer's contract rights, if any. The election or appointment of an officer
shall not of itself create contract rights.
5.5 Fidelity Bonds. The Corporation may secure the fidelity of any
or all of its officers or agents by bond or otherwise.
5.6 Chairman. The Chairman shall preside at all meetings of the
Board and shall exercise such powers and perform such other duties as shall be
determined from time to time by the Board.
5.7 President. The President shall be the Chief Executive Officer of
the Corporation and shall have general supervision over the business of the
Corporation, subject, however, to the control of the Board and of any duly
authorized committee of Directors. The President shall preside at all meetings
of the stockholders and at all meetings of the Board at which the Chairman is
not present. The President may sign and execute in the name of the Corporation
deeds, mortgages, bonds, contracts and other instruments except in cases in
which the signing and execution thereof shall be expressly delegated by the
Board or by these By-laws to some other officer or agent of the Corporation or
shall be required by statute otherwise to be signed or executed and, in general,
the President shall perform all duties incident to the office of President of a
corporation and such other duties as may from time to time be assigned to the
President by the Board.
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5.8 Vice Presidents. At the request of the President, or, in the
President's absence, at the request of the Board, the Vice Presidents shall (in
such order as may be designated by the Board or, in the absence of any such
designation, in order of seniority based on age) perform all of the duties of
the President and, in so performing, shall have all the powers of, and be
subject to all restrictions upon, the President. Any Vice President may sign and
execute in the name of the Corporation deeds, mortgages, bonds, contracts or
other instruments, except in cases in which the signing and execution thereof
shall be expressly delegated by the Board or by these By-laws to some other
officer or agent of the Corporation, or shall be required by statute otherwise
to be signed or executed, and each Vice President shall perform such other
duties as from time to time may be assigned to such Vice President by the Board
or by the President.
5.9 Secretary. The Secretary shall attend all meetings of the Board
and of the stockholders and shall record all the proceedings of the meetings of
the Board and of the stockholders in a book to be kept for that purpose, and
shall perform like duties for committees of the Board, when required. The
Secretary shall give, or cause to be given, notice of all special meetings of
the Board and of the stockholders and shall perform such other duties as may be
prescribed by the Board or by the President, under whose supervision the
Secretary shall be. The Secretary shall have custody of the corporate seal of
the Corporation, and the Secretary, or an Assistant Secretary, shall have
authority to impress the same on any instrument requiring it, and
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when so impressed the seal may be attested by the signature of the Secretary or
by the signature of such Assistant Secretary. The Board may give general
authority to any other officer to impress the seal of the Corporation and to
attest the same by such officer's signature. The Secretary or an Assistant
Secretary may also attest all instruments signed by the President or any Vice
President. The Secretary shall have charge of all the books, records and papers
of the Corporation relating to its organization and management, shall see that
the reports, statements and other documents required by statute are properly
kept and filed and, in general, shall perform all duties incident to the office
of Secretary of a corporation and such other duties as may from time to time be
assigned to the Secretary by the Board or by the President.
5.10 Treasurer. The Treasurer shall have charge and custody of, and
be responsible for, all funds, securities and notes of the Corporation; receive
and give receipts for moneys due and payable to the Corporation from any sources
whatsoever; deposit all such moneys and valuable effects in the name and to the
credit of the Corporation in such depositaries as may be designated by the
Board; against proper vouchers, cause such funds to be disbursed by checks or
drafts on the authorized depositaries of the Corporation signed in such manner
as shall be determined by the Board and be responsible for the accuracy of the
amounts of all moneys so disbursed; regularly enter or cause to be entered in
books or other records maintained for the purpose full and adequate account of
all moneys received or paid for the account of the Corporation; have the right
to require from time to time reports or statements giving
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such information as the Treasurer may desire with respect to any and all
financial transactions of the Corporation from the officers or agents
transacting the same; render to the President or the Board, whenever the
President or the Board shall require the Treasurer so to do, an account of the
financial condition of the Corporation and of all financial transactions of the
Corporation; exhibit at all reasonable times the records and books of account to
any of the Directors upon application at the office of the Corporation where
such records and books are kept; disburse the funds of the Corporation as
ordered by the Board; and, in general, perform all duties incident to the office
of Treasurer of a corporation and such other duties as may from time to time be
assigned to the Treasurer by the Board or the President.
5.11 Assistant Secretaries and Assistant Treasurers. Assistant
Secretaries and Assistant Treasurers shall perform such duties as shall be
assigned to them by the Secretary or by the Treasurer, respectively, or by the
Board or by the President.
ARTICLE 6
CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
6.1 Checks, Drafts, Etc. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation shall be signed on behalf
of the Corporation in such manner as shall from time to time be determined by
resolution of the Board.
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6.2 Deposits. The funds of the Corporation not otherwise employed
shall be deposited from time to time to the order of the Corporation with such
banks, trust companies, investment banking firms, financial institutions or
other depositaries as the Board may select or as may be selected by an officer,
employee or agent of the Corporation to whom such power to select may from time
to time be delegated by the Board.
ARTICLE 7
STOCK AND DIVIDENDS
7.1 Certificates Representing Shares. The shares of capital stock of
the Corporation shall be represented by certificates in such form (consistent
with the provisions of Section 158 of the General Corporation Law) as shall be
approved by the Board. Such certificates shall be signed by the Chairman, the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and may be impressed with the seal of
the Corporation or a facsimile thereof. The signatures of the officers upon a
certificate may be facsimiles, if the certificate is countersigned by a transfer
agent or registrar other than the Corporation itself or its employee. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon any certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, such
certificate may, unless otherwise ordered by the Board, be issued by the
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Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue.
7.2 Transfer of Shares. Transfers of shares of capital stock of the
Corporation shall be made only on the books of the Corporation by the holder
thereof or by the holder's duly authorized attorney appointed by a power of
attorney duly executed and filed with the Secretary or a transfer agent of the
Corporation, and on surrender of the certificate or certificates representing
such shares of capital stock properly endorsed for transfer and upon payment of
all necessary transfer taxes. Every certificate exchanged, returned or
surrendered to the Corporation shall be marked "Cancelled," with the date of
cancellation, by the Secretary or an Assistant Secretary or the transfer agent
of the Corporation. A person in whose name shares of capital stock shall stand
on the books of the Corporation shall be deemed the owner thereof to receive
dividends, to vote as such owner and for all other purposes as respects the
Corporation. No transfer of shares of capital stock shall be valid as against
the Corporation, its stockholders and creditors for any purpose, except to
render the transferee liable for the debts of the Corporation to the extent
provided by law, until such transfer shall have been entered on the books of the
Corporation by an entry showing from and to whom transferred.
7.3 Transfer and Registry Agents. The Corporation may from time to
time maintain one or more transfer offices or agents and registry offices or
agents at such place or places as may be determined from time to time by the
Board.
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7.4 Lost, Destroyed, Stolen and Mutilated Certificates. The holder
of any shares of capital stock of the Corporation shall immediately notify the
Corporation of any loss, destruction, theft or mutilation of the certificate
representing such shares, and the Corporation may issue a new certificate to
replace the certificate alleged to have been lost, destroyed, stolen or
mutilated. The Board may, in its discretion, as a condition to the issue of any
such new certificate, require the owner of the lost, destroyed, stolen or
mutilated certificate, or his or her legal representatives, to make proof
satisfactory to the Board of such loss, destruction, theft or mutilation and to
advertise such fact in such manner as the Board may require, and to give the
Corporation and its transfer agents and registrars, or such of them as the Board
may require, a bond in such form, in such sums and with such surety or sureties
as the Board may direct, to indemnify the Corporation and its transfer agents
and registrars against any claim that may be made against any of them on account
of the continued existence of any such certificate so alleged to have been lost,
destroyed, stolen or mutilated and against any expense in connection with such
claim.
7.5 Rules and Regulations. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these By-laws or
with the Certificate of Incorporation, concerning the issue, transfer and
registration of certif icates representing shares of its capital stock.
7.6 Restriction on Transfer of Stock. A written restriction on the
transfer or registration of transfer of capital stock of the Corporation, if
permitted by
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Section 202 of the General Corporation Law and noted conspicuously on the
certificate representing such capital stock, may be enforced against the holder
of the restricted capital stock or any successor or transferee of the holder,
including an executor, administrator, trustee, guardian or other fiduciary
entrusted with like responsibility for the person or estate of the holder.
Unless noted conspicuously on the certificate representing such capital stock, a
restriction, even though permitted by Section 202 of the General Corporation
Law, shall be ineffective except against a person with actual knowledge of the
restriction. A restriction on the transfer or registration of transfer of
capital stock of the Corporation may be imposed either by the Certificate of
Incorporation or by an agreement among any number of stockholders or among such
stockholders and the Corporation. No restriction so imposed shall be binding
with respect to capital stock issued prior to the adoption of the restriction
unless the holders of such capital stock are parties to an agreement or voted in
favor of the restriction.
ARTICLE 8
BOOKS AND RECORDS
8.1 Books and Records. There shall be kept at the principal office
of the Corporation correct and complete records and books of account recording
the financial transactions of the Corporation and minutes of the proceedings of
the stockholders, the Board and any committee of the Board. The Corporation
shall keep at its principal office, or at the office of the transfer agent or
registrar of the Corporation, a record containing the names and addresses of all
stockholders, the
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number and class of shares held by each and the dates when they respectively
became the owners of record thereof.
8.2 Form of Records. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
written form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
8.3 Inspection of Books and Records. Except as otherwise provided by
law, the Board shall determine from time to time whether, and, if allowed, when
and under what conditions and regulations, the accounts, books, minutes and
other records of the Corporation, or any of them, shall be open to the
stockholders for inspection.
ARTICLE 9
SEAL
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
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ARTICLE 10
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and may be
changed, by resolution of the Board.
ARTICLE 11
PROXIES AND CONSENTS
Unless otherwise directed by the Board, the Chairman, the President,
any Vice President, the Secretary or the Treasurer, or any one of them, may
execute and deliver on behalf of the Corporation proxies respecting any and all
shares or other ownership interests of any Other Entity owned by the Corporation
appointing such person or persons as the officer executing the same shall deem
proper to represent and vote the shares or other ownership interests so owned at
any and all meetings of holders of shares or other ownership interests, whether
general or special, and/or to execute and deliver consents respecting such
shares or other ownership interests; or any of the aforesaid officers may attend
any meeting of the holders of shares or other ownership interests of such Other
Entity and thereat vote or exercise any or all other powers of the Corporation
as the holder of such shares or other ownership interests.
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ARTICLE 12
EMERGENCY BY-LAWS
Unless the Certificate of Incorporation provides otherwise, the
following provisions of this Article 13 shall be effective during an emergency,
which is defined as when a quorum of the Corporation's Directors cannot be
readily assembled because of some catastrophic event. During such emergency:
12.1 Notice to Board Members. Any one member of the Board or
any one of the following officers: Chairman, President, any Vice President,
Secretary, or Treasurer, may call a meeting of the Board. Notice of such meeting
need be given only to those Directors whom it is practicable to reach, and may
be given in any practical manner, including by publication and radio. Such
notice shall be given at least six hours prior to commencement of the meeting.
12.2 Temporary Directors and Quorum. One or more officers of the
Corporation present at the emergency Board meeting, as is necessary to achieve a
quorum, shall be considered to be Directors for the meeting, and shall so serve
in order of rank, and within the same rank, in order of seniority. In the event
that less than a quorum of the Directors are present (including any officers who
are to serve as Directors for the meeting), those Directors present (including
the officers serving as Directors) shall constitute a quorum.
12.3 Actions Permitted To Be Taken. The Board as constituted in
Section 12.2, and after notice as set forth in Section 12.1 may:
<PAGE> 34
34
12.3.1 prescribe emergency powers to any officer of the
Corporation;
12.3.2 delegate to any officer or Director, any of the powers
of the Board;
12.3.3 designate lines of succession of officers and agents,
in the event that any of them are unable to discharge their duties;
12.3.4 relocate the principal place of business, or designate
successive or simultaneous principal places of business; and
12.3.5 take any other convenient, helpful or necessary action
to carry on the business of the Corporation.
ARTICLE 13
AMENDMENTS
Except as otherwise provided in the Certificate of Incorporation,
these By-laws may be altered, amended, or repealed and new By-laws may be
adopted by a vote of the holders of shares entitled to vote in the election of
Directors or by a vote of two-thirds of the entire Board. Notwithstanding the
preceding sentence, none of the provisions of this Article 13 shall be altered,
amended or repealed by the Board. Any By-laws adopted, altered or amended by the
Board may be altered, amended or repealed by the stockholders entitled to vote
thereon only to the extent and in the manner provided in the Certificate of
Incorporation and these By-laws.
<PAGE> 1
Exhibit 4.4
NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS,
EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) UNDER THE ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A
U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION, (2) AGREES
THAT IT WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE
RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT, (C) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE ACT, (D) INSIDE THE UNITED STATES TO AN
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON
ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER
OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (E)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904
UNDER THE ACT OR (F) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE ACT (IF AVAILABLE) (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THREE YEARS
AFTER ORIGINAL ISSUANCE OF THIS NOTE, IF THE PROPOSED TRANSFEREE IS AN
ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION
AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO THE
REGISTRATION REQUIREMENTS OF THE ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE ACT.
<PAGE> 2
2
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN
THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE
(OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF
THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE.
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 IT 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.
<PAGE> 3
3
CUSIP 759664-AG-0
RENAISSANCE COSMETICS, INC.
Number R-1
11 3/4% SENIOR NOTE DUE 2004
RENAISSANCE COSMETICS, INC., a Delaware corporation (the "Company"),
for value received, promises to pay to CEDE & CO. or registered assigns the
principal sum of $200.0 million dollars on February 15, 2004.
Interest Payment Dates: February 15 and August 15
Record Dates: February 1 and August 1
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
RENAISSANCE COSMETICS, INC.
By: /s/ JOHN R. JACKSON
-------------------------------------
Title: Secretary
By: /s/ THOMAS T.S. KAUNG
-------------------------------------
Title: Group Vice President
Dated: February 7, 1997
Certificate of Authentication
This is one of the 11 3/4% Senior Notes due 2004 referred to in the
within-mentioned indenture.
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By: /s/ GERARD F. GANEY
-------------------------------------
Authorized Signatory
<PAGE> 4
REVERSE OF NOTE
RENAISSANCE COSMETICS, INC.
11 3/4% SENIOR NOTE DUE 2004
1. Interest. Renaissance Cosmetics, Inc., a Delaware corporation
(the "Company"), promises to pay, until the principal hereof is paid or made
available for payment, interest on the principal amount set forth on the face
hereof at a rate of 11 3/4% per annum. Interest hereon will accrue from and
including the most recent date to which interest has been paid or, if no
interest has been paid, from and including February 7, 1997 to but excluding the
date on which interest is paid. Interest shall be payable in arrears on each
February 15 and August 15 commencing August 15, 1997. Interest will be computed
on the basis of a 360-day year of twelve 30-day months. The Company shall pay
interest on overdue principal and on overdue interest (to the full extent
permitted by law) at a rate of 13 3/4% per annum.
2. Method of Payment. The Company will pay interest hereon (except
defaulted interest) to the Persons who are registered Holders at the close of
business on February 1 or August 1 next preceding the interest payment date
(whether or not a Business Day). Holders must surrender Notes to a Paying Agent
to collect principal payments. The Company will pay principal and interest in
money of the United States of America that at the time of payment is legal
tender for payment of public and private debts. Interest may be paid by check
mailed to the Holder entitled thereto at the address indicated on the register
maintained by the Registrar for the Notes.
3. Paying Agent and Registrar. Initially, United States Trust
Company of New York (the "Trustee") will act as a Paying Agent and Registrar.
The Company may change any Paying Agent or Registrar without notice. Neither the
Company nor any of its Affiliates may act as Paying Agent or Registrar.
4. Indenture. The Company issued the Notes under an Indenture dated
as of February 7, 1997 (the "Indenture") among the Company (as defined in the
Indenture) and the Trustee. This is one of the Notes of the Company issued under
the Indenture. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S. Code ss.ss. 77aaa-77bbbb), as amended from time to time. The Notes are
subject to all such terms, and Holders are referred to the Indenture and such
Act for a statement of them. Capitalized and certain other terms used herein and
not otherwise defined have the meanings set forth in the Indenture. The Notes
are obligations of the Company limited in aggregate principal amount to $200.0
million. The Indenture limits, among other things, the ability of the Company
and its Subsidiaries to: (i) incur additional Indebtedness; (ii) pay dividends
and make distributions; (iii) make certain investments;
<PAGE> 5
2
(iv) create liens; (v) enter into transactions with affiliates; (vi) issue stock
of its Subsidiaries; (vii) enter into agreements restricting the ability of such
Subsidiaries to pay dividends and make distributions; (viii) enter into sale and
leaseback transactions; (ix) merge or consolidate the Company; (x) transfer or
sell assets; and (xi) finance certain acquisitions. These covenants are subject
to a number of important exceptions. The Company must report to the Trustee
quarterly in compliance with the limitations contained in the Indenture.
5. Optional Redemption. The Company, at its option, may redeem the
Notes, in whole or in part, at any time on or after February 15, 2002 upon not
less than 30 nor more than 60 days' notice, at the redemption prices (expressed
as percentages of principal amount), set forth below, together, in each case,
with accrued and unpaid interest to the Redemption Date, if redeemed during the
twelve-month period beginning on February 15 of each year listed below:
Year Redemption Price
---- ----------------
2002........................................... 103.358%
2003........................................... 101.679%
Notwithstanding the foregoing, the Company may redeem in the
aggregate up to 35% of the original principal amount of Notes at any time and
from time to time on or prior to February 15, 2000 at a redemption price equal
to 111.75% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon to the Redemption Date with the Net Proceeds of one or more
Public Equity Offerings or Strategic Equity Investments; provided, that at least
$130.0 million of the principal amount of Notes originally issued remains
outstanding immediately after the occurrence of any such redemption and that any
such redemption occurs within 90 days following the closing of any such Public
Equity Offering or Strategic Equity Investment.
6. Notice of Redemption. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Notes to be redeemed at his registered address. On and after the
Redemption Date, unless the Company defaults in making the redemption payment,
interest ceases to accrue on Notes or portions thereof called for redemption.
7. Offers to Purchase. The Indenture provides that upon the
occurrence of a Change of Control or an Asset Sale and subject to further
limitations contained therein, the Company shall make an offer to purchase
outstanding Notes in accordance with the procedures set forth in the Indenture.
<PAGE> 6
3
8. Registration Rights. Pursuant to a Registration Rights Agreement
between the Company and CIBC Wood Gundy Securities Corp., as initial purchaser
of the Notes, the Company will be obligated to consummate an exchange offer
pursuant to which the Holder of this Note shall have the right to exchange this
Note for Notes of a separate series issued under the Indenture (or a trust
indenture substantially identical to the Indenture in accordance with the terms
of the Registration Rights Agreement) which have been registered under the
Securities Act, in like principal amount and having substantially identical
terms as the Notes. The Holders shall be entitled to receive certain additional
interest payments in the event such exchange offer is not consummated and upon
certain other conditions all pursuant to and in accordance with the terms of the
Registration Rights Agreement.
9. Disbursement of Funds, Escrow Account. The Company has
transferred approximately 17.5 million of the net proceeds from the offering of
the Notes to the Guarantor in exchange for the Subsidiary Guarantee. The
Guarantor has placed such amount into an Escrow Account for the benefit of the
holders of the Notes. Until disbursed in accordance with the Escrow Agreement
and the Indenture, the Escrow Account is designed to provide security for a
portion of the Company's obligations under the Notes for the first two years
after the Issue Date. In addition, the Indenture provides that, (i) so long as
no Default or Event of Default has occurred and is continuing, the Guarantor is
obligated to pay to the Trustee for the benefit of the holders of the Notes, on
each interest payment date, an amount equal to the amount of interest then due
on $79.0 million aggregate principal amount of the Notes (such amount, the
"Interest Portion") and (ii) upon the occurrence and during the continuation of
a Default or an Event of Default, the Guarantor must pay the full amount of
interest on the Notes at the regular, pre-default rate, as the same becomes due
and payable, unless paid from another source. The escrow Agreement provides,
among other things, that funds will be disbursed from the Escrow Account (i) on
any interest payment date, to pay the Interest Portion and (ii) upon a Default
or an Event of Default, to pay the full amount due on the Notes under the
Subsidiary Guarantee. Pending such disbursement, the Company will cause all the
funds contained in the Escrow Account to be invested in Temporary Cash
Investments. Interest earned on these Temporary Cash Investments will be added
to the Escrow Account. The Indenture provides that the proceeds of the Escrow
Account will be applied first to the payment of interest on the Notes so long as
interest thereon is due or will become due under the Notes and that only in the
event that interest is no longer due and will not become due (whether because
the full principal amount of the Notes is to be repaid or otherwise) will the
proceeds of the Escrow Account be applied to principal or premium, if any.
10. Denominations, Transfer, Exchange. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. A Holder may transfer or exchange Notes in accordance with the
Indenture. The
<PAGE> 7
4
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay to it any taxes and fees required
by law or permitted by the Indenture. The Registrar need not transfer or
exchange any Notes or portion of a Note selected for redemption, or transfer or
exchange any Notes for a period of 15 days before a mailing of notice of
redemption.
11. Persons Deemed Owners. The registered Holder of this Note may be
treated as the owner of this Note for all purposes.
12. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee will pay the money back to
the Company at its written request. After that, Holders entitled to the money
must look to the Company for payment as general creditors unless an "abandoned
property" law designates another Person.
13. Amendment, Supplement, Waiver, Etc. The Company, the Guarantor
and the Trustee (if a party thereto) may, without the consent of the Holders of
any outstanding Notes, amend, waive or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistences, maintaining the qualification of the Indenture under
the Trust Indenture Act of 1939, as amended, and making any change that does not
materially and adversely affect the rights of any Holder. Other amendments and
modifications of the Indenture or the Notes may be made by the Company, the
Guarantor and the Trustee with the consent of the Holders of not less than a
majority of the aggregate principal amount of the outstanding Notes, subject to
certain exceptions requiring the consent of the Holders of the particular Notes
to be affected.
14. Successor Corporation. When a successor corporation assumes all
the obligations of its predecessor under the Notes and the Indenture and the
transaction complies with the terms of Article V of the Indenture, the
predecessor corporation will, except as provided in Article V, be released from
those obligations.
15. Defaults and Remedies. Events of Default are set forth in the
Indenture. Subject to certain limitations in the Indenture, if an Event of
Default (other than an Event of Default specified in Section 6.1(a)(vi) or (vii)
of the Indenture with respect to the Company) occurs and is continuing, the
Trustee or the Holders of not less than 25% in aggregate principal amount of the
outstanding Notes may, by written notice to the Trustee and the Company, and the
Trustee upon the request of the Holders of not less than 25% in aggregate
principal amount of the outstanding Notes shall, declare all principal of and
accrued interest on all Notes to be immediately due and payable. If an Event of
Default specified in Section 6.1(a)(vi) or (vii) of the Indenture occurs with
respect to the Company, the principal amount of and interest on, all Notes shall
ipso facto become and be immediately due and payable without any declaration or
<PAGE> 8
5
other act on the part of the Trustee or any Holder. Holders may not enforce the
Indenture or the Notes except as provided in the Indenture. The Trustee may
require indemnity satisfactory to it before it enforces the Indenture or the
Notes. Subject to certain limitations, Holders of a majority in principal amount
of the then outstanding Notes may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Holders notice of any continuing
default (except a default in payment of principal or interest) if it
determines that withholding notice is in their interests. The Company must
furnish an annual compliance certificate to the Trustee.
16. Trustee Dealings with Company. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not Trustee.
17. No Recourse Against Others. A trustee, director, officer,
employee, stockholder or incorporator, as such, of the Company or the Guarantor
shall not have any liability for any obligations of the Company under the Notes
or the Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation, either directly or through the Company or any
successor Person or by virtue of any statute or other rule of law. Each Holder,
by accepting a Note, waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Notes.
18. Discharge. The Company's obligations pursuant to the Indenture
will be discharged, except for obligations pursuant to certain sections thereof,
subject to the terms of the Indenture, upon the payment of all the Notes or upon
the irrevocable deposit with the Trustee of United States dollars or U.S.
Government Obligations sufficient to pay when due principal of and interest on
the Notes to maturity or redemption, as the case may be.
19. Guarantee; Security. The Note is initially entitled to the
benefits of the Subsidiary Guarantee of the Guarantor. Upon the terms and
subject to the conditions set forth in the Indenture, the Guarantor has
unconditionally guaranteed that the principal of, and premium, if any, interest
and Additional Interest, if any, on and any additional amounts, if any, with
respect to the Notes will be duly and punctually paid in full when due, whether
at maturity, by acceleration or otherwise, and interest on overdue principal
premium, if any, and (to the extent permitted by law) interest on any interest
or Additional Interest, if any, on the Notes and all other Obligations of the
Company to the Holders under the Notes or the Indenture (including fees,
expenses or other Obligations) will be promptly paid in full or performed. The
Subsidiary Guarantee constitutes a limited guarantee by the Guarantor of all
sums due under the Notes limited in amount to the value of the property held in
the Escrow Account. The Guarantor shall be released from the Subsidiary
Guarantee upon the terms and subject
<PAGE> 9
6
to the conditions set forth in the Indenture. Reference is hereby made to
Article X of the Indenture and to Exhibit G to the Indenture for the terms of
the Subsidiary Guarantee. The Guarantor's obligations under the Subsidiary
Guarantee are secured by a first priority security interest in the Escrow
Account and the Temporary Cash Investments held therein.
20. Authentication. This Note shall not be valid until the Trustee
signs the certificate of authentication on the other side of this Note.
21. Governing Law. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL
GOVERN THIS SENIOR NOTE WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. The
Trustee, the Company, the Guarantor and the Holders agree 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 Indenture or the Notes.
22. Abbreviations. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TENANT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
RENAISSANCE COSMETICS, INC.
955 Massachusetts Avenue
Cambridge, Massachusetts 02139
Attention: John R. Jackson
<PAGE> 10
ASSIGNMENT
I or we assign and transfer this Note to:
(Insert assignee's social security or tax I.D. number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
________________________________________________________________________________
________________________________________________________________________________
Agent to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act provided by Rule 144A thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a) above
and documents are being furnished which comply with the conditions of
transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.17 of the Indenture shall have been satisfied.
Date: _________________ Your Signature: _______________________________
_______________________________________________
(Sign exactly as your name appears on the other
side of this Note)
Signature Guarantee _______________________________________________
<PAGE> 11
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated: ___________________________ _________________________________________
NOTICE: To be executed by
an executive officer
<PAGE> 12
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note purchased
by the Company pursuant to Section 4.13 or Section 4.15 of the Indenture, check
the appropriate box:
|_| Section 4.13 |_| Section 4.15
If you want to have only part of the Note purchased by the Company
pursuant to Section 4.13 or Section 4.15 of the Indenture, state the amount you
elect to have purchased:
$________________________
(multiple of $1,000)
Date: _______________________
Your Signature: _________________________
(Sign exactly as your name appears on the
face of this Note)
_____________________________
Signature Guaranteed
<PAGE> 13
GUARANTEE
The undersigned (the "Guarantor") hereby unconditionally guarantees,
to the extent set forth in the Indenture dated as of February 7, 1997 by and
among Renaissance Cosmetics, Inc., as issuer, the Guarantor, as guarantor, and
United States Trust Company of New York, as Trustee (as amended, restated or
supplemented from time to time the "Indenture"), and subject to the provisions
of the Indenture, (a) the due and punctual payment of the principal of and
interest on the Notes, whether at maturity, by acceleration or otherwise, the
due and punctual payment of interest on overdue principal, and, to the extent
permitted by law, interest, and the due and punctual performance of all other
obligations of the Company to the Noteholders or the Trustee, all in accordance
with the terms set forth in Article X of the Indenture, and (b) 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, whether at stated
maturity, by acceleration or otherwise.
The obligations of the Guarantor to the Noteholders and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly
set forth in Article X of the Indenture and reference is hereby made to the
Indenture for the precise terms and limitations of this Subsidiary Guarantee.
RENAISSANCE GUARANTOR, INC.
BY: /s/ JOHN R. JACKSON
-----------------------------------
Name: John R. Jackson
Title: Vice President
<PAGE> 1
Exhibit 4.5
CUSIP
RENAISSANCE COSMETICS, INC.
Number
11 3/4% SENIOR NOTE DUE 2004
RENAISSANCE COSMETICS, INC., a Delaware corporation (the "Company"),
for value received, promises to pay to CEDE & CO. or registered assigns the
principal sum of $200.0 million dollars on February 15, 2004.
Interest Payment Dates: February 15 and August 15
Record Dates: February 1 and August 1
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
RENAISSANCE COSMETICS, INC.
By:_____________________________________
Title: Secretary
By:_____________________________________
Title: Group Vice President
Dated:
Certificate of Authentication
This is one of the 11 3/4% Senior Notes due 2004 referred to in the
within-mentioned indenture.
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
<PAGE> 2
By:_____________________________________
Authorized Signatory
<PAGE> 3
REVERSE OF NOTE
RENAISSANCE COSMETICS, INC.
11 3/4% SENIOR NOTE DUE 2004
1. Interest. Renaissance Cosmetics, Inc., a Delaware corporation
(the "Company"), promises to pay, until the principal hereof is paid or made
available for payment, interest on the principal amount set forth on the face
hereof at a rate of 11 3/4% per annum. Interest hereon will accrue from and
including the most recent date to which interest has been paid or, if no
interest has been paid, from and including February 7, 1997 to but excluding the
date on which interest is paid. Interest shall be payable in arrears on each
February 15 and August 15 commencing August 15, 1997. Interest will be computed
on the basis of a 360-day year of twelve 30-day months. The Company shall pay
interest on overdue principal and on overdue interest (to the full extent
permitted by law) at a rate of 13 3/4% per annum.
2. Method of Payment. The Company will pay interest hereon (except
defaulted interest) to the Persons who are registered Holders at the close of
business on February 1 or August 1 next preceding the interest payment date
(whether or not a Business Day). Holders must surrender Notes to a Paying Agent
to collect principal payments. The Company will pay principal and interest in
money of the United States of America that at the time of payment is legal
tender for payment of public and private debts. Interest may be paid by check
mailed to the Holder entitled thereto at the address indicated on the register
maintained by the Registrar for the Notes.
3. Paying Agent and Registrar. Initially, United States Trust
Company of New York (the "Trustee") will act as a Paying Agent and Registrar.
The Company may change any Paying Agent or Registrar without notice. Neither the
Company nor any of its Affiliates may act as Paying Agent or Registrar.
4. Indenture. The Company issued the Notes under an Indenture dated
as of February 7, 1997 (the "Indenture") among the Company (as defined in the
Indenture) and the Trustee. This is one of the Notes of the Company issued under
the Indenture. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S. Code ss.ss. 77aaa-77bbbb), as amended from time to time. The Notes are
subject to all such terms, and Holders are referred to the Indenture and such
Act for a statement of them. Capitalized and certain other terms used herein and
not otherwise defined have the meanings set forth in the Indenture. The Notes
are obligations of the Company limited in aggregate principal amount to $200.0
million. The Indenture limits, among other things, the ability of the Company
and its Subsidiaries to: (i) incur additional Indebtedness; (ii) pay dividends
and make distributions; (iii) make certain investments;
<PAGE> 4
2
(iv) create liens; (v) enter into transactions with affiliates; (vi) issue stock
of its Subsidiaries; (vii) enter into agreements restricting the ability of such
Subsidiaries to pay dividends and make distributions; (viii) enter into sale and
leaseback transactions; (ix) merge or consolidate the Company; (x) transfer or
sell assets; and (xi) finance certain acquisitions. These covenants are subject
to a number of important exceptions. The Company must report to the Trustee
quarterly in compliance with the limitations contained in the Indenture.
5. Optional Redemption. The Company, at its option, may redeem the
Notes, in whole or in part, at any time on or after February 15, 2002 upon not
less than 30 nor more than 60 days' notice, at the redemption prices (expressed
as percentages of principal amount), set forth below, together, in each case,
with accrued and unpaid interest to the Redemption Date, if redeemed during the
twelve-month period beginning on February 15 of each year listed below:
Year Redemption Price
---- ----------------
2002........................................... 103.358%
2003........................................... 101.679%
Notwithstanding the foregoing, the Company may redeem in the
aggregate up to 35% of the original principal amount of Notes at any time and
from time to time on or prior to February 15, 2000 at a redemption price equal
to 111.75% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon to the Redemption Date with the Net Proceeds of one or more
Public Equity Offerings or Strategic Equity Investments; provided, that at least
$130.0 million of the principal amount of Notes originally issued remains
outstanding immediately after the occurrence of any such redemption and that any
such redemption occurs within 90 days following the closing of any such Public
Equity Offering or Strategic Equity Investment.
6. Notice of Redemption. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Notes to be redeemed at his registered address. On and after the
Redemption Date, unless the Company defaults in making the redemption payment,
interest ceases to accrue on Notes or portions thereof called for redemption.
7. Offers to Purchase. The Indenture provides that upon the
occurrence of a Change of Control or an Asset Sale and subject to further
limitations contained therein, the Company shall make an offer to purchase
outstanding Notes in accordance with the procedures set forth in the Indenture.
<PAGE> 5
3
8. Registration Rights. Pursuant to a Registration Rights Agreement
between the Company and CIBC Wood Gundy Securities Corp., as initial purchaser
of the Notes, the Company will be obligated to consummate an exchange offer
pursuant to which the Holder of this Note shall have the right to exchange this
Note for Notes of a separate series issued under the Indenture (or a trust
indenture substantially identical to the Indenture in accordance with the terms
of the Registration Rights Agreement) which have been registered under the
Securities Act, in like principal amount and having substantially identical
terms as the Notes. The Holders shall be entitled to receive certain additional
interest payments in the event such exchange offer is not consummated and upon
certain other conditions all pursuant to and in accordance with the terms of the
Registration Rights Agreement.
9. Disbursement of Funds, Escrow Account. The Company has
transferred approximately 17.5 million of the net proceeds from the offering of
the Notes to the Guarantor in exchange for the Subsidiary Guarantee. The
Guarantor has placed such amount into an Escrow Account for the benefit of the
holders of the Notes. Until disbursed in accordance with the Escrow Agreement
and the Indenture, the Escrow Account is designed to provide security for a
portion of the Company's obligations under the Notes for the first two years
after the Issue Date. In addition, the Indenture provides that, (i) so long as
no Default or Event of Default has occurred and is continuing, the Guarantor is
obligated to pay to the Trustee for the benefit of the holders of the Notes, on
each interest payment date, an amount equal to the amount of interest then due
on $79.0 million aggregate principal amount of the Notes (such amount, the
"Interest Portion") and (ii) upon the occurrence and during the continuation of
a Default or an Event of Default, the Guarantor must pay the full amount of
interest on the Notes at the regular, pre-default rate, as the same becomes due
and payable, unless paid from another source. The escrow Agreement provides,
among other things, that funds will be disbursed from the Escrow Account (i) on
any interest payment date, to pay the Interest Portion and (ii) upon a Default
or an Event of Default, to pay the full amount due on the Notes under the
Subsidiary Guarantee. Pending such disbursement, the Company will cause all the
funds contained in the Escrow Account to be invested in Temporary Cash
Investments. Interest earned on these Temporary Cash Investments will be added
to the Escrow Account. The Indenture provides that the proceeds of the Escrow
Account will be applied first to the payment of interest on the Notes so long as
interest thereon is due or will become due under the Notes and that only in the
event that interest is no longer due and will not become due (whether because
the full principal amount of the Notes is to be repaid or otherwise) will the
proceeds of the Escrow Account be applied to principal or premium, if any.
10. Denominations, Transfer, Exchange. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. A Holder may transfer or exchange Notes in accordance with the
Indenture. The
<PAGE> 6
4
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay to it any taxes and fees required
by law or permitted by the Indenture. The Registrar need not transfer or
exchange any Notes or portion of a Note selected for redemption, or transfer or
exchange any Notes for a period of 15 days before a mailing of notice of
redemption.
11. Persons Deemed Owners. The registered Holder of this Note may be
treated as the owner of this Note for all purposes.
12. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee will pay the money back to
the Company at its written request. After that, Holders entitled to the money
must look to the Company for payment as general creditors unless an "abandoned
property" law designates another Person.
13. Amendment, Supplement, Waiver, Etc. The Company, the Guarantor
and the Trustee (if a party thereto) may, without the consent of the Holders of
any outstanding Notes, amend, waive or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistences, maintaining the qualification of the Indenture under
the Trust Indenture Act of 1939, as amended, and making any change that does not
materially and adversely affect the rights of any Holder. Other amendments and
modifications of the Indenture or the Notes may be made by the Company, the
Guarantor and the Trustee with the consent of the Holders of not less than a
majority of the aggregate principal amount of the outstanding Notes, subject to
certain exceptions requiring the consent of the Holders of the particular Notes
to be affected.
14. Successor Corporation. When a successor corporation assumes all
the obligations of its predecessor under the Notes and the Indenture and the
transaction complies with the terms of Article V of the Indenture, the
predecessor corporation will, except as provided in Article V, be released from
those obligations.
15. Defaults and Remedies. Events of Default are set forth in the
Indenture. Subject to certain limitations in the Indenture, if an Event of
Default (other than an Event of Default specified in Section 6.1(a)(vi) or (vii)
of the Indenture with respect to the Company) occurs and is continuing, the
Trustee or the Holders of not less than 25% in aggregate principal amount of the
outstanding Notes may, by written notice to the Trustee and the Company, and the
Trustee upon the request of the Holders of not less than 25% in aggregate
principal amount of the outstanding Notes shall, declare all principal of and
accrued interest on all Notes to be immediately due and payable. If an Event of
Default specified in Section 6.1(a)(vi) or (vii) of the Indenture occurs with
respect to the Company, the principal amount of and interest on, all Notes shall
ipso facto become and be immediately due and payable without any declaration or
<PAGE> 7
5
other act on the part of the Trustee or any Holder. Holders may not enforce the
Indenture or the Notes except as provided in the Indenture. The Trustee may
require indemnity satisfactory to it before it enforces the Indenture or the
Notes. Subject to certain limitations, Holders of a majority in principal amount
of the then outstanding Notes may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Holders notice of any continuing
default (except a default in payment of principal or interest) if it determines
that withholding notice is in their interests. The Company must furnish an
annual compliance certificate to the Trustee.
16. Trustee Dealings with Company. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not Trustee.
17. No Recourse Against Others. A trustee, director, officer,
employee, stockholder or incorporator, as such, of the Company or the Guarantor
shall not have any liability for any obligations of the Company under the Notes
or the Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation, either directly or through the Company or any
successor Person or by virtue of any statute or other rule of law. Each Holder,
by accepting a Note, waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Notes.
18. Discharge. The Company's obligations pursuant to the Indenture
will be discharged, except for obligations pursuant to certain sections thereof,
subject to the terms of the Indenture, upon the payment of all the Notes or upon
the irrevocable deposit with the Trustee of United States dollars or U.S.
Government Obligations sufficient to pay when due principal of and interest on
the Notes to maturity or redemption, as the case may be.
19. Guarantee; Security. The Note is initially entitled to the
benefits of the Subsidiary Guarantee of the Guarantor. Upon the terms and
subject to the conditions set forth in the Indenture, the Guarantor has
unconditionally guaranteed that the principal of, and premium, if any, interest
and Additional Interest, if any, on and any additional amounts, if any, with
respect to the Notes will be duly and punctually paid in full when due, whether
at maturity, by acceleration or otherwise, and interest on overdue principal
premium, if any, and (to the extent permitted by law) interest on any interest
or Additional Interest, if any, on the Notes and all other Obligations of the
Company to the Holders under the Notes or the Indenture (including fees,
expenses or other Obligations) will be promptly paid in full or performed. The
Subsidiary Guarantee constitutes a limited guarantee by the Guarantor of all
sums due under the Notes limited in amount to the value of the property held in
the Escrow Account. The Guarantor shall be released from the Subsidiary
Guarantee upon the terms and subject
<PAGE> 8
6
to the conditions set forth in the Indenture. Reference is hereby made to
Article X of the Indenture and to Exhibit G to the Indenture for the terms of
the Subsidiary Guarantee. The Guarantor's obligations under the Subsidiary
Guarantee are secured by a first priority security interest in the Escrow
Account and the Temporary Cash Investments held therein.
20. Authentication. This Note shall not be valid until the Trustee
signs the certificate of authentication on the other side of this Note.
21. Governing Law. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL
GOVERN THIS SENIOR NOTE WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. The
Trustee, the Company, the Guarantor and the Holders agree 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 Indenture or the Notes.
22. Abbreviations. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TENANT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
RENAISSANCE COSMETICS, INC.
955 Massachusetts Avenue
Cambridge, Massachusetts 02139
Attention: John R. Jackson
<PAGE> 9
ASSIGNMENT
I or we assign and transfer this Note to:
(Insert assignee's social security or tax I.D. number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
________________________________________________________________________________
________________________________________________________________________________
Agent to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act provided by Rule 144A thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a) above
and documents are being furnished which comply with the conditions of
transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.17 of the Indenture shall have been satisfied.
Date: _____________________ Your Signature: ________________________________
_______________________________________________
(Sign exactly as your name appears on the other
side of this Note)
Signature Guarantee: _______________________________________________
<PAGE> 10
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated: _________________________ _________________________________________
NOTICE: To be executed by
an executive officer
<PAGE> 11
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note purchased
by the Company pursuant to Section 4.13 or Section 4.15 of the Indenture, check
the appropriate box:
|_| Section 4.13 |_| Section 4.15
If you want to have only part of the Note purchased by the Company
pursuant to Section 4.13 or Section 4.15 of the Indenture, state the amount you
elect to have purchased:
$_______________________
(multiple of $1,000)
Date: _______________________
Your Signature: ____________________________
(Sign exactly as your name appears on the
face of this Note)
____________________________
Signature Guaranteed
<PAGE> 12
GUARANTEE
The undersigned (the "Guarantor") hereby unconditionally guarantees,
to the extent set forth in the Indenture dated as of February 7, 1997 by and
among Renaissance Cosmetics, Inc., as issuer, the Guarantor, as guarantor, and
United States Trust Company of New York, as Trustee (as amended, restated or
supplemented from time to time the "Indenture"), and subject to the provisions
of the Indenture, (a) the due and punctual payment of the principal of and
interest on the Notes, whether at maturity, by acceleration or otherwise, the
due and punctual payment of interest on overdue principal, and, to the extent
permitted by law, interest, and the due and punctual performance of all other
obligations of the Company to the Noteholders or the Trustee, all in accordance
with the terms set forth in Article X of the Indenture, and (b) 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, whether at stated
maturity, by acceleration or otherwise.
The obligations of the Guarantor to the Noteholders and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly
set forth in Article X of the Indenture and reference is hereby made to the
Indenture for the precise terms and limitations of this Subsidiary Guarantee.
RENAISSANCE GUARANTOR, INC.
BY:______________________________________
Name: John R. Jackson
Title: Vice President
<PAGE> 1
Exhibit 10.115.2
------------------------------------------------------------------------
RENAISSANCE COSMETICS, INC.,
Issuer,
and
CERTAIN GUARANTORS
and
FIRSTAR BANK OF MINNESOTA, N.A.,
Trustee
----------------------
SEVENTH SUPPLEMENTAL INDENTURE
Dated as of February __, 1997
----------------------
13-3/4% Senior Notes due 2001,
Series A and Series B,
and
13-3/4% Senior Notes due 2002
------------------------------------------------------------------------
<PAGE> 2
SEVENTH SUPPLEMENTAL INDENTURE
SEVENTH SUPPLEMENTAL INDENTURE (this "Seventh Supplemental
Indenture"), dated as of February __, 1997, between Renaissance Cosmetics, Inc.,
a Delaware corporation (the "Company"), certain guarantors listed on the
signature pages hereof (the "Guarantors") and Firstar Bank of Minnesota, N.A.
(as successor trustee to American Bank National Association), as trustee (the
"Trustee").
The Company, the Guarantors and the Trustee are parties to that
certain 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, a fifth
supplemental indenture dated August 21, 1996 and a sixth supplemental indenture
dated December 4, 1996 (together, 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 (collectively, the "Notes").
Section 9.2 of the Indenture provides that the Company, the
Guarantors and the Trustee may amend the Indenture or the Notes with the written
consent of the Holders (as defined in the Indenture) of at least a majority in
principal amount of the then outstanding Notes.
The Company issued an Offer to Purchase and Consent Solicitation
Statement dated December 24, 1996, as subsequently amended (as so amended, the
"Statement"), to, among other things, solicit consents of the Holders to the
Proposed Amendments (as defined in the Statement).
The Company has fixed December 20, 1996 as the record date (the
"Record Date") for the purpose of determining the Holders entitled to consent to
the Proposed Amendments.
Holders of at least a majority in aggregate principal amount of the
outstanding Notes as of the Record Date have given and not withdrawn their
consent to the Proposed Amendments and the Company has notified the Depositary
(as defined in the Statement) that it has accepted all the Notes validly
tendered for purchase and payment pursuant to the Statement.
The entry into this Seventh Supplemental Indenture by the parties
hereto is in all respects authorized by the provisions of the Indenture; the
Company has delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel with respect to such authorization; and all things necessary to make
this Seventh Supplemental Indenture a valid agreement of the Company in
accordance with its terms have been done.
<PAGE> 3
2
The parties hereto agree as follows:
1. Definitions. All capitalized terms used and not otherwise
defined herein have the respective meanings ascribed to such terms in the
Indenture.
2. Effect. This Seventh Supplemental Indenture shall become
effective upon its execution and delivery by the parties hereto.
3. Amendments.
The Indenture is hereby amended as follows:
(a) the following sections are deleted in their entirety:
sections 4.3, 4.4(b), 4.7, 4.8, 4.9, 4.11,4.12, 4.15, 4.19, 4.20, 4.22 and
4.24;
(b) section 4.13 is amended by deleting the words "Section
4.19 and" therein;
(c) section 5.1(a) is amended by:
(i) adding the word "and" after the semicolon in
5.1(a)(iii),
(ii) deleting in its entirety section 5.1(a)(iv),
(iii) adding the word "and" in the last paragraph of
section 5.1(a) between the words "effect," and "an", and
(iv) deleting from the last paragraph of section
5.1(a), the clause "and a written statement . . . complies with
clause (iv)";
(d) section 5.1(b) is amended by:
(i) adding the word "and" after the semicolon in
section 5.1(b)(ii),
(ii) deleting the last word of section 5.1(b)(iii),
"; and" and substituting it with a period,
(iii) deleting section 5.1(b)(iv) in its entirety, and
(iv) deleting from the last paragraph of section
5.1(b), the clause "and a written statement . . . complies with
clause (iv)"; and
(e) Section 6.1 is amended by deleting from the first sentence
of the third complete paragraph the words "4.7, 4.9," and ", 4.15, 4.19".
4. Governing Law. This Seventh 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).
<PAGE> 4
3
5. Counterparts. This Seventh Supplemental Indenture may be
executed in one or more counterparts, each of which shall be an original, but
all of which together shall constitute one and the same document.
6. Effect on Indenture. This Seventh 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.
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.
<PAGE> 5
4
IN WITNESS WHEREOF, the parties have executed this Seventh
Supplemental Indenture as of the date first written above.
RENAISSANCE COSMETICS, INC.
By:____________________________
Name:
Title:
STARRATE INVESTMENT (PTY), LTD.
By:____________________________
Name:
Title:
DANA U.K., LIMITED
By:____________________________
Name:
Title:
MEM COMPANY, INC.
By:____________________________
Name:
Title:
<PAGE> 6
5
ARISTOCRAT LEATHER PRODUCTS,
INC.
By:____________________________
Name:
Title:
ENGLISH LEATHER, INC.
By:____________________________
Name:
Title:
MARTON FRERES, INC.
By:____________________________
Name:
Title:
MEM COMPANY (CANADA) LTD.
By:____________________________
Name:
Title:
TOM FIELDS (U.K.) LTD.
By:____________________________
Name:
Title:
<PAGE> 7
6
VICTOR OF MILANO, LTD.
By:____________________________
Name:
Title:
MEM INTERNATIONAL, LTD.
By:____________________________
Name:
Title:
ROSEMINT COSMETICS COMPANY,
INC.
By:____________________________
Name:
Title:
ALLIANCE TRADING
By:____________________________
Name:
Title:
<PAGE> 8
7
ST. THOMAS LEATHERWORKS
LIMITED
By:____________________________
Name:
Title:
FIRSTAR BANK OF MINNESOTA,
N.A., as trustee
By:___________________________
Name:
Title:
<PAGE> 1
RENAISSANCE COSMETICS, INC.
The undersigned, Thomas T.S. Kaung, in the undersigned's capacity as
Group Vice President and Chief Financial Officer of Renaissance Cosmetics, Inc.,
a Delaware corporation, hereby certifies that, to the best of my knowledge and
belief, the attached translation of the Collective Labor Agreement of the Union
of Workers in the Chemical, Pharmaceutical, Plastic and Related Industries of
San Paulo and the Region and Other Unions of Workers and the Federation of
Industries of the State of San Paulo and Industry Unions Affiliated therewith,
is a fair and accurate translation from Portuguese into English.
Dated: February 18, 1997
/s/ THOMAS T.S. KAUNG
-------------------------------
Thomas T.S. Kaung
Group Vice President and
Chief Financial Officer
<PAGE> 2
FIESP
CIESP
TO THE REGIONAL LABOR DELEGATE, OF THE STATE OF SAO PAULO
COLLECTIVE LABOR AGREEMENT - DEPOSIT, FOR RECORDING AND FILING
There appear herein, the
Union of Workers in the Chemical,
Pharmaceutical, Plastic and Related
Industries of Sao Paulo and
the Region and other Unions of
Workers,
party of the first part,
and the
Federation of Industries of the
State of Sao Paulo and Industry
Unions affiliated therewith,
party of the second part,
all referred to at the end of this document by their representatives, whose
signatures appear at the end, and they hereby state that the purpose of this
document is to communicate that they entered into a COLLECTIVE LABOR AGREEMENT
consisting of the following clauses, as well as to request its deposit, for
recording and filing, in order to make it legally effective, in accordance with
articles 611 and following of the CLT (Labor Laws Code).
<PAGE> 3
3
1) ADJUSTMENT OF SALARIES
I - 11/1/95 salaries, already adjusted solely due to clause 1 of the
judicial agreement signed in the TRT/SP-725, 714 and 750/95A collective labor
disputes, shall have applied to them on 11/1/96 the single and negotiated
percentage of 8.0%, corresponding to the period from 11/1/95, inclusive, to
10/31/96, inclusive.
II - COMPENSATION
There shall be compensation for any and all adjustments, prepayments,
contributions and/or increases, whether voluntary or compulsory, including those
arising from application of collective agreements, regulatory judgments and
legislation put into effect from 11/1/95, inclusive, through 10/31/96,
inclusive, except for those arising from promotion, salary comparison, transfer,
seniority, merit, completion of training and any real increase expressly granted
for this type of reason.
III - HIRES AFTER THE DATABASE
FOR THOSE EMPLOYEES HIRED AFTER THE DATABASE (11/1/95), based on the
model, the same salary adjustment percentage shall be applied as that granted in
the model in accordance with this clause, provided that the low salary for the
position is not exceeded.
If the position has no model, and for companies established after the
database, the single percentage indicated in the table below shall be applied to
the salary at the date of hire, with any portion of a month greater than 15 days
to be considered a month of service, and provided that it does not exceed the
low salary of the position, after the compensation presented in item II of this
clause, since the hire, if applicable, on a proportional basis.
- --------------------------------------------------------------------------------
MONTH OF HIRE PERCENTAGE
- --------------------------------------------------------------------------------
NOVEMBER 1995 8.00%
- --------------------------------------------------------------------------------
DECEMBER 1995 7.31%
- --------------------------------------------------------------------------------
JANUARY 1996 6.62%
- --------------------------------------------------------------------------------
FEBRUARY 1996 5.94%
- --------------------------------------------------------------------------------
MARCH 1996 5.26%
- --------------------------------------------------------------------------------
APRIL 1996 4.59%
- --------------------------------------------------------------------------------
MAY 1996 3.92%
- --------------------------------------------------------------------------------
<PAGE> 4
4
- --------------------------------------------------------------------------------
JUNE 1996 3.26%
- --------------------------------------------------------------------------------
JULY 1996 2.60%
- --------------------------------------------------------------------------------
AUGUST 1996 1.94%
- --------------------------------------------------------------------------------
SEPTEMBER 1996 1.29%
- --------------------------------------------------------------------------------
OCTOBER 1996 0.64%
- --------------------------------------------------------------------------------
<PAGE> 5
5
2) STANDARD SALARY
The standard salary shall be R$ 308.00 (three hundred eight reais) per
month.
Minor apprentices are excluded from this clause, given the provisions in
the specific clause contained in this agreement.
3) SALARY ADVANCE (IOU)
The companies shall grant their employees a salary advance (IOU) of 40% of
nominal salary in proportion to the days worked during the corresponding two
week period. Payment must be made on the 15th (fifteenth) day preceding the
normal payment date.
Expenses for cooperative systems or their equivalents, authorized by the
employees, shall be compensated pursuant to this clause.
The fine shall be 4% (four percent), of the standard salary in effect, per
payment and per employee, if this clause is not complied with.
More favorable terms already in existence at the companies are excepted.
4) SALARY PAYMENT BY CHECK
When a payment or advance (IOU) is made by check and magnetic card, in the
same market as the location where service is provided, and/or bank deposit, the
companies shall establish terms and methods by which the employee may withdraw
respective amounts on the same day on which a payment or advance (IOU) is made,
without infringing on their meal or rest times, since the time taken may not be
paid for.
5) PAYMENT STATEMENT
Obligatory supply of payment statements to employees identifying the
companies, showing the type of payment and amounts paid, deductions made and the
monthly total collected in the account linked to the Guarantee Fund for Service
Time (FGTS). The statements must be supplied monthly to the employees and also
specify the number of extra hours worked and supplementary payments for the
month in question.
Normal hours worked shall be specified for employees working on an hourly
basis.
The fine shall be 4% (four percent) of the standard salary in effect at
the time of payment, per employee, if the obligations under the clause regarding
supply of a payment statement are not met.
6) STARTING SALARY
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If an employee is admitted to the position of another employee that has
been dismissed for any reason, the transferee shall be guaranteed a salary equal
to that of the lowest-paid employee in that position, without consideration of
personal qualifications.
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7) REPLACEMENT SALARY
For any replacement for a period equal to or greater than 15 days, the
replacing employee shall be entitled to the salary of the replaced employee.
A replacement for a period of more than 90 consecutive days shall make the
change permanent, and in this case the clause regarding PROMOTION shall apply,
except in the case of replacements arising from work accidents, sick leave and
maternity leave.
Training, supervisory, management and administrative positions are
excluded.
8) APPRENTICE SALARIES
A) Minor apprentices of SENAI [note: Servico Nacional de Aprendizagem
Industrial - National Industrial Apprenticeship Service] shall be assured,
during the first half of their apprenticeship, of a salary not less than 90%
(ninety percent) of the standard salary in effect for that type of position, and
during the second half of the apprenticeship, a salary not less than the
standard salary in effect for that type of position;
B) Any person working in a position for which SENAI does not maintain a
specific apprenticeship course shall not be considered a minor apprentice.
Exemption certificates may not substitute for a course for any reason;
C) SENAI courses are those it has structured and authorized at the request
of the companies and given by them to their employees;
D) The companies may not obstruct complete fulfillment of the
apprenticeship agreement, including the area of practical training at the
company, unless for disciplinary or scholastic reasons or by mutual agreement
between the parties, and in this latter case, with the presence of the Union
representative of the professional category;
E) The terms and periods for enrollment for selection of SENAI
apprenticeship candidates must be released in company notices.
9) OVERTIME
A) The amount paid for overtime worked on Monday through Saturday shall be
80% more than the amount for normal hours;
B) All extra hours worked during paid-for weekly time off, paid-for
Saturdays, or days already paid for or given off, shall be paid for at 130%;
therefore, any employee providing service in this situation is entitled to:
1) payment of the paid-for weekly time off, in accordance with the Law;
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2) hours worked; and
3) 130% as additional payment, for the hours worked.
C) When there are summons to company meetings, the same percentages
provided in this clause shall be guaranteed for the respective days, and the
minimum payment equal to four overtime hours shall be respected, as well as the
legal interval of 11 (eleven) uninterrupted hours between one day and another.
D) Overtime that is actually worked must be recorded on the same time card
as normal hours.
10) ADDITIONAL NIGHTTIME PAYMENT
The additional night payment provided in the CLT (articles 73 and
following) shall be 40% (forty percent) higher than the daytime amount and shall
also apply to cases of night work during relief shifts, except for the companies
covered by Law 5811/72.
More favorable terms already in existence at the companies are excepted.
11) PAID-FOR WEEKLY TIME OFF [DSR]
A reduction in the paid-for weekly time off in case of absences shall be
on a pro rata basis, corresponding to 1/5 or 1/6 of the respective amount of the
DSR, resulting from being absent from work, based on a 5 or 6 day workweek,
respectively.
12) PAID-FOR WEEKLY TIMES OFF (DSRs)
For those employees that receive a part of their salary from variable
payments, consisting of regular awards for production, overtime, and other legal
additional amounts in accordance with the Law, stated jurisprudence and/or the
provisions contained in this agreement, such variable portion shall cover DSRs
and vacation time.
13) PAYROLL DEDUCTIONS
On a monthly basis companies may deduct from their employees' salaries, in
accordance with article 462 of the Labor Law Code, in addition to the items
permitted by law, those for group life insurance, personnel loans, contributions
to employee associations and other benefits granted, provided that the
deductions are previously authorized in writing by the employees themselves.
14) PAYMENT DATE
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A) Salaries must be paid by the fifth day following the end of the month,
and are subject to payment of a fine to the aggrieved employee equal to 4% (four
percent) of the standard salary in effect per day of delay, counting from the
day on which the salary payment was due, until actual payment;
B) The above fine shall also be imposed on a company that does not pay the
year-end bonus on the dates provided by Law;
C) When the salary payment date falls on a Sunday or on a holiday, it
shall be paid on the immediately preceding business day.
D) Any more favorable terms that are provided by Law or in this agreement,
or are already practiced by the companies are hereby assured.
15) PROMOTION AND SELECTION PROCESSES
A) All promotions shall be accompanied by an effective salary increase,
recorded in CTPS, that is in accordance with and appropriate to the new job or
position.
B) An employee promoted to a job or position for which there is no
schedule shall be guaranteed a minimum salary increase of 5.0% (five percent).
C) When carrying out selection processes, the company shall give
preference to internal recruiting, and extend this right to all employees,
without distinction as to position or area of activity, in accordance with the
profile of the positions and the candidates.
16) VACATIONS
A) The start of vacations, collective or individual, complete or not, may
not coincide with the DSR (Paid-for Weekly Time Off), holidays or days already
paid for, as well as Saturdays, when they are not considered business days;
B) When paid-for days fall during a vacation period, they must be extended
by the same number of days already paid-for;
C) Granting of vacations shall be communicated 30 days in advance to the
employee, who must sign the relevant notification; D) The employee who returns
from vacation and is dismissed without just cause before two weeks have passed
shall be entitled to payment of 1 (one) nominal salary;
E) The employees that do not elect to receive 50% (fifty percent) of the
year-end bonus in advance, in accordance with effective law, may do so at the
time of the communication provided for in item C;
F) If there are technical, economic, or financial problems the companies
may, in order to avoid laying off employees, grant collective vacations, once
this has been communicated to the Workers' Unions, and include payment of the
respective monetary payment, through a direct
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understanding with its employees two weeks in advance, provided the
aforementioned vacations cover at least a complete section;
When collective vacations exceed 20 days, the employee may opt for the
legal monetary payment up to the limit of their right to vacations.
G) When collective vacations include December 25 and January 1, these days
shall be excluded from the count of standard days transpired, and 1 or 2 days of
time off shall be added, as applicable, to the end of the vacation period;
H) An employee who has worked less than 1 (one) year at the company and
resigns, shall be guaranteed payment for the pro rata number of vacation days
due.
17) VACATIONS AND YEAR-END BONUS
For those employees that receive a part of their salary from variable
payments, consisting of percentages related to production awards, night
differential, regular overtime calculated in accordance with the law and other
legal additional payments, payments for vacations and the year-end bonus must be
added, at the rate of one-twelfth of the variable portion, calculated on the
basis of the amounts paid during the last 12 months, brought current by applying
applicable salary adjustments for the category.
For an employee with less than 1 (one) year of service, the average shall
be calculated in proportion to the number of months worked, and a period that is
greater than 15 (fifteen) days shall be considered a month.
18) PRIOR NOTICE
A) Prior notice shall be communicated in writing with a return receipt,
clarifying if it shall be worked or not;
B) The daily two hour reduction provided for in article 488 of the CLT
shall be taken, at the employee's election, either at the beginning or at the
end of the workday, and one of the two periods shall be chosen by the employee
at the time of receipt of the prior notice, without prejudice to the provisions
of the sole paragraph of the cited article;
C) If the employee is hindered by the company from performing his
professional activity during the prior notice period, he shall be indemnified
for it;
D) If the labor agreement with employees who are more than 40 (forty)
years old and also have at least 5 (five) years of service at the same company,
is canceled without just cause, the company shall pay to such employees special
compensation totaling 30 (thirty) days of the employee's nominal salary in
effect at the time of cancellation,
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preserving the legal prior notice, except for any already existing terms that
are more favorable;
E) Any employee who, during the course of the worked prior notice period
arising from dismissal or request to resign, requests the employer in writing to
allow him to leave immediately, is assured of that right, as well as the
notation of the respective departure date in the CTPS. In this case, the company
is obligated to pay, with respect to this portion, only the days actually
worked, plus the cancellation fees, within a period of 10 (ten) days, counting
from the date the employee is released, notwithstanding the legal period of 30
days of prior notice and of the two daily hours provided for in article 488 of
the CLT, proportional to the period not worked.
F) For paid prior notice periods, the entry shall be made within 5 (five)
days of the dismissal communication, provided that the employee so requests.
19) CRITERIA FOR COLLECTIVE DISMISSALS
A) When there is a collective dismissal, the companies shall observe the
following preferential criteria:
a.1 - first, dismissing only those employees that, having been consulted,
prefer dismissal;
a.2 - second, the employees that are already receiving retirement benefits
from Social Security or from some form of private pension plan;
a.3 - continue on to employees with the least time at the company, and
among these, the unmarried employees, the youngest and those with the fewest
family obligations.
B) If the numbers for the collective dismissal are exceeded, the companies
shall give preference in rehiring to those that were part of the dismissal.
C) Any more favorable terms already in existence or that may exist in the
future as a result of Law are excepted.
20) SALARY GUARANTEES DURING CONTRACT CANCELLATIONS
A) Payment of workers' rights resulting from labor contract cancellations
must be made within the legal period;
B) The salary amount for the period worked before the prior notice and for
the period of the prior notice that is worked, as applicable, must be paid at
the time of general payment of the other employees, if ratification of the
cancellation does not take place before that event;
C) If the aforementioned periods are not complied with, there shall be a
daily fine of 1% (one percent) of the standard salary in effect on the payment
date, to be paid to the worker, except for those
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cases in which the company proves the impossibility of settling the accounts,
because of approval problems or the employee's absence.
D) More favorable terms provided for by law are excepted.
21) FILLING VACANCIES
1) When the selection process is begun, preference shall be given to
internal recruiting, and this right shall be extended to all employees, without
distinction as to position or area of activity.
2) Absences arising from accident, illness, maternity leave, and
professional disability shall be considered effective exercise [of the preceding
clause] in internal procedures for performance evaluation and promotion.
22) HIRING TEST
Practical/operating tests for hiring purposes may only last one day,
except in the case of technical positions.
The companies shall supply free food to candidates during testing,
provided that the tests coincide with mealtimes.
Pre-hiring pregnancy tests or any other type of test for sterilization of
a woman is prohibited, unless the job requires it.
23) TRIAL CONTRACT
The maximum period for trial contracts provided in the sole paragraph of
article 445 of the CLT shall be 60 (sixty) days.
A former employee who is rehired for the same position that he filled at
the time of his dismissal shall be exempt from the trial period.
24) SAME WORK, SAME SALARY
If the position is identical, the same salary shall be paid for work of
the same value provided to the same employer at the same location, without
distinction as to sex, nationality, color, race, age or marital status.
Work of the same value, for the purposes of this clause, shall mean what
is done with the same productive effort and the same technical level, by persons
whose service time does not differ by more than two years for the same position.
25) LEAVE FOR A FEMALE EMPLOYEE WHO IS ADOPTING
The companies shall grant a paid leave of 60 (sixty) days to female
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employees that are legally adopting children who are between 0 (zero) and 24
(twenty-four) months of age, starting from the time that guardianship is legally
determined. If the latter is canceled, the leave shall be automatically
canceled.
26) AUTOMATION AND INFORMATION SYSTEM PROCESSES
Companies that adopt automation and information system processes which
introduce new production techniques through automatic systems and machines,
shall, when they consider it necessary, provide training for the employees
designated to use these new work methods so that they become better qualified.
27) EMPLOYEES IN PROCESS OF RETIREMENT
A) Employees who are demonstrably no more than 12 (twelve) months from
acquiring the right to retirement, at minimum terms of any type, and who have at
least 8 (eight) years of service with the same company, are assured of their
position or salary for the period needed to qualify for retirement;
B) An employee who has been dismissed without just cause and has more than
5 (five) years of service with the same company and who also and demonstrably
lacks no more than 24 (twenty-four) months before retirement, of any type, at
minimum terms, shall be reimbursed by the company for all the contributions that
the employee has demonstrably made to the INSS (Social Security) based on the
last duly adjusted salary, as long as the employee has not found another job and
up to the maximum period corresponding to those 24 (twenty-four) months.
C) When employees with 10 (ten) or more years of service with the same
company permanently leave the company upon retirement under Social Security,
they shall be paid an amount equal to their last nominal salary.
This clause does not apply to companies that have more favorable plans.
28) PREGNANCY/MATERNITY LEAVE
Guarantee of employment or salary to pregnant employees, from confirmation
of the pregnancy and up to 5 (five) months after the birth, in accordance with
letter "b" of item II of article ten of the Temporary Provisions of the Federal
Constitution, or up to 90 days after the term for legal removal. Whichever of
the two alternatives is the most favorable shall prevail, without prejudice to
the legal prior notice, except in cases of an agreement for a specific period,
dismissal for just cause, requests to resign and agreement between the parties.
In the last
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two cases, the cancellations shall take place with the assistance of the Labor
union or the respective Federation for unorganized workers, under penalty of
nullification.
If the labor agreement is rescinded, the employee must advise the employer
of her pregnancy, and must prove it within a period of sixty days from the date
of dismissal. If it is an abnormal pregnancy that is not detectable, this period
shall be extended to ninety days, and this fact must be established by a medical
witness supplied by federal, state or municipal public health agencies.
The companies shall provide their pregnant employees working conditions
that are compatible with their condition, under direction from their own medical
service or a hired service, and lacking these, from an INSS doctor.
It is recommended that as soon as the employee is aware of the pregnancy
she inform the company.
29) LEGAL ABORTION
In cases of legal abortion, the employee shall have a guarantee of
employment or salary for 30 (thirty) days from the date of the abortion, without
prejudice to the legal prior notice, except in cases of agreements for a
specific period, dismissal for just cause, requests to resign and agreement
between the parties. In the last two cases, the cancellations shall take place
with the assistance of the Labor Union or Federation, under penalty of
nullification.
30) EMPLOYEES OF MILITARY SERVICE AGE
Guarantee of employment or salary to employees of Military Service age,
from their enlistment and until inclusion and in the 90 days after the exit or
departure from the unit in which they served, except in cases of agreements for
a specific period, dismissal for just cause, request to resign and rescission by
agreement; in the last two cases, the cancellation shall take place with the
assistance of the Workers' Union, or, if it doesn't exist, the Professional
Federation, under penalty of nullification.
The provisions of this clause also apply to employees in Military Training
School.
If the work schedule and the Military Training School coincide, the
employee shall not be penalized as to compensation, provided that, for each
absence, evidence of the unit in which they are serving is presented.
31) STUDENT EMPLOYEES
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A) The work schedule for student employees is guaranteed to be maintained
provided that the student is enrolled in a learning establishment and is
studying for a first degree, second degree, higher education course,
professional training course, or professional degree, and that the company has
been notified in writing within 30 (thirty) days from the effective date of this
agreement or of matriculation;
B) If there is a schedule conflict, the absences of student employees
shall be paid when they are the result of taking exams in official or recognized
schools, provided that the company was notified in writing 48 (forty-eight)
hours in advance and was given subsequent evidence of the exam.
32) WORK PROTECTION MEASURES
A) The companies shall adopt protection measures, first collectively and
then individually, related to working and safety conditions for workers;
B) CIPA members shall have access to the results of environmental
condition samples and also those regarding hygiene and work safety;
C) Employee training about fires shall be provided periodically during
normal working hours. When it is necessary to provide this training outside the
workday, the hours used shall be paid as overtime, in accordance with the terms
of the relevant clause of this agreement.
D) In accordance with the Law (Regulatory Standard - 5), the designated
CIPA member must investigate or accompany the investigation made by the
Specialized Services for Engineering Safety and for Work Medicine of the
company, immediately upon receiving a notice from the head of the sector where
an accident occurred.
33) EPI, UNIFORMS AND FEMININE HYGIENE PRODUCTS
A) When necessary to the provision of services or when required by the
company, the latter shall give to its employees, free of charge, EPI (Individual
Protection Equipment) that is appropriate to the risk and in perfect operating
condition, including safety glasses with medically approved lenses, and the
employees must use them; all in observance, by the company and the employees,
respectively, of items 6.2 and 6.3 of the Regulatory Standard (NR 06), approved
by Administrative Decree MTb-3.214/78;
When the manufacturing activity or the principal activity of the company
or the position requires that the employee wear uniforms, including special
shoes, in order to provide services, the company shall supply them free of
charge.
B) Before someone actually performs the activities of a production
employee, the company shall provide training with Individual
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Protection Equipment (EPI) that is necessary to the performance of those
activities, as well as make them aware of the prevention programs developed by
the company itself;
C) Companies using female manual labor must keep feminine hygiene products
at nursing stations or in first aid boxes for emergencies;
D) If the employee considers the EPI uncomfortable, this fact shall be
communicated to the CIPA, for necessary measures;
E) Before performing any activity or operation that involves professional
risks and requires use of EPI or EPC, the employee shall receive specific
instruction regarding safe working methods, and the type and effects of the
professional risks inherent to the activity to be performed, in addition to
instruction on the correct use of the protective equipment and other means of
prevention necessary to maintaining the physical safety of the employees, in
accordance with the terms of Regulatory Standard no. 26 (NR-26), approved by
Administrative Decree MTb3.214/78, including items 26.6.5 and 26.6.6.
34) PREVENTION OF ACCIDENTS WITH MACHINES AND EQUIPMENT
In general, machines and equipment must have protection mechanisms, in
accordance with the law.
Machines operating with repetitive and cutting movements must have signs
advising the risks and prevention mechanisms, in visible locations and
dimensions.
35) INTERNAL COMMITTEE FOR PREVENTION OF ACCIDENTS AND INTERNAL ACCIDENT
PREVENTION WEEK
CIPA elections shall be preceded by a written notice from the company 60
days in advance of the date of the proceedings setting their date, location and
time. All workers shall be considered candidates. Candidate registration shall
take place from the 15th to the 6th day prior to the date of the proceedings,
through a docket.
All electoral proceedings and their respective findings shall be
coordinated by the current Vice President of the CIPA, together with the
company's safety and medicine services.
The ballot shall contain the name and sector of the worker registered as
well as their last name, provided that the worker gives it.
Within 15 days of the elections, the Labor Union shall be told the result,
giving the date of the proceeding, of the installation and the names of those
elected, specifying which are active and which are alternates.
In order to prepare the monthly meeting of the CIPA, the acting members of
the employee representatives shall have the two hours before the aforementioned
meeting free, at a location which must be provided by
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the company for the purpose, by which time they must have already received a
copy of the minutes of the earlier meeting.
Until the Complementary Law referred to in article 7, I, of the Federal
Constitution is enacted, arbitrary dismissal or dismissal without just cause of
employees elected to the CIPAs and the respective alternates is prohibited. This
is limited to the number of effective representatives, from the registration of
their candidacy to 1 year after the end of their mandate (article 10, II "a" of
the Temporary Provisions of Superior Law).
RECOMMENDATIONS - SIPAT
1) ENVIRONMENTAL DAY
It is recommended that the companies, to the extent possible, try to
promote, through SIPAT, a day for activities related to environmental
preservation.
2) AIDS
It is recommended that the topic of AIDS be included in SIPAT.
36) RIGHT TO REFUSE WORK DUE TO SERIOUS OR IMMINENT RISK
When, while performing a job, a worker realizes that their life or
physical safety is at risk as a result of a lack of adequate protection measures
in the workplace, he may stop performing that operation (the work itself), and
immediately communicate such fact to his superior and the work safety, hygiene
and medicine sector of the company, whose job it is to investigate possible
unsafe conditions and communicate the fact to the CIPA.
A return to operation shall take place after the approval of the work
location by the aforementioned sector, which shall immediately communicate this
to the CIPA.
37) FIRST AID SERVICES
The companies agree to maintain a medical or nursing service, internal or
external, of their own or through third parties, for employees working in
alternating shifts, during the night and on Saturdays, Sundays and holidays,
keeping in mind the characteristics of the activities carried out, as well as
provide a means of transportation to the first aid area.
38) COMMUNICATION OF A WORK ACCIDENT
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The companies that do not maintain an agreement with the INSS are obliged
to communicate to it any work accident involving layoff, no later than the first
business day following the incident.
If there is a delay in communication, the companies shall be responsible
for any losses that the employee may suffer as a result of the delay.
Within the same period of time, the companies must send copies of all CATs
(Work Accident Communications) to the acting members of the CIPA.
Any more favorable terms that may be provided for by laws in effect are
excepted.
39) MARKING TIME - MEAL SCHEDULE
When the employee decides that there is no need for him to leave the
company premises during the time established for resting or for meals, the
company may also decide to dispense with recording the start and end of the
referenced interval, provided that it gives the normal daily rest or meal
period.
40) WORK SCHEDULE
A) For salary-hour calculation purposes, the divisor of 220 (two hundred
twenty) hours monthly is hereby established.
B) The work schedule shall be 44 (forty-four) hours weekly, on average,
taking into account only those hours actually worked.
41) TEMPORARY MANUAL LABOR
A) When there is a temporary vacancy, the company shall give preference to
its employees in filling it.
B) Temporary manual labor shall only be used in the manufacturing area for
a maximum of 60 (sixty) days, to cover the need to substitute for regular
permanent employees or for extraordinary growth of services, in accordance with
law 6019 of 1/31/74. Temporary manual labor shall not be used, therefore, to
cover dismissals caused for this purpose. The maximum period stated in this
letter does not apply to pregnancy.
C) Work protection measures, and measures regarding Individual Protection
Equipment (EPI) and uniforms, that apply to other employees also apply to
temporary workers.
42) NOTATIONS TO WORK AND SOCIAL SECURITY CARD
The company agrees to record on the CTPS (Work and Social Security Card)
the position that the employee is actually performing, noting due
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changes, including salary and awards of any type (provided that they are
normally paid, or when contracted for at the beginning or during the effective
period of a labor agreement), excluding those instances of replacement provided
for in this agreement.
43) UNEMPLOYMENT INSURANCE PAYMENT
If the company intends to cancel by reason of serious error, and judicial
action is brought and it nullified for just cause, the employee shall be assured
of the payment not specified in the judgment corresponding to the unemployment
insurance not received during the 6 (six) month period after the cancellation of
the contract and provided that all other legal requirements regarding this type
of insurance are met.
44) SUPPLEMENT FOR DISABILITY BENEFITS, WORK ACCIDENTS, PROFESSIONAL
DISABILITY AND THE YEAR-END BONUS
A) During the life of this agreement, the companies shall supplement, from
the 16th (sixteenth) to the 330th (three hundred thirtieth) day, net corrected
salaries to match other professional category salaries of employees laid off
because of illness, work accidents, or professional disability.
B) The supplement for employees that have already retired shall be the
difference between their net salary and the amount of retirement benefits they
are receiving.
C) When the employee does not have a right to social security assistance
as a result of not having yet completed the period required by Social Security,
the company shall pay their nominal salary between the sixteenth and one hundred
fiftieth day of the layoff, also observing the maximum limit on social security
contributions.
D) Within the limits above, intermittent layoffs that occur during the
life of this agreement are also included.
E) The companies shall supplement the year-end bonus, taking into account
the net salary of the employee laid off for reasons of illness, for more than 15
(fifteen) days and less than 1 (one) year; the same terms shall apply to layoffs
arising from work accidents.
F) This supplement must be paid when the other employees are paid.
G) If the basic amount of Social Security is not known, the supplement
must be paid on an estimated basis, with the excess or shortfall being
compensated for in the immediately following payment; when Social Security is
delayed until the first payment, the companies must advance them, with eventual
compensation being made in the aforementioned manner.
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H) The employee laid off due to temporary disability shall be guaranteed,
upon returning to work, employment or a salary for the same period as the
layoff; this right is limited to a maximum of 45 (forty-five) days.
Payment of the social security benefits referred to in this clause must be
made when salaries of the other employees are paid, by those companies that
maintain an agreement with Social Security, and they may be recovered later from
the social security agency.
45) PHYSICALLY HANDICAPPED
The companies agree not to place restrictions on hiring the physically
handicapped, provided that the technical, material and administrative
circumstances of the companies allow it.
46) DRINKING WATER
The drinking water given to employees must be submitted quarterly for
bacteriological analysis, and the results must be posted on the company bulletin
board.
47) MEDICAL EXAMINATIONS
All workers in the manufacturing area shall be subject to periodic medical
and laboratory exams as provided by law.
The employee shall be informed of the results of the exams in writing, and
medical ethics shall be observed.
48) CHANGE IN MUNICIPALITY
If the company changes location to another municipality or moves more than
30 Km, the companies shall analyze the situation of each employee that cannot
move with it because of residing in a location more than 30 Km away from the new
establishment.
49) REFERENCE LETTER
The companies included in this agreement shall not require a reference
letter from employment candidates at the time of the selection process. The
aforementioned document shall be supplied only when an ex-employee requires it
to go to a company not included under this agreement.
When so requested and provided that it appears in their records, the
company shall report the courses completed by the employee.
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50) NOTIFICATION LETTER FOR DISMISSAL OR SUSPENSION
An employee dismissed or suspended for disciplinary reasons must be
advised of this fact in writing no later than the first business day after the
fact, and the reasons for the dismissal or suspension must be given.
For the purposes of this clause, business day means a day on which the
company management has office hours.
51) COMPENSATION FOR DEATH OR PARTIAL OR PERMANENT WORK DISABILITY
A) When there occurs a death or disability by reason of illness, certified
by the INSS, the company shall pay the dependents in the first case and the
actual employee in the second compensation equal to their nominal salary. In the
case of disability, this compensation shall be paid only if there is
cancellation of a contract;
B) The companies that maintain a Group Life Insurance Plan or
Supplementary Benefit Plans or one similar to Social Security are exempt from
fulfilling this clause. If the life insurance stipulates compensation that is
lower than that guaranteed by this clause, the company shall make up the
difference.
52) ABSENCES AND HOURS
Employees may be absent from service without prejudice to their salary in
the following cases:
A) for up to 3 (three) consecutive days, in cases of the death of a
spouse, companion, older relative, descendant, sister or brothers;
B) for up to 3 (three) consecutive days, not including the day of the
event, to be married;
C) for up to 3 (three) consecutive days, including the day of the event,
in case of the death of a father-in-law or mother-in-law;
D) for 1 (one) day for confinement and 1 (one) day for delivery of a child
that is the dependent of the employee, wife or companion, provided that these
occur during working hours;
E) one business day, to receive a payment or amount having to do with
PIS/PASEP*, provided that payment is not made directly by the company or by the
bank office located on the company's premises; *PIS/PASEP - Employee profit
sharing programs
F) one business day, for military enlistment;
G) one business day for medical exams required by the Army or Military
Training School;
H) companies that do not have a banking location on their premises shall
provide the hours needed, through later evidence, up to a maximum of 1/2
(one-half) a period, for the employee to receive Income
<PAGE> 22
22
Tax, provided that this occurs during working hours;
I) for five days in a row, for the birth of a child, within the first two
weeks after the birth;
J) for up to 24 hours, whether consecutive or not, throughout the year, to
take a child under 14 years of age to the doctor. The age limit may be exceed in
exceptional cases;
K) one day for each time that the employee donates blood;
L) the company agrees not to penalize a day or the paid-for time off or
holidays of the respective week in cases of absence from service caused by the
need to obtain a CTPS and an Identity Card if evidenced within 72 (seventy-two)
hours;
M) the periodic medical exams or those required by law cannot be done
during vacation periods, temporary work stoppages, and/or the paid-for weekly
time off.
53) COMPENSATION FOR DAYS OR HOURS
A) The companies may establish a program of compensation for business days
falling between Sundays and holidays and weekends and Carnival, in order to
grant employees a longer rest period, through a direct understanding with the
majority of the employees of the sectors involved.
B) If a holiday falls on a Saturday that was already paid for during the
prior week, the company may, alternatively, reduce the work day to the normal
schedule or pay for the excess as overtime, in accordance with the terms of this
Agreement. If a holiday falls between Monday through Friday, the company may
elect to establish compensation for the hours that should be worked that day
over the other days of the week, or alternatively, not to discount them.
54) MEDICAL AND DENTAL AGREEMENTS
A) The companies that maintain medical, hospitalization and dental
assistance agreements shall allow their employees who wish to do so, to
expressly decline their right to use the agreements for themselves and their
dependents.
If the employee should wish to reenter the plans contracted for by the
companies, in order to use the benefit he must submit to the agreement terms of
the plans, except in the case of an agreement change.
B) During the life of the labor agreement, in the case of a layoff under
Social Security for temporary disability or professional disability, as well as
in cases of maternity leave, the companies that provide medical, hospitalization
or dental assistance to their employees, agree to maintain the benefit for a
maximum period of up to 36 (thirty-six) months; if the layoff under Social
Security is due to a work
<PAGE> 23
23
accident, the benefit referred to shall be maintained until the final retirement
of the employee.
C) The employee and his social security dependents shall be guaranteed use
of the medical and hospitalization agreement for an additional period of up to
60 (sixty) days after the termination of the prior notice period (whether worked
or indemnified), provided the departure of the employee occurs during the
hospital stay or medical treatment of the dependent(s), unless the dismissal was
for just cause;
D) During medical treatment resulting from a work accident, the company
shall supply to the injured person, free of charge, the medications prescribed
by the doctor in charge of the treatment;
E) The employees of the companies that have medical or hospitalization
assistance, whether their own or contracted for, may go to the sector of the
company responsible for claims regarding that service, to assist in its
efficient operation.
55) FOOD, TRANSPORTATION AND TOOLS
The companies that offer workers food and transportation services shall
only change their prices, when there is a charge, in the period of general
salary adjustments or increases, whether voluntary or not.
The companies shall supply the employees, without charge, the tools and
precision instruments needed to perform their work.
56) TRANSPORTATION TICKET
The companies shall make possible delivery of transportation tickets at
regular intervals so that there are no gaps between the usage periods.
57) MEDICAL AND DENTAL CERTIFICATES
The companies shall acknowledge the validity of medical or dental
certificates issued pursuant to Administrative Decree MPAS-3,291 of 2/20/84.
The companies that have medical or dental assistance services or are under
an agreement with the INSS (National Social Security Institute), or not, shall
acknowledge the validity of medical or dental certificates issued under the
responsibility of the Labor Union or of federal, state, or municipal public
health agencies, issued in case of emergency.
The companies that do not have medical or dental assistance services, or
agreement with the INSS, shall acknowledge the validity of medical or dental
certificates issued under the responsibility of the same Union or of federal,
state, or municipal public health agencies, regardless of whether the situation
is an emergency.
<PAGE> 24
24
58) INSURANCE AND WORK MEDICINE PROFESSIONALS
The companies shall not use technicians specializing in insurance and
work medicine as defined in NR-4, approved by Administrative Decree MTb 3,214/78
and later changes, to perform other activities during the time that they are
working in Engineering and Work Medicine Specialized Services.
The companies must supply a report of the names and specializations of the
aforementioned professionals to the CIPA.
59) COMPLETION OF SOCIAL SECURITY FORMS
The companies must complete the Layoff and Salary Certificate (AAS) when
requested to do so by the employee during the following periods:
A) maximum of 3 business days from the date of the request, in cases of
obtaining benefits as a result of temporary disability;
B) maximum of 8 business days from the date of the request, in cases of
retirement and payment for continued service;
C) for purposes of obtaining special retirement, the company shall observe
the following periods following the employee's request with regard to delivery
of a specific form required by the INSS:
1) 15 days when dealing with employees; and
2) 15 days, when dealing with employees who have been gone less than 5
years; 30 days for all other cases; and in the approval document, when dealing
with the closing of the company.
60) SCHOOL MATERIALS
Once a year, at the beginning of the school year, the companies shall sell
school materials through the FENAME system or an equivalent system.
The amount of the purchases shall be spread out over 4 (four) payments,
provided that the amount is greater than 5% (five percent) of the employee's
monthly compensation.
61) ASSISTANCE FOR EXCEPTIONAL CHILD
The companies shall reimburse employees monthly, as a means of assistance,
for up to 60% (sixty percent) of the standard salary in effect during the month
in which the reimbursement takes place, of actual proven expenses of the
employees for special education for their exceptional children, who are
considered to be those with psychomotor limitations, those that are blind, deaf,
mute and the mentally handicapped, as demonstrated by a medical specialist and
approved by the company physician, and lacking this, by an agreement doctor or
INSS
<PAGE> 25
25
doctor, in this order of preference.
62) FUNERAL ASSISTANCE
In case of the death of an employee, the company shall make a one-time
payment to the legal beneficiary, in accordance with social security
legislation, to provide funeral assistance. This is paid against presentation of
the death certificate, and is an amount equal to 4 (four) standard salaries in
effect on the date of payment of the benefit.
63) DAY CARE ASSISTANCE
In order to better support mothers and children, as well as make better
use of the resources normally expended by the companies, through day care
agreements, the signatories to this agreement, having reviewed Administrative
Decree MTb 3,296 of 9/3/86, establish the following terms that must be adopted
by the companies with regard to keeping and caring for the children of their
female employees during the nursing period:
A) The companies that are obligated to maintain a place that is
appropriate for keeping and caring for the children of their female employees
during the nursing period, in accordance with paragraphs one and two of article
389 of the CLT, shall alternatively grant the female employees, at their option,
reimbursement for their day care expenses;
B) The amount of the monthly reimbursement shall be for proven expenses
for keeping, care and assistance for a child that is registered or legally
adopted, up to a maximum of 50% (fifty percent) of the standard salary in effect
during the month in which reimbursement is made, when care is entrusted to an
accredited entity or an individual, any more favorable terms that already exist
at the companies are excepted;
C) Given that it is a replacement for the legal precept, as well as being
merely a gift and not compensation, the amount reimbursed shall not be included
in compensation for any purposes:
D) The reimbursement shall benefit only those female employees that are
currently in service at the company, except for cases of temporary disability or
work accident;
E) The reimbursement shall be due regardless of the time of service at the
company and shall cease 18 (eighteen) months after the conclusion of a
compulsory discharge or before this time upon the cessation of the labor
agreement; the eighteen month period is valid only for the reimbursement option;
F) If there is a multiple birth, reimbursement shall be due for each
child, individually;
G) If there is a legal adoption, the reimbursement shall be due for the
adopted child beginning on the date the adoption is legally
<PAGE> 26
26
proven;
H) This clause is also applicable to a father who has been awarded sole
legal guardianship of his children.
Those companies that already maintained or are maintaining currently, a
location for care or day care are not obligated to make these reimbursements,
nor are those that are adopting or may adopt similar payment or reimbursement
systems that have more favorable terms.
The benefits under this clause may be extended at the request of the
interested parties to employees that have been widowed, divorced or legally
separated, if they have sole legal guardianship of their children.
64) AGREEMENT WITH PHARMACIES AND OPTICIANS
The companies shall try to make agreements with pharmacies and opticians
for exclusive purchase of medications and prescription lenses by employees and
dependents, at a discount on the payroll.
65) SALARY ADJUSTMENTS (UNION MANAGERS, CIPA OFFICIALS AND EMPLOYEES
WITH REDUCED WORK)
Union Managers, CIPA members representing workers, and employees with
reduced working capacity are guaranteed the same collective salary adjustments
that are automatically granted to the other employees of the same company.
66) UNION MANAGEMENT - ALLOWANCE FOR ABSENCES
The days on which Union or Federation directors, limited to a maximum of 3
(three) per company, are away from the company performing union activities,
after verbal communication in advance and subsequent documentation by a written
notice from the Union entity, shall be paid for and shall not be taken into
account as a reduction of the DSR (Paid-for Weekly Time Off), nor as a reduction
of vacation time, in the proportions of article 130 of the CLT, up to a limit of
20 paid absences. If it is a Director's position in the two entities, the limit
above shall be increased to 30 paid absences in all during the life of this
agreement, per director, unless there are more favorable terms already in
existence.
When the number of Directors per company is greater than 3 (three), the
total limit on absences shall be 60 (sixty) days, taking into consideration an
increase of 10 (ten) days for all the directors, for those that take on director
positions at the aforementioned entities during the life of this agreement.
<PAGE> 27
27
67) MONTHLY ASSOCIATION CONTRIBUTIONS
If within 3 days after payment of salaries, the company does not collect
from the Labor Unions the monthly association contributions, it shall incur a
fine of 10% (ten percent) of the amount not collected, plus 1% per day, per
month of delay, to be paid to those union entities.
The collection must be made directly from the Labor Unions or the banking
agency where they have an account.
The companies shall supply, within 15 days from the collection date, a
report containing the names and amounts of the contribution. The report shall be
given to the workers' union entities, confidentially and with a return receipt.
68) ASSISTANCE CONTRIBUTIONS
Deductions from the already-adjusted nominal salary of each employee,
which are the same whether for a member or not, in favor of the respective
workers' union entity, are to be made as specified below during the life of this
agreement in the months stated below. They shall be collected up to three
business days after the deductions, in accordance with the criteria and amounts
specified below, for each entity representing workers.
Assistance contributions are subordinated to non-opposition of the workers
as shown by them before the professional union entities and/or companies up to
10 days before the adjusted first payments.
Opposition should be registered with the professional union entities
and/or companies between the 20th and 10th day preceding the adjusted first
payments by means of individual letters and should contain information about the
workers (name and position, CTPS number, name of company).
The party that receives an opposition letter should send a copy of the
letter to the other party within 48 hours, counting from the day following
receipt of the letter, by means of a notice.
Labor Unions for the following Industries: Abrasives, Fertilizers and
Agricultural Corrective Agents and Perfumeries and Articles for Vineyard Care:
4.0%, in November `96; and 4% in May `97.
Labor Unions for the following Industries: Plastics, Chemicals,
Pharmaceuticals and Abrasives in Sorocaba and the Region: 2.0%, in November `96;
and 2.0% in May `97.
Labor Unions for the following Industries: Chemicals, Pharmaceuticals,
Plastics and Similar in Sao Paulo and the Region: 4.5% in November `96; and 4.5%
in May `97.
Labor Unions for the following Industries: Chemicals, Pharmaceuticals,
Plastics, Explosives, Abrasives, Fertilizers and
<PAGE> 28
28
Rerefining of Mineral Oils in Osasco, Cotia and the Region: 3.0% in November
`96; and 3.0% in September `97.
Labor Unions in the following Industries: Chemicals, Petrochemicals and
Pharmaceuticals, Paints and Varnishes, Plastics, Synthetic Resins, Explosives
and Similar in ABCD, Maua, Ribeirao Pires and Rio Grande Da Sera: 4.0% in
November `96.
Within 15 (fifteen) days from the date of the collection of the assistance
contribution, the companies shall confidentially, including a return receipt,
supply to the respective union entities representing a professional category, a
report containing the names and amount of the aforementioned contribution of
their employees, excluding those belonging to professional categories other than
those that exercise the option in accordance with Law.
If the assistance contribution provided for in this clause is deducted and
not collected, there shall be a fine of 4% (four percent) of the standard
salary, per employee, paid for the benefit of the damaged party.
69) BULLETIN BOARD
Publications, notices, summonses and other materials intended to keep
employees current on union matters of interest to them, must be posted on the
bulletin board, which must be located where it is visible and easily accessible,
provided that this is previously agreed on by the union and company management.
70) LEGAL AND CONSTITUTIONAL REGULATIONS
The enactment of ordinary and/or complementary legislation, regulation of
constitutional precepts, shall replace, where applicable, rights and duties
specified in this agreement, always excepting terms that are more favorable to
employees, but prohibiting, in any case, accumulation.
71) FINE
A fine of 4% (four percent) of the standard salary in effect at the time
of payment, for non-fulfillment of any clause of this agreement, which fine
shall be paid to the damaged party.
This fine is not applicable to clauses where there is a penalty
established by law or to those that, in this agreement, already include their
own pecuniary penalty.
<PAGE> 29
29
72) COMPLIANCE
The parties agree to comply with all the terms and conditions of this
Agreement during its effective period.
73) EFFECTIVE PERIOD
This agreement shall be effective for 1 (one) year, beginning on 11/1/96
and including the following exceptions:
a) if it is not possible to proceed with the first deductions and
collection of the assistance contribution, or to supply the first report on
contributors in the month and within the periods established in clause 68 of
this agreement, the companies may, after prior and express communication with
the respective workers' union entities, make such deductions in December `96,
counting the periods referred to from that time, without the imposition of any
penalty;
b) obligations of an economic nature, in the case of any differences, must
be completed by 12/17/96; and
c) any noncompliance with other obligations shall only be penalized after
12/17/96.
<PAGE> 30
30
In these terms, this document is hereby published, including certified true
copies of summonses and minutes of assemblies, as well as the proxies,
this concession is hereby granted.
Sao Paulo, November 26, 1996
<PAGE> 31
31
[Note: on signature pages, only entries containing more than signatures are
translated. Lists of the different industries included appear under clause 68 of
the labor agreement, should you wish a reference.]
P. 26 of original document
Lower left:
Labor Union of the Chemical, Pharmaceutical, Plastic and Similar Industries in
Sao Paulo and the Region, which reports that, according to the "Fax" sent on
11/25/96 to the parent entities regarding its petition of 11/5/96 in proceeding
96.25299-8 for an injunction, before the 7th Federal Court of Sao Paulo, pgs.
95-97 and of the decision of that same Court regarding the Labor Union of
Workers in the Chemical and Pharmaceutical Industries of Itapecerica da Serra
and Sao Lourenco da Serra, a signatory of another judicial agreement in this
same collective labor dispute, and in regard to the territorial base of
Itapecerica da Serra, this decision states: "...I defer to the preliminary
injunction discussed, "ad referendum" of the Most Honorable Federal Judge to
whom the distribution of the present falls, and in order to avoid a situation of
the revived right perishing, so that the petitioner may participate, without
excluding the participation of the new Union from the negotiations with FIESP,
in light of the collective labor agreement to be in effect until 10/31/97. As to
the rest, it is possible to wait for the redistribution ....".
<PAGE> 32
1
FIESP
CIESP
TO THE HONORABLE REGIONAL LABOR DELEGATE, OF THE STATE OF SAO PAULO
SPECIFIC COLLECTIVE LABOR AGREEMENT REGARDING EMPLOYEE PARTICIPATION IN PROFITS
AND/OR EARNINGS OF THE COMPANIES FOR 1996 - DEPOSIT, FOR RECORDING AND FILING
There appear herein, the
Union of Workers in the
Chemical, Pharmaceutical,
Plastic and Related
Industries of Sao Paulo and
the Region and the other
Unions of
Workers,
party of the first part and,
Federation of Industries of the
State of Sao Paulo and Industry
Unions affiliated therewith,
party of the second part,
all referred to at the end of this document by their representatives, whose
signatures appear at the end, and they hereby state that the purpose of this
document is to communicate that they entered into a COLLECTIVE LABOR AGREEMENT
consisting of the following clauses, as well as to request its deposit, for
recording and filing, in order to make it legally effective, in accordance with
articles 611 and following of the CLT (Labor Laws Code).
<PAGE> 33
2
SPECIFIC COLLECTIVE LABOR AGREEMENT REGARDING EMPLOYEE PARTICIPATION IN PROFITS
AND/OR EARNINGS OF THE COMPANIES FOR 1996 - DEPOSIT, FOR RECORDING AND FILING
The parties clarify that, regardless of their understanding that this
matter must be analyzed and implemented on a company level, and in light of the
controversies existing about this matter and the Temporary Provisions regarding
the same, they agreed as follows, on an exceptional and temporary basis, for the
1996 year, mindful of article 7, XI, first part, and article 8, VI, of the
Federal Constitution, and of Temporary Measure I 487-24, of October 31, 1996.
CLAUSE 1
In this agreement, by a delegation of the assemblies, the workers' union
entities replace the employee commissions provided for in article 2 of the
aforementioned Temporary Measure.
CLAUSE 2
What is regulated by the Federal Constitution (article 7, XI, first part,
and article 8, VI) and the aforementioned Temporary Measure (articles 1-3) is
not regulated in this agreement.
CLAUSE 3
This participation:
a) shall not be due from the companies that have already implemented
it, are implementing it, or come to implement it, in accordance with
the terms of the Temporary Measure in effect, until 12/15/96; in the
latter two cases the respective prior communication must be made to
the union entity representing its employees, which ratifies these
implementations at the company level;
b) it shall be for the amount of R$300.00, to be paid in two equal
installments, with the first to be paid by 1/31/97 and
<PAGE> 34
3
the second 6 months later, or alternatively, at the option of the
companies, in one single payment, by 2/28/97.
c) it must be paid to those employees with an agreement in effect on
9/1/96, who were hired prior to 1/1/96;
d) employees who have been laid off shall be paid on the same payment
date(s) as the other employees, provided that they returned to work
by 9/1/96, at the rate of 1/12 per month of service or portion
greater than 15 days, excluding from this rate those laid off due to
work accidents;
e) with regard to employees hired during the period from 1/1/96 to
12/31/96, there shall be proportional application at the rate of
1/12 per month of service or portion greater than 15 days;
f) therefore, employees dismissed by 9/1/96, inclusive, shall not
receive the participation.
CLAUSE 4
This agreement means attainment of a goal and discontinuance of the
proceedings in the collective labor disputes regarding employee participation in
profits and/or earnings of the companies.
CLAUSE 5
From 11/1/96 to 10/31/97 the companies, when beginning the negotiation
process, shall communicate to the workers' union entities the dates for the
start of this process at least 15 days prior to the negotiation.
<PAGE> 35
4
In these terms, this document is hereby published, including certified true
copies of summonses and minutes of assemblies, as well as the proxies,
this concession is hereby granted.
Sao Paulo, November 26, 1996
[Note: For the long signature area appearing on p. 5 of the original document,
please see translation above. The sections are identical.]
<PAGE> 36
1
FIESP
CIESP
MOST HONORABLE PRESIDENT JUDGE OF THE HONORABLE REGIONAL LABOR COURT OF THE
SECOND REGION (SAO PAULO, SP)
COLLECTIVE LABOR DISPUTE - 538/96-A - SPECIFIC JUDICIAL AGREEMENT REGARDING
EMPLOYEE PARTICIPATION IN PROFITS AND/OR EARNINGS OF THE COMPANIES FOR 1996 -
RATIFICATION.
There appear herein, the
Union of Workers in the
Chemical, Pharmaceutical,
Plastic and Related
Industries of Sao Paulo and
the Region and the other
Unions of Workers,
listed at the end, party of the first part, and,
Federation of Industries of the State
of Sao Paulo and the Unions
affiliated therewith,
party of the second part,
also listed at the end, by its representatives who have signed below, in the
proceedings of the aforementioned collective labor dispute, that this is to
communicate that they entered into a JUDICIAL AGREEMENT consisting of the
following clauses, as well as request its ratification.
<PAGE> 37
2
SPECIFIC JUDICIAL AGREEMENT REGARDING EMPLOYEE PARTICIPATION IN
PROFITS AND/OR EARNINGS OF THE COMPANIES FOR 1996
The parties clarify that, regardless of their understanding that this
matter must be analyzed and implemented on a company level, and in light of the
controversies existing about this matter and the Temporary Provisions regarding
the same, they agreed as follows, on an exceptional and temporary basis, for the
1996 year, mindful of article 7, XI, first part, and article 8, VI, of the
Federal Constitution, and of Temporary Measure I 487-24, of October 31, 1996.
CLAUSE 1
In this agreement, by a delegation of the assemblies, the workers' union
entities replace the employee commissions provided for in article 2 of the
aforementioned Temporary Measure.
CLAUSE 2
What is regulated by the Federal Constitution (article 7, XI, first part,
and article 8, VI) and the aforementioned Temporary Measure (articles 1-3) is
not regulated in this agreement.
CLAUSE 3
This participation:
a) shall not be due from the companies that have already implemented
it, are implementing it, or come to implement it, in accordance with
the terms of the Temporary Measure in effect, until 12/15/96; in the
latter two cases the respective prior communication must be made to
the union entity representing its employees, which ratifies these
implementations at the company level;
b) it shall be for the amount of R$300.00, to be paid in two equal
installments, with the first to be paid by 1/31/97 and
<PAGE> 38
3
the second 6 months later, or alternatively, at the option of the
companies, in one single payment, by 2/28/97.
c) it must be paid to those employees with an agreement in effect on
9/1/96, who were hired prior to 1/1/96;
d) employees who have been laid off shall be paid on the same payment
date(s) as the other employees, provided that they returned to work
by 9/1/96, at the rate of 1/12 per month of service or portion
greater than 15 days, excluding from this rate those laid off due to
work accidents;
e) with regard to employees hired during the period from 1/1/96 to
12/31/96, there shall be proportional application at the rate of
1/12 per month of service or portion greater than 15 days;
f) therefore, employees dismissed by 9/1/96, inclusive, shall not
receive the participation.
CLAUSE 4
This agreement means attainment of a goal and discontinuance of the
proceedings in the collective labor disputes regarding employee participation in
profits and/or earnings of the companies.
CLAUSE 5
From 11/1/96 to 10/31/97 the companies, when beginning the negotiation
process, shall communicate to the workers' union entities the dates for the
start of this process at least 15 days prior to the negotiation.
<PAGE> 39
4
In these terms, this document is hereby published, including certified true
copies of summonses and minutes of assemblies, as well as the proxies,
this concession is hereby granted.
Sao Paulo, November 26, 1996
[Note: For the long signature area appearing on final pages of this document,
please see translation above. The sections are identical.]
<PAGE> 1
Exhibit 10.161
INDUSTRIAL BUILDING LEASE
- --------------------------------------------------------------------------------
DATE OF LEASE TERM OF LEASE MONTHLY RENT
- --------------------------------------------------------------------------------
BEGINNING ENDING
January __, 1997 February 1, 1997 February 28, 2000
- ---------------------------------------------------------------
Location of Premise:
Approximately 42,000 sq. ft. in 1550 Huntington Avenue See Section 22
Building, Calumet City, Illinois
- ---------------------------------------------------------------
Purpose:
Warehousing, distribution and assembly of cosmetic products and
related office use
- --------------------------------------------------------------------------------
LESSEE: LESSOR:
NAME: Dana Perfumes Corporation, a NAME AND First National Bank of Illinois
Delaware corporation, d/b/a BUSINESS: as Trustee under Trust 2871
Classic F/K/A
Edition Fragrances, Inc. First National Bank of Lansing
as Trustee under Trust No. 2871
ADDRESS: 1550 Huntington Avenue ADDRESS: c/o Robert A. Jones, Sr.
Calumet City, Illinois 8401 W. 185th Street
Tinley Park, Illinois 60477
In consideration of the mutual covenants and agreements herein issued. Lessor
hereby leases to Lessee and Lessee hereby leases from Lessor solely for the
above purpose the premises designated above (the "Premises"), together with the
appurtenances thereto, for the above Term.
RENT
1. Commencing March 1, 1997, Lessee shall pay Lessor's beneficiaries or Lessor's
agent as rent for the Premises the sum stated above, monthly in advance, until
termination of this lease, as Lessor's address stated above or such other
address as Lessor may designate in writing.
CONDITION AND UPKEEP OF PREMISES
2. Lessee has examined and knows the condition of the Premises and has received
the same in good order and repair, and acknowledges that no representations as
to the
<PAGE> 2
2
condition and repair thereof have been made by Lessor, or his agent, prior to or
at the execution of this lease that are not herein expressed; Lessee will keep
the Premises including all appurtenances, in good repair, replacing all broken
glass with glass of the same size and quality as that broken, and will replace
all damaged plumbing fixtures with others of equal quality, and will keep the
Premises, including adjoining alleys, in a clean and healthful condition
according to the applicable municipal ordinances and the direction of the proper
public officers during the term of this lease at Lessee's expense and will
without injury to the roof, remove all snow and ice from the same when
necessary, and will remove the snow and ice from the sidewalk abutting the
Premises; and upon the termination of this lease, in any way, will yield up the
Premises to Lessor, in good condition and repair, loss by fire and ordinary wear
excepted, and will deliver the keys therefor at the place of said rent.
LESSEE NOT TO MISUSE; SUBLET; ASSIGNMENT
3. Lessee will not allow the Premises to be used for any purpose that will
increase the rate of insurance thereon, nor for any purpose other than that
hereinbefore specified, and will not load floors with machinery or goods beyond
the floor load rating prescribed by applic able municipal ordinances, and will
not allow the Premises to be occupied in whole, or in part, by any other person,
and will not sublet the same or any part thereof, nor assign this lease without
in each case the written consent, not to be unreasonably withheld, of the Lessor
first had, and Lessee will not permit any transfer by operation of law of the
interest in the Premises acquired through this lease, and will not permit the
Premises to be used for any unlawful purpose, or for any purpose that will
injure the reputation of the building or increase the fire hazard of the
building, or disturb the tenants of the neighborhood, and will not permit the
same to remain vacant or unoccupied for more than ten consecutive days; and will
not allow any signs, cards or placards to be posted, or placed thereon, nor
permit any alteration of or addition to any part of the Premises, except by
written consent, not to be unreasonably withheld, of Lessor; all alterations and
additions to the Premises shall remain for the benefit of Lessor unless
otherwise provided in the consent aforesaid.
<PAGE> 3
3
MECHANIC'S LIEN
4. Lessee will not permit any mechanic's lien or liens to be placed upon the
Premises or any building or improvement thereon during the term hereof, and in
case of the filing of such lien Lessee will promptly pay same. If default in
payment thereof shall continue for thirty (30) days after written notice thereof
from Lessor to the Lessee, the Lessor shall have the right and privilege at
Lessor's option of paying the same or any portion thereof without inquiry as to
the validity thereof, and any amounts so paid, including expenses and interest,
shall be so much additional indebtedness hereunder due from Lessee to Lessor and
shall be repaid to Lessor immediately on rendition of bill therefor.
INDEMNITY FOR ACCIDENTS
5. Lessee covenants and agrees that he will protect and save and keep the Lessor
forever harmless and indemnified against and from any penalty or damages or
charges imposed for any violation of any laws or ordinances, whether occasioned
by the neglect of Leasee or those holding under Lessee, and that Lessee will at
all times protect, indemnify and save and keep harmless the Lessor against and
from any and all loss, cost, damages or expense, arising out of or from any
accident or other occurrence on or about the Premises causing injury to any
person or property whomsoever or whatsoever and will protect, indemnify and save
and keep harmless the Lessor against and from any and all claims and against and
from any and all loss, cost, damage or expense arising out of any failure of
Lessee in any respect to comply with and perform all the requirements and
provisions hereof unless caused by Lessor's intentional acts or negligence.
NON-LIABILITY OF LESSOR
6. Except as provided by Illinois statute, Lessor shall not be liable for any
damages occasioned by failure to keep the Premises in repair, nor for any damage
done or occasioned by or from plumbing, gas, water, sprinkler, steam or other
pipes or sewerage or the bursting, leaking or running of any pipes, tank or
plumbing fixtures, in, above, upon or about Premises or any building or
improvement thereon nor for any damage occasioned by water, snow or ice being
upon or coming through the roof, skylights, trap door or otherwise, nor for any
<PAGE> 4
4
damages arising from acts or neglect of any owners or occupants of adjacent or
contiguous property.
WATER, GAS AND ELECTRIC CHARGES
7. Lessee will pay in addition to the rent above specified, the cost of all
utilities or services, provided to the Premises, including, but not limited to,
all water rents, gas and electric light and power bills taxed, levied or charged
on the Premises, for and during the time for which this lease is granted, and in
case said water rents andbills for gas, electric light and power or other
utility charges shall not be said when due, Lessor shall have the right to pay
the same, which amounts so paid, together with any sums paid by Lessor to keep
the Premises in a clean and healthy condition, as above specified, are declared
to be in much additional rent and payable with the installment of rent next due
thereafter.
KEEP PREMISES IN REPAIR
8. Except as provided in Section 23, Lessor shall not be obliged to incur any
expense for repairing any improvements, and damaged premises or connected
therewith, and the Lessee at his own expense will keep all interior and exterior
improvements in good repair, injury by fire, or other causes beyond Lessee's
control excepted, and will comply with all local or general regulations, laws
and ordinances thereto as well as lawful requirements of all competent
authorities in that behalf, Lessee will, as far as possible keep said
improvements from deterioration due to ordinary wear and from falling
temporarily out of repair. If Lessee does not make repairs as required hereunder
promptly and adequately, Lessor may but need not make such repairs and pay the
costs thereof, and such costs shall be so much additional rent immediately due
from and payable by Lessee to Lessor.
ACCESS TO PREMISES
9. Lessee will during the final six (6) months of the Term (as defined herein)
allow Lessor upon prior notice free access to the Premises for the purpose of
examining or exhibiting in same or to make any needful repairs, or alterations
thereof which Lessor may see necessary and will allow to have placed upon the
Premises at all times
<PAGE> 5
5
notices of "For Sale" and "To Rent", and shall not interfere with the same.
ABANDONMENT AND RELETTING
10. If Lessee shall abandon or vacate the Premises, or if Lessee's right to
occupy the Premises be terminated by Lessor by reason of Lessee's breach of any
of the covenants herein, the same may be re-let by Lessor for such rent and upon
such terms as Lessor may deem at, subject to Illinois statute; and if a
sufficient sum shall not thus be realized monthly, after paying the expenses of
such re-letting and collecting to satisfy the rent hereby reserved, Lessee
agrees to satisfy and pay all deficiency monthly during the remaining period of
this lease.
HOLDING OVER
11. Lessee will, at the termination of this lease by lapse of time or otherwise,
yield up immediate possession to Lessor, and failing so to do, will pay as
liquidated damages, for the whole time such possession is withheld, the sum of
Five Hundred Dollars ($500.00) per day; but the provisions of this clause shall
not be held as a waiver by Lessor of any right of re-entry as hereinafter set
forth; nor shall the receipt of said rent or any part thereof, or any other act
in apparent affirmance of tenancy, operate as a waiver of the right to forfeit
this lease and the term hereby granted for the period still unexpired, for a
breach of any of the covenants herein.
EXTRA FIRE HAZARD
12. There shall not be allowed, kept, or used on the Premises any inflammable,
or explosive liquids or materials save such as may be necessary for use in the
business of the Lessee, and in such case, any such substances shall be delivered
and stored in amount, and used, in accordance with the rules of the applicable
Board of Underwriters and statutes and ordinances now or hereafter in force.
DEFAULT BY LESSEE
13. If defaults be made in the payment of the above rent, or any part thereof,
or in any of the covenants herein contained to be kept by the Lessee, Lessor may
at any time thereafter at his election declare said term ended and re-enter the
Premises or any part thereof, with or (to the extent permitted by law) without
notice of process of law, and remove Lessee or any persons occupying the same,
<PAGE> 6
6
without prejudice to any remedies which might otherwise be used for arrears of
rent.
NO RENT DEDUCTION OR SET OFF
14. Lessee's covenant to pay rent is and shall be independent of each and every
other covenant of this lease. Lessee agrees that any claim by Lessee against
Lessor shall not be deducted from rent nor set off against any claim for rent in
any action.
RENT AFTER NOTICE OR SUIT
15. It is further agreed, by the parties hereto, that after the service of
notice, or the commencement of a full or after final judgment for possession of
the Premises, Lessor may receive and collect any rent due, and the payment of
said rent shall not waive or affect said notice, said suit, or said judgment.
PAYMENT OF COSTS
16. Lessee will pay and discharge all reasonable costs, attorney's fees and
expenses that shall be made and incurred by Lessor in enforcing the covenants
and agreements of this lease.
RIGHTS CUMULATIVE
17. The rights and remedies of Lessor under this lease are cumulative. The
exercise or use of any one or more thereof shall not bar Lessor from exercise or
use of any other right or remedy provided herein or otherwise provided by law,
nor shall exercise nor use of any right or remedy by Lessor waive any other
right or remedy.
FIRE AND CASUALTY
18. "Insured Loss" shall herein mean damage or destruction which was caused by
an event required to be covered by the insurance described in Section 26. All
proceeds from any Insured Loss shall be deposited into an escrow and released
only upon the direction of Landlord. If at any time during the Term there is any
damage to the Premises, Lessee may, at its option, either: (i) repair such
damage with such repair com mencing no later than forty-five (45) days after the
damage of the Premises, using insurance proceeds, in which case this Lease shall
continue in full force and effect; or (ii) upon written notice to Lessor, permit
Lessor to retain all insurance proceeds and cancel and terminate this Lease as
of the date of the occurrence of such damage, provided however, Lessee has
maintained all insurance required
<PAGE> 7
7
under this Lease. If Lessee elects to repair such damage, and if the insurance
proceeds received by Lessor are not sufficient to effect such repair, Lessor
shall give notice to Lessee of the amount required in addition to insurance
proceeds to effect such repair. Lessee shall contribute the required amount to
Lessor within ten (10) days after Lessee has received notice from Lessor of the
shortage of insurance. Lessee shall in no event have any right to reimbursement
for any such amounts so contributed. Lessor shall disburse such insurance
proceeds to Lessee from time to time as is reasonably required to complete
construction upon delivery to Lessor of customary lien waivers, sworn
contractor's affidavits and other reasonable documenta tion requested by Lessor.
Lessor and Lessee waive the provisions of any statutes which relate to
termination of leases when leased property is destroyed and agree that such
event shall be governed by the terms of this Lease.
SUBORDINATION
19. This lease is subordinate to all mortgages which may now or hereafter affect
the Premises.
PLURALS; SUCCESSORS
20. The words "Lessor" and "Lessee" wherever herein occurring and used shall be
construed to mean "Lessors" and "Lessees" in case more than one person
constitutes either party to this lease; and all the covenants and agreements
contained shall be binding upon, and inure to, their respective successors,
heirs, executors, administrators and assigns and may be exercised by for or
their attorney or agent.
SEVERABILITY
21. Wherever possible each provision of this lease shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this lease shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this lease.
<PAGE> 8
8
22. Lessee shall pay base rent during the term in the following amounts:
Lease Year Monthly Annual
2/1/97-2/28/97 -0-
3/1/97-2/29/00 $13,125.00 $157,500.00
Base rent payments shall commence on March 1, 1997 and each monthly rent payment
thereafter shall be paid not later than the first day of the month. Base rent
for any partial month shall be prorated. Lessor shall deliver the Premises to
Lessee on February 1, 1997. Lessee shall not be obligated for the payment of
base rent for the period commencing February 1, 1997 through February 28, 1997
(inclusive).
23. Lessor covenants and agrees during the term of this lease to promptly make
all necessary repairs to or replace as necessary, the roof, the main parking lot
in the front of the Premises and structural components of the building provided,
however, that in each case Lessee shall promptly give Lessor notice of any and
all defects or repairs which are to be made and further, that with respect to
any such defect and repairs that they do not arise from the act or neglect of
the Lessee. Lessee shall pay to Landlord the entire cost of any defect and
repair which arises from the act or neglect of the Lessee, its employees,
agents, or contractors. Lessor's covenant pursuant to this Section 23 is limited
to maintaining the parking lot, roof and structural components of the building
in the same condition as of the date hereof.
24. Lessee, without limiting its general obligation under Sections 2 or 8 herein
and at Lessee's sole cost and expense, covenants and agrees during the term of
this lease (i) to perform the following services on the premises: snow removal
and landscaping; and (ii) to operate and maintain the existing DMC security and
fire system, and the lawn sprinkler system.
25. Lessor shall have the right from time to time and at any time during the
Term of this lease to mortgage the Premises and Lessee agrees that this lease is
subject and subordinate to the terms of any mortgage now existing or hereafter
to be placed on or encumber all or any part of the Premises. Lessee further
agrees to execute within ten (10) days after Lessor's request any and all
documents required by the mortgagee to evidence the subordination of this lease
and estoppel certificates with respect to rent payments and other reasonable
matters such as any default under the lease or any such documents, provided such
documents contain appropriate non-disturbance provisions.
26. Lessee shall furnish to Lessor a certificate of insurance evidencing a
commercial general liability insurance policy, naming Lessor, its agents,
lenders and beneficiaries, as additional insured parties and containing a limit
of not less than Two Million Dollars ($2,000,000.00). Lessee shall also furnish
to Lessor a certificate of insurance
<PAGE> 9
9
evidencing a policy of insurance covering loss or damage to the Premises, in the
amount not less than 100 percent of the full replacement value of the Premises,
including, but not limited to, the value of all improvements thereon, naming
Lessor, its agents, lenders and beneficiaries as additional insured parties. All
of said policies shall be with financially sound and reputable insurance
companies reasonably acceptable to Lessor and the original or a memorandum of
each policy so obtained by Lessee shall be delivered to Lessor. Lessee shall
maintain coverage during the entire Term, and also at all times during any
construction or remodeling of the Premises by Lessee. All such policies shall
provide that same shall not be canceled except on not less than twenty (20)
days' prior written notice to Lessor. Lessee shall deliver proof of payment of
each premium payable under each insurance policy not later than twenty (20) days
prior to the date on which failure to pay such premium would cause such policy
to lapse. If Lessee shall fail within the period hereinabove fixed for such
purposes, to obtain any such insurance required hereunder or to pay all premiums
with respect thereto, Lessor shall have the right, but not be obligated to,
obtain any such insurance and/or pay any such premiums not so paid by lessee.
Any monies advanced by Lessor forsuch purpose shall be deemed additional rent
and shall be payable immediately by Lessee to Lessor.
27. In the event the monthly rent or any additional rent is not received by
Lessor within ten (10) calendar days after notice of default, Lessee shall pay
to Lessor, in addition to such monthly rent or additional rent, a late charge
equal to five percent (5%) of the amount of rent not paid within the said ten
(10) calendar days.
28. Lessee shall deposit with Lessor the sum of $86,800.00 as a security deposit
upon Lessee's execution and submission of this lease. Lessor shall deposit the
security deposit in an interest bearing third party escrow account. The security
deposit shall serve as security for the prompt, full and faithful performance by
Lessee of the terms and provisions of this lease. If Lessee commits a default
under this lease which remains uncured upon the expiration of any cure period
for such default, or owes any amount to Lessor upon the expiration of this
lease, Lessor may use or apply the whole or any part of the security deposit for
the payment of Lessee's obligations hereunder. The use or application of the
security deposit shall not prevent Lessor from exercising any other right or
remedy available to Lessor and shall not be construed as liquidated damages. If
the security deposit is reduced by such use or application, Lessee shall deposit
with Lessor within ten (10) days after written notice, an amount sufficient to
restore the full amount of the security deposit. In the event of bankruptcy or
other insolvency proceeding against Lessee, the security deposit shall be deemed
to be applied to the payment of overdue rent from the earliest time such rent
became overdue prior to the filing of such proceeding.
Provided Tenant has timely performed its obligations under the Lease, the
security deposit shall be returned to Tenant in the following manner:
<PAGE> 10
10
a. at the end of the first Lease year, $23,400 plus accrued interest to date
shall be returned to Tenant;
b. at the end of the second Lease year, $23,400 plus accrued interest to date
shall be returned to Tenant; and
c. at the end of the initial term of the Lease, the remaining $40,000 plus
accrued interest to date shall be returned to Tenant.
Notwithstanding the foregoing, and in addition to Lessor's right to apply the
security deposit against the rent, in the event Lessee commits a default under
this Lease during the initial term of this Lease, Lessor shall have the right to
apply the security deposit to reimburse Lessor in an amount not less than
$50,000 for the costs incurred by Lessor in connection with this Lease including
but not limited to, Lessor's painting, cleaning and miscellaneous improvements
to the Premises, the carpeting allowance and broker fees.
29. Lessee shall not place any signs on exterior walls of the building or
elsewhere on the Premises (with the exception of the interior of the building)
without Lessor's prior written approval, which approval shall not be
unreasonably withheld.
30. Lessee shall pay the real property tax, as defined herein, applicable to the
Premises for the period commencing March 1, 1997 and continuing through the
remainder of the Term. Notwithstanding anything to the contrary contained
herein, Lessee's obligation under this Section 30 for the last thirteen (13)
calendar months of the Initial Term (as hereinafter defined) shall not exceed
Five Thousand Two Hundred Fifty Dollars ($5,250.00) per month. Lessee shall
deposit with Lessor's bene ficiaries or Lessor's agent on the first (1st) day of
each month of the Term, commencing March 1, 1997, in the same manner as rent, a
sum equal to one-twelfth (1/12) of the estimated annual real property taxes as
estimated by Lessor ("Escrow Fund"). Failure to make the deposits required
hereunder shall constitute a breach of this Lease. Lessor shall use the Escrow
Fund solely for the payment of the aforementioned real property taxes and shall
deposit such funds in an account, which account need not be separate from
Lessor's general accounts. If the amount of the Escrow Fund together with the
future periodic deposits to such Escrow Fund payable prior to the due date of
the aforementioned real property taxes exceeds the amount reasonably estimated
by Lessor as being required to pay those taxes, such excess shall be applied
first to cure any breach in the performance of Lessee's covenants or agreements
hereunder and second, at Lessor's option, as a credit toward any amounts to
become due under this Lease. If the amount of the Escrow Fund shall not be
sufficient to pay the aforementioned real estate taxes, Lessee shall pay to
Lessor any amount necessary to make up the defi ciency within ten (10) days from
the date Lessor notifies Lessee in writing of that deficiency. As used herein,
the term "real property tax" shall include any form of real
<PAGE> 11
11
estate tax or assessment, general, special, ordinary or extraordinary, and any
license fee, commercial rental tax, improvement bond or bonds, levy or tax
(other than inheritance, personal income or estate taxes) imposed on the
Premises by any authority having the direct or indirect power to tax, including
any city, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Premises or in the real property of
which the Premises are a part, as against Lessor's business of leasing the
Premises. The term "real property tax" shall also include any tax, fee, levy,
assessment or charge (i) in substitution of, partially or totally, any tax, fee,
levy, assessment or charge hereinabove included within the definition of "real
property tax," or (ii) the nature of which was hereinbefore included within the
definition of "real property tax," or (iii) which is imposed as a result of a
transfer, either partial or total, of Lessor's interest in the Premises or which
is added to a tax or charge hereinbefore included within the definition of real
property tax by reason of such transfer, or (iv) which is imposed by reason of
this transaction, any modifications or changes hereto, or any transfers hereof.
The term "real property tax" shall not include: (a) any income, gross receipts,
or similar tax assessed on or in respect of the general income of Lessor, (b)
any capital levy, succession, or similar tax assessed or payable by reason of
any transfer of any estate or property of Lessor, or (c) any corporation or
other franchise, license, mercantile or similar tax assessed against or payable
by Lessor other than with respect to the use or occupancy of the Premises.
31. As used herein, "Initial Term" means a thirty-seven (37) month term if this
Lease, which shall commence on the date hereof, and which shall end on February
29, 2000. Provided Lessee is not then in default under this Lease, Lessee shall
have one option to extend the Term of this Lease for a period of three (3) years
(the "Option Term"). Such Option Term shall be upon the same terms, conditions
and provisions as are applicable to the Initial Term except that the amount of
rent payable by Lessee during such Option Term shall be fixed at an amount
equivalent to the existing market rental rate of the Premises at the
commencement of the Option Term and the real estate cap shall be terminated
(Lessee shall pay full amount of all applicable real property taxes). In
addition, Tenant shall deposit with Landlord a security deposit in the amount of
one month's base rent. The Option must be exercised, if at all, by notice in
writing delivered to Lessor not later than six months prior to, the last day
after the end of the Initial Term. The Option Term shall commence the day after
the end of the Initial Term. "Term" means the Initial Term and the Option Term
(if any).
32. The parties represent as follows: (i) the sole real estate broker employed
by Lessor in connection with this Lease is CB Commercial Real Estate Group
("CB"), and (ii) the sole real estate broker employed by Lessee in connection
with this Lease is Colliers, Bennett & Kahnweiler ("Colliers"). CB and Colliers
are herein collectively referred to as the "Brokers." Lessor shall be
responsible for any commission due to the Brokers in the manner and as provided
for in Lessor's brokerage agreement with
<PAGE> 12
12
CB dated January 15, 1996 as amended by
that certain Letter Agreement dated December 23, 1996 and February 3, 1997. Such
payment shall constitute the full extent of Lessor's liability or obligation to
the Brokers.
33. Except as specifically provided otherwise herein, within thirty (30) days of
the execution hereof ("Improvement Period"), Lessor shall, at its cost and
expense, perform those improvements to the Premises set forth on Exhibit A
attached hereto and made a part hereof (the "Improvements"). The Improvements
shall be performed to the reasonable satisfaction of Lessee and in the event
non-material Improvements need to be completed by Lessor after the end of the
Improvement Period, Lessee may, within five (5) days after the end of the
Improvement Period, provide to Lessor a written punchlist ("Punchlist")
indicating such non-material Improvements needing to be completed by Lessor. If
Lessee provides the Punchlist to Lessor, Lessor shall complete the non-material
Improvements listed thereon by April 1, 1997. The parties agree that the
Improvements shall constitute Lessor's sole obligation regarding the condition
of the Premises and that Lessor shall be under no obligation to perform any
additional work upon the Premises beyond the Improvements.
34. Lessor acknowledges that Lessee may enter into a credit agreement with
certain lenders ("Lender"), and to secure the obligations arising under such
credit agreement Lessee may grant to Lender a security interest in and lien upon
all or substantially all of the tangible and intangible property of Lessee,
including, without limitation, all of Lessee's cash, cash equivalents, goods,
inventory, machinery, equipment, furniture and fixtures, together with all
additions, substitutions, replacements and improvements to, and proceeds of, the
foregoing (collectively, the "Collateral"). Provided Lessee has received written
notice of Lender's perfected interest in the Collateral, Lessor agrees to
provide Lender with (a) a copy of any cancellation, amendment, consent, or
waiver under the Lease, and (b) written notice of any default or claimed default
by Lessee under the Lease (collectively "Tenant Notice") at the same time as it
amends such notice to Lessee.
35. Lessor agrees that the Collateral may be stored, utilized, and/or installed
at the Premises and shall not be deemed a fixture or part of the real estate but
shall at all times be considered personal property, whether or not any
Collateral becomes so related to the real estate that an interest therein would
otherwise arise under applicable law.
36. Prior to a termination of the lease and for a period not to exceed thirty
(30) days following receipt by Lender of a Tenant Notice, Lender or its
representatives or invitees may enter upon the Premises at any time without any
interference by Lessor to inspect or remove any or all of the Collateral.
37. This Industrial Lease shall be governed by Illinois law.
<PAGE> 13
13
THIS INSTRUMENT is executed by the undersigned Trustee, not personally but
solely as Trustee under the terms of that certain agreement dated September 1,
1977, creating Trust No. 2871 and it is expressly understood and agreed by the
parties hereto, anything herein to the contrary notwithstanding, that each and
all of the covenants, undertakings, representations and agreements herein made
are made and intended, not as personal covenants, undertakings, representations
and agreements of the Trustee, individually, or for the purpose of binding it
personally but this instrument is executed and delivered by the FIRST NATIONAL
BANK OF ILLINOIS F/K/A FIRST NATIONAL BANK OFLANSING, as Trustee, solely in the
exercise of the powers conferred upon it as such Trustee under said agreement
and no personal liability or personal responsibility is assumed by nor shall at
any time be asserted or enforced against the FIRST NATIONAL BANK OF ILLINOIS
F/K/A FIRST NATIONAL BANK OF LANSING, on account hereof, or on account of any
covenant, undertaking, representation or agreement herein contained, either
expressed or implied, all such personal liability, if any being hereby expressly
waived and released by the parties hereto or holder hereof, and by all persons
claiming by or through or under said parties or holder hereof.
If this instrument is executed by a corporation, such execution has been
authorized by a duly adopted resolution of the Board of Directors of such
corporation.
This lease consists of 10 pages numbered 1 to 10, including a rider consisting
of no pages, identified by Lessor and Lessee.
IN WITNESS WHEREOF, the parties hereto have executed this instrument as of the
Date of Lease stated above.
LESSEE: LESSOR:
DANA PERFUMES CORPORATION, FIRST NATIONAL BANK OF
a Delaware corporation, d/b/a Classic ILLINOIS, as Trustee under Trust 2871
Edition Fragrances, Inc. F/K/A First National Bank of Lansing
By:__________________________________ By:__________________________(seal)
Its: Its:
Attest:______________________________ By:__________________________(seal)
Its: Its:
ASSIGNMENT BY LESSOR
<PAGE> 14
14
On this ______________, 19__, for value received, Lessor hereby transfers,
assigns and sets over to _______________________________________ all right,
title and interest in and to the above Lease and the rent thereby reserved,
accept rent due and payable prior to ___________, 19__.
(seal)
(seal)
<PAGE> 15
15
STATE OF ILLINOIS )
) ss.:
COUNTY OF COOK )
I, ____________________, a Notary Public in and for said County in the state
aforesaid, DO HEREBY CERTIFY, that _______________________, of the FIRST
NATIONAL BANK OF LANSING, ILLINOIS, a National Banking Association, and
________________________, of said National Banking Association, personally known
to me to be the same persons whose names are subscribed to the foregoing
instrument as such Vice President and Trust Officer and Sr. Vice President
respectively appeared before me this day in person and acknowledged that they
signed and delivered the said instrument as their own free and voluntary acts,
and as the free and voluntary act of said National Banking Association, as
Trustee, for the uses and purposes therein set forth and the said Sr. Vice
President did also then and there acknowledge that he, as custodian of the
corporate seal of said National Banking Association, did affix the said
corporate seal of said National Banking Association to said instrument as his
own free and voluntary act, and as the free and voluntary act of said National
Banking Association, as Trustee, for the uses and purposes therein set forth.
GIVEN under my hand and Notarial Seal this _____ day of ______, 199_.
MY COMMISSION EXPIRES:
________________________________
Notary Public
<PAGE> 16
16
STATE OF ILLINOIS )
) ss.:
COUNTY OF COOK )
I, Jason Franklin, a Notary Public in and for said County in the state
aforesaid, DO HEREBY CERTIFY, that Sean E. Greene, personally known to me to be
the President of DANA PERFUMES CORPORATION, a Delaware corporation, and Stephen
E. Nizenholz, personally known to me to be the same persons whose names are
subscribed to the foregoing instrument, appeared before me this day in person
and severally acknowledged that as such President, and Vice President, they
signed and delivered the said instrument as President, and Vice President of
said Dana Perfumes Corp., as their free and voluntary act, and as the free and
voluntary act and deed of said Dana Perfumes Corp., for the uses and purposes
therein set forth.
GIVEN under my hand and Notarial Seal this 6th day of February, 1997.
MY COMMISSION EXPIRES: 04/11/00
/s/ JASON L. FRANKLIN
---------------------
Notary Public
<PAGE> 17
17
EXHIBIT A
1. Broom sweep warehouse floors.
2. Repair dock doors as necessary.
3. Repair weather seals on doors as necessary.
4. Repair dock bumpers as necessary.
5. Repair lighting fixtures throughout warehouse as necessary.
6. Repair unit heaters as necessary.
7. Repaint offices and bathrooms.
8. Lessor shall provide to Lessee within seven (7) days from the date hereof a
check in the amount of $5,500. Lessee is obligated to expend not less than
$5,500 in new carpet to be installed in the Premises. Lessee shall install
carpet in the first floor office area where carpet is located as of the
date hereof. Lessee shall forward paid invoices to Lessor for the carpeting
for Lessor's records.
9. Repair or replace broken or water stained ceiling tiles as necessary.
10. Repair or replace office lighting fixtures as necessary.
11. Clean and sanitize all bathrooms.
12. Provide handicap handrails in two bathrooms downstairs.
13. Provide all mechanical and electrical equipment, including HVAC, sprinkler
system, plumbing system and electrical system in good operating condition.
14. Remove debris on west side of building.
15. Clean all carpeting on second floor.
16. Strip and polish all non-carpeted floors on the first and second floors.
17. Clean all vinyl wall covering.
18. Remove telecommunication and computer equipment in computer room and repair
wall (including replace wallpaper as necessary).
<PAGE> 18
18
THIS INSTRUMENT IS EXECUTED BY THE UNDERSIGNED TRUSTEE, NOT PERSONALLY BUT
SOLELY AS TRUSTEE UNDER THE TERMS OF THAT CERTAIN AGREEMENT DATED SEPTEMBER 1,
1977, CREATING TRUST NO. 2871 AND IT IS EXPRESSLY UNDERSTOOD AND AGREED BY THE
PARTIES HERETO, ANYTHING HEREIN TO THE CONTRARY NOTWITH STANDING, THAT EACH AND
ALL OF THE COVENANTS, UNDERTAKINGS, REPRESENTATIONS AND AGREEMENTS HEREIN MADE
ARE MADE AND INTENDED, NOT AS PERSONAL COVENANTS, UNDERTAKINGS, REPRE SENTATIONS
AND AGREEMENTS OF THE TRUSTEE, INDIVIDUALLY, OR FOR THE PURPOSES OF BINDING IT
PERSONALLY BUT THIS INSTRUMENT IS EXECUTED AND DELIVERED BY THE FIRST NATIONAL
BANK OF ILLINOIS, LANSING, ILLINOIS, AS TRUSTEE, SOLELY IN THE EXERCISE OF THE
POWERS CONFERRED UPON IT AS SUCH TRUSTEE UNDER SAID AGREEMENT AND NOT PERSONAL
LIABILITY OR PERSONAL RESPONS IBILITY IS ASSUMED BY NOR SHALL AT ANY TIME BE
ASSERTED OR ENFORCED AGAINST THE FIRST NATIONAL BANK OF ILLINOIS, LANSING,
ILLINOIS, ON ACCOUNT HEREOF, OR ON ACCOUNT OF ANY COVENANT, UNDERTAKING,
REPRESENTATION OR AGREEMENT HEREIN CONTAINED, EITHER EXPRESSED OR IMPLIED, ALL
SUCH PERSONAL LIABILITY, IF ANY BEING HEREBY EXPRESSLY WAIVED AND RELEASED BY
THE PARTIESHERETO OR HOLDER HEREOF, AND BY ALL PERSONS CLAIMING BY OR THROUGH OR
UNDER SAID PARTIES OR HOLDER HEREOF.
IN WITNESS WHEREOF, SAID FIRST NATIONAL BANK OF ILLINOIS, LANSING, ILLINOIS, HAS
CAUSED ITS NAME TO BE SIGNED TO THESE PRESENTS BY A V.P. AND T.O. AND ITS
CORPORATE SEAL TO BE HEREUNTO AFFIXED AND ATTESTED BY ITS TRUST OFFICER.
FIRST NATIONAL BANK OF ILLINOIS,
LANSING, ILLINOIS AS TRUSTEE
AFORESAID AND NOT PERSONALLY.
BY: /s/ DAVID G. CLARK
---------------------------------
DAVID G. CLARK, V.P. AND T.O.
<PAGE> 19
19
STATE OF ILLINOIS )
ss.:
STATE OF COOK )
I, DAWN R. BAILEY, A NOTARY PUBLIC IN AND FOR SAID COUNTY AND IN THE STATE
AFORESAID, DO HEREBY CERTIFY, THAT DAVID G. CLARK OF THE FIRST NATIONAL BANK OF
ILLINOIS, LANSING, ILLINOIS, A NATIONAL BANKING ASSOCIATION, AND CAROL J.
BRANDT, OF SAID FIRST NATIONAL BANKING ASSOCIATION, PERSONALLY KNOWN TO ME TO BE
THE SAME PERSONS WHOSE NAMES ARE SUBSCRIBED TO THE AFOREGOING INSTRUMENT AS SUCH
V.P. AND T.O. AND TRUST OFFICER, RESPECTFULLY, APPEARED BEFORE ME THIS DAY IN
PERSON AND ACKNOWLEDGED THAT THEY SIGNED AND DELIVERED THE SAID INSTRUMENT AS
THEIR OWN FREE AND VOLUNTARY ACTS, AND AS THE FREE AND VOLUNTARY ACTION OF SAID
NATIONAL BANKING ASSOCIATION, AS TRUSTEE, FOR THE USES AND PURPOSES THEREIN SET
FORTH; AND THE SAID CAROL J. BRANDT DID ALSO THEN AND THERE ACKNOWLEDGE THAT
SHE, AS CUSTODIAN OF THE CORPORATE SEAL OF SAID NATIONAL BANKING ASSOCIATION,
DID AFFIX THE SAID CORPORATE SEAL OF SAID NATIONAL BANKING ASSOCIATION, TO SAID
INSTRUMENT AS HER OWN FREE AND VOLUNTARY ACT, AND AS THE FREE AND VOLUNTARY ACT
OF SAID NATIONAL BANKING ASSOCIA TION, AS TRUSTEE FOR THE USES AND PURPOSES
THEREIN SET FORTH.
GIVEN UNDER MY HAND AND NOTARIAL SEAL THIS 4 DAY OF FEBRUARY, 1997.
MY COMMISSION EXPIRES:
10/22/99
/s/ DAWN R. BAILEY
- ------------------
NOTARY PUBLIC
<PAGE> 20
20
February 4, 1997
Dana Perfume Corporation
d/b/a Classic Edition Fragrances, Inc.
c/o Dana Perfumes Corporation
635 Madison Avenue
New York, New York 10022
Attention: Mr. Stephen Nisenholz
Re: Equipment Lease for 1550 Huntington Avenue, Calumet City, Illinois
Gentlemen:
As of the date hereof, Dana Perfumes Corporation and First National Bank of
Illinois, as Trustee under Trust No. 2871 have entered into a Lease for the
premises at 1550 Huntington Avenue, Calumet City, Illinois. In connection with
such Lease, Dana Perfumes Corporation desires to lease from the beneficiary of
the land trust, Mr. Robert Jones, Sr., the racking system and office equipment
located at the premises as of the date hereof. The equipment includes See Below
(A) of good frames and decking. Mr. Jones agrees to Lease such office equipment
to Dana Perfumes Corporation at the rate of $1,250 per month payable on the
first day of each month for the duration of the Lease in the same manner as the
payment of base rent. Dana Perfumes Corporation agrees that the rental payment
for the office equipment shall commence on February 1, 1997. Dana Perfumes
Corporation further agrees to furnish Mr. Jones a certificate of insurance
evidencing a policy of insurance covering loss or damage to the office equipment
in an amount not less than $150,000, naming Mr. Jones as an additional insured
party. Said insurance policy shall be with a financially sound and reputable
insurance company reasonably acceptable to Mr. Jones.
In the event Dana Perfumes Corporation removes or takes down any portion of the
racking, Dana Perfumes Corporation is obligated to reinstall such racking in its
original position prior to the termination of the Lease. The racking and office
equipment shall be returned to Mr. Jones in the same condition as when received
by Dana Perfumes Corporation, normal wear and tear accepted. Please acknowledge
your agreement to the terms of this letter agreement by executing a copy of the
letter agreement and returning the executed copy to my attention.
Very truly yours,
/s/ ROBERT JONES
---------------------------------
Robert Jones, Sr.
<PAGE> 21
21
Accepted and Acknowledged
this 6th day of February, 1997
Dana Perfumes Corporation
By: /s/ SEANE GREENE
---------------------------------
Its: President
A. 3356 Beams
3221 Wire decks
442 Frames of which 394 are good Office Equipment (Numbers of equipment and
condition to be confirmed by tenant at _____________.
<PAGE> 1
================================================================================
CREDIT AGREEMENT
Dated as of March 12, 1997
among
DANA PERFUMES CORP.,
as Borrower,
THE OTHER CREDIT PARTIES SIGNATORY HERETO,
as Credit Parties,
THE LENDERS SIGNATORY HERETO
FROM TIME TO TIME,
as Lenders,
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and Lender
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
1. AMOUNT AND TERMS OF CREDIT............................................. 2
1.1 Credit Facilities.............................................. 2
1.2 Prepayments.................................................... 3
1.3 Use of Proceeds................................................ 5
1.4 Interest and Applicable Margins................................ 5
1.5 Eligible Accounts.............................................. 8
1.6 Eligible Inventory............................................. 11
1.7 Cash Management Systems........................................ 12
1.8 Fees........................................................... 13
1.9 Receipt of Payments............................................ 13
1.10 Application and Allocation of Payments......................... 13
1.11 Loan Account and Accounting.................................... 14
1.12 Indemnity...................................................... 14
1.13 Access......................................................... 16
1.14 Taxes.......................................................... 16
1.15 Capital Adequacy; Increased Costs; Illegality.................. 17
1.16 Single Loan.................................................... 19
1.17 Obligations of Canadian Subsidiaries........................... 19
2. CONDITIONS PRECEDENT................................................... 19
2.1 Conditions to the Initial Loans................................ 19
2.2 Further Conditions to Each Loan................................ 20
3. REPRESENTATIONS AND WARRANTIES......................................... 21
3.1 Corporate Existence; Compliance with Law....................... 21
3.2 Executive Offices; FEIN........................................ 22
3.3 Corporate Power, Authorization, Enforceable
Obligations.................................................... 22
3.4 Financial Statements and Projections........................... 22
3.5 Material Adverse Effect........................................ 23
3.6 Ownership of Property; Liens................................... 23
3.7 Labor Matters.................................................. 24
3.8 Subsidiaries and Affiliates; Outstanding
Stock and Indebtedness........................................ 24
3.9 Government Regulation.......................................... 25
3.10 Margin Regulations............................................. 25
3.11 Taxes.......................................................... 25
3.12 ERISA.......................................................... 26
3.13 No Litigation.................................................. 27
i
<PAGE> 3
3.14 Brokers........................................................ 27
3.15 Intellectual Property.......................................... 28
3.16 Full Disclosure................................................ 28
3.17 Environmental Matters.......................................... 28
3.18 Insurance...................................................... 29
3.19 Deposit and Disbursement Accounts.............................. 29
3.20 Government Contracts........................................... 29
3.21 Customer and Trade Relations................................... 29
3.22 Agreements and Other Documents................................. 30
3.23 Solvency....................................................... 30
3.24 Inactive Subsidiaries.......................................... 30
3.25 Parent Debt.................................................... 30
4. FINANCIAL STATEMENTS AND INFORMATION................................... 31
4.1 Reports and Notices............................................ 31
4.2 Communication with Accountants................................. 31
5. AFFIRMATIVE COVENANTS.................................................. 31
5.1 Maintenance of Existence and Conduct of Business............... 31
5.2 Payment of Obligations......................................... 32
5.3 Books and Records.............................................. 32
5.4 Insurance; Damage to or Destruction of Collateral.............. 32
5.5 Compliance with Laws........................................... 34
5.6 Supplemental Disclosure........................................ 34
5.7 Intellectual Property.......................................... 35
5.8 Environmental Matters.......................................... 35
5.9 Landlords' Agreements, Mortgagee Agreements and Bailee
Letters........................................................ 36
5.10 Canadian Pension Plans......................................... 38
5.11 Further Assurances............................................. 38
6. NEGATIVE COVENANTS..................................................... 38
6.1 Mergers, Subsidiaries, Etc..................................... 39
6.2 Investments; Loans and Advances................................ 39
6.3 Indebtedness................................................... 40
6.4 Employee Loans and Affiliate Transactions...................... 41
6.5 Capital Structure and Business................................. 41
6.6 Guaranteed Indebtedness........................................ 42
6.7 Liens.......................................................... 42
6.8 Sale of Stock and Assets....................................... 42
6.9 ERISA.......................................................... 43
ii
<PAGE> 4
6.10 Financial Covenants............................................ 43
6.11 Hazardous Materials............................................ 43
6.12 Sale-Leasebacks................................................ 43
6.13 Cancellation of Indebtedness................................... 43
6.14 Restricted Payments............................................ 43
6.15 Change of Corporate Name or Location; Change of Fiscal
Year........................................................... 45
6.16 No Impairment of Intercompany Transfers........................ 45
6.17 No Speculative Transactions.................................... 45
6.18 [Intentionally Omitted]........................................ 45
6.19 Changes Relating to Parent Debt................................ 45
6.20 Canadian Benefit and Pension Plans............................. 46
7. TERM................................................................... 46
7.1 Termination.................................................... 46
7.2 Survival of Obligations Upon Termination of Financing
Arrangements................................................... 46
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES................................. 47
8.1 Events of Default.............................................. 47
8.2 Remedies....................................................... 49
8.3 Waivers by Credit Parties...................................... 49
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF
AGENT.................................................................. 50
9.1 Assignment and Participations.................................. 50
9.2 Appointment of Agent........................................... 52
9.3 Agent's Reliance, Etc.......................................... 52
9.4 GE Capital and Affiliates...................................... 53
9.5 Lender Credit Decision......................................... 53
9.6 Indemnification................................................ 54
9.7 Successor Agent................................................ 54
9.8 Setoff and Sharing of Payments................................. 55
9.9 Advances; Payments; Non-Funding Lenders; Information;
Actions in Concert............................................. 56
10. SUCCESSORS AND ASSIGNS................................................. 58
10.1 Successors and Assigns......................................... 58
11. MISCELLANEOUS.......................................................... 58
11.1 Complete Agreement; Modification of Agreement.................. 58
11.2 Amendments and Waivers......................................... 58
iii
<PAGE> 5
11.3 Fees and Expenses.............................................. 60
11.4 No Waiver...................................................... 61
11.5 Remedies....................................................... 61
11.6 Severability................................................... 62
11.7 Conflict of Terms.............................................. 62
11.8 Confidentiality................................................ 62
11.9 GOVERNING LAW.................................................. 62
11.10 Notices........................................................ 63
11.11 Section Titles................................................. 64
11.12 Counterparts................................................... 64
11.13 WAIVER OF JURY TRIAL........................................... 64
11.14 Press Releases................................................. 64
11.15 Reinstatement.................................................. 65
11.16 Advice of Counsel.............................................. 65
11.17 No Strict Construction......................................... 65
iv
<PAGE> 6
INDEX OF APPENDICES
Exhibit 1.1(a)(i) - Form of Notice of Revolving Credit Advance
Exhibit 1.1(a)(ii) - Form of Revolving Note
Exhibit 1.4(e) - Form of Notice of Conversion/Continuation
Exhibit 4.1(b) - Form of Borrowing Base Certificate
Exhibit 9.1(a) - Form of Assignment Agreement
Exhibit E-1 - Form of Monthly Financial Information
Schedule 1.1 - Responsible Individual
Schedule 1.3 - Sources and Uses; Funds Flow Memorandum
Schedule 1.6(b) - Sites of Inventory
Schedule 3.2 - FEIN
Schedule 3.4(A) - Financial Statements
Schedule 3.4(C) - Projections
Schedule 3.5 - Material Adverse Effect
Schedule 3.6 - Real Estate and Leases
Schedule 3.7 - Labor Matters
Schedule 3.8 - Subsidiaries and Affiliates; Outstanding Stock
Schedule 3.11 - Tax Matters
Schedule 3.12 - ERISA Plans
Schedule 3.13 - Litigation
Schedule 3.15 - Intellectual Property
Schedule 3.17 - Hazardous Materials
Schedule 3.18 - Insurance
Schedule 3.19 - Deposit and Disbursement Accounts
Schedule 3.20 - Government Contracts
Schedule 3.22 - Material Agreements
Schedule 5.1 - Trade Names
Schedule 5.4 - Insurance
Schedule 6.3 - Indebtedness
Schedule 6.4(a) - Transactions with Affiliates
Schedule 6.7 - Existing Liens
Schedule 6.15 - Change of Location
Annex A (Recitals) - Definitions
Annex B - [Intentionally Omitted]
Annex C (Section 1.7) - Cash Management Systems
Annex D (Section 2.1(a)) - Schedule of Additional Closing Documents
Annex E (Section 4.1(a)) - Financial Statements and Projections -- Reporting
Annex F (Section 4.1(b)) - Collateral Reports
Annex G (Section 6.10) - Financial Covenants
Annex H (Section 9.9(a)) - Lenders' Wire Transfer Information
i
<PAGE> 7
Annex I (Section 11.10) - Notice Addresses
ii
<PAGE> 8
CREDIT AGREEMENT, dated as of March 12, 1997, among DANA PERFUMES
CORP., a Delaware corporation ("Borrower"); the other Credit Parties signatory
hereto; GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (in its
individual capacity, "GE Capital"), for itself, as Lender, and as Agent for
Lenders, and the other Lenders signatory hereto from time to time.
RECITALS
WHEREAS, Borrower desires that Lenders extend a revolving credit
facility to Borrower of up to Seventy Five Million Dollars ($75,000,000) in the
aggregate for the purpose of providing working capital financing for Borrower
and funds for other general corporate purposes of Borrower, and to pay certain
fees and expenses related to such financings; and for these purposes, Lenders
are willing to make certain loans and other extensions of credit to Borrower of
up to such amount upon the terms and conditions set forth herein; and
WHEREAS, Borrower desires to secure all of its obligations under the
Loan Documents by granting to Agent, for the benefit of Agent and Lenders, a
security interest in and lien upon certain of its existing and after-acquired
personal and real property; and
WHEREAS, certain Subsidiaries of Borrower are willing to guaranty
all of the obligations of Borrower to Lenders under the Loan Documents and to
pledge to Agent, for the benefit of Agent and Lenders, a portion of the capital
Stock of certain foreign Subsidiaries to secure such guaranty; and
WHEREAS, Cosmar Corporation, a Delaware corporation ("Holdings"), is
willing and certain of its Subsidiaries are willing to guaranty all of the
obligations of Borrower to Lenders under the Loan Documents and to pledge to
Agent, for the benefit of Agent and Lenders, a portion of the capital Stock of
certain foreign Subsidiaries to secure such guaranty; and
WHEREAS, Renaissance Cosmetics, Inc., a Delaware corporation
("Parent"), is willing and certain of its Subsidiaries are willing to guaranty
all of the obligations of Borrower to Lenders under the Loan Documents and to
pledge to Agent, for the benefit of Agent and Lenders, a portion of the capital
Stock of certain foreign Subsidiaries to secure such guaranty; and
WHEREAS, capitalized terms used in this Agreement shall have the
meanings ascribed to them in Annex A. All Annexes, Disclosure Schedules,
Exhibits and other attachments (collectively, "Appendices") hereto, or expressly
identified to this
<PAGE> 9
Agreement, are incorporated herein by reference, and taken together, shall
constitute but a single agreement. These Recitals shall be construed as part of
the Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, and for other good and valuable consideration,
the parties hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 Credit Facilities.
(a) Revolving Credit Facility. (i) Subject to the terms and
conditions hereof, each Revolving Lender agrees to make available from time to
time until the Commitment Termination Date its Pro Rata Share of advances (each,
a "Revolving Credit Advance"). The Pro Rata Share of the Revolving Loan of any
Revolving Lender shall not at any time exceed its separate Commitment. The
obligations of each Revolving Lender hereunder shall be several and not joint.
The aggregate amount of Revolving Credit Advances outstanding shall not exceed
at any time the lesser of (A) the Maximum Amount and (B) the Borrowing Base
("Borrowing Availability") plus any Overadvances. Until the Commitment
Termination Date, Borrower may from time to time borrow, repay and reborrow
under this Section 1.1(a). Each Revolving Credit Advance shall be made on notice
by Borrower to the representative of Agent identified on Schedule 1.1 at the
address specified thereon. Those notices must be given no later than (1) 11:00
a.m. (New York time) on the Business Day of the proposed Revolving Credit
Advance, in the case of an Index Rate Loan, or (2) 11:00 a.m. (New York time) on
the date which is three (3) Business Days prior to the proposed Revolving Credit
Advance, in the case of a LIBOR Loan. Each such notice (a "Notice of Revolving
Credit Advance") must be given in writing (by telecopy or overnight courier)
substantially in the form of Exhibit 1.1(a)(i), and shall include the
information required in such Exhibit and such other information as may be
required by Agent. If Borrower desires to have the Revolving Credit Advances
bear interest by reference to a LIBOR Rate, it must comply with Section 1.4(e).
(ii) Borrower shall execute and deliver to each Revolving
Lender a note to evidence the Commitment of that Revolving Lender. Each note
shall be in the principal amount of the Commitment of the applicable Revolving
Lender, dated the Closing Date and substantially in the form of Exhibit
1.1(a)(ii) (each a "Revolving Note" and, collectively, the "Revolving Notes").
Each Revolving Note shall represent the obligation of Borrower to pay the amount
of each Revolving Lender's Commitment or, if less, the applicable Revolving
Lender's Pro Rata Share of the aggregate unpaid principal amount of all
Revolving Credit Advances to Borrower together with interest thereon as
prescribed in Section 1.4. The entire unpaid balance of the Revolving Loan
2
<PAGE> 10
and all other non-contingent Obligations shall be immediately due and payable in
full in immediately available funds on the Commitment Termination Date.
(iii) At the request of Borrower but subject to obtaining the
written consent of Requisite Lenders, Agent, in its discretion, may (but shall
have absolutely no obligation to), make Revolving Credit Advances to Borrower on
behalf of Revolving Lenders in amounts which cause the outstanding balance of
the aggregate Revolving Loan to exceed the Borrowing Base (any such excess
Revolving Credit Advances are herein referred to collectively as
"Overadvances"), and no such event or occurrence shall cause or constitute a
waiver by Agent or Lenders of any Default or Event of Default that may result
therefrom or of Agent's or the Revolving Lenders' right to refuse to make any
further Overadvances or Revolving Credit Advances, as the case may be, at any
time that an Overadvance exists or would result therefrom. In addition,
Overadvances may be made even if the conditions to lending set forth in Section
2 have not been met. All Overadvances shall constitute Index Rate Loans, shall
bear interest at the Default Rate and shall be payable on demand. Except as
otherwise provided in Section 1.10(b), the authority of Agent to make
Overadvances is limited to an aggregate amount not to exceed $3,000,000 at any
time, shall not cause the Revolving Loan to exceed the Maximum Amount, and may
be revoked prospectively by a written notice to Agent signed by Revolving
Lenders holding more than thirty percent (30%) of the Commitments.
(b) Reliance on Notices. Agent shall be entitled to rely upon, and
shall be fully protected in relying upon, any Notice of Revolving Credit
Advance, Notice of Conversion/Continuation or similar notice believed by Agent
to be genuine. Agent may assume that each Person executing and delivering such a
notice was duly authorized, unless the responsible individual acting thereon for
Agent has actual knowledge to the contrary.
1.2 Prepayments.
(a) Voluntary Prepayments. Borrower may at any time on at least five
(5) days' prior written notice to Agent voluntarily prepay all or part of the
Revolv ing Loan and, if Borrower chooses, permanently reduce the Commitment;
provided that (A) any such prepayments shall be in a minimum amount of $100,000
and any such reductions shall be in a minimum amount of $5,000,000 and, in each
case, integral multiples of $100,000 in excess of such amount and (B) the
Commitment shall not be reduced to an amount less than $50,000,000. Borrower may
at any time on at least ten 10 days' prior written notice to Agent terminate the
Commitment, provided that upon such termination all Loans and other Obligations
shall be immediately due and payable in full. Any such voluntary prepayment and
any such reduction or termination of the Commitment must be accompanied by the
payment of any LIBOR funding breakage costs in accordance with Section 1.12(b).
Upon any such prepayment and reduction or
3
<PAGE> 11
termination of the Commitment, Borrower's right to request Revolving Credit
Advances shall simultaneously be permanently reduced or terminated, as the case
may be. Each notice of partial prepayment shall designate the Loan or other
Obligations to which such prepayment is to be applied.
(b) Mandatory Prepayments. (i) If at any time the outstanding
balance of the Revolving Loan (excluding as to clause (B), Overadvances) exceeds
the lesser of (A) the Maximum Amount and (B) the Borrowing Base, Borrower shall
immediately repay the aggregate outstanding Revolving Credit Advances to the
extent required to eliminate such excess; provided, however, if the Borrowing
Base is less than the Maximum Amount and if such outstanding balance of the
Revolving Loan exceeds the Borrowing Base solely as a result of Agent adjusting
the criteria, establishing new criteria or adjusting advance rates with respect
to Eligible Accounts or Eligible Inventory, then Borrower shall repay the
aggregate outstanding Revolving Credit Advances to the extent required to
eliminate such excess no later than five (5) days after written notice to
Borrower by Agent of such adjustment of criteria, such establishment of new
criteria or such adjustment of advance rates. Notwithstanding the foregoing, any
Overadvance made pursuant to Section 1.1(a)(iii) shall be repaid on demand.
(ii) Immediately upon receipt by any Credit Party of proceeds of any
asset disposition (including condemnation proceeds, but excluding proceeds of
asset dispositions permitted by Section 6.8(a)) or any sale of Stock of any
Subsidiary of any Credit Party, Borrower shall prepay the Loans in an amount
equal to all such proceeds, net of (A) commissions and other reasonable and
customary transaction costs, fees and expenses properly attributable to such
transaction and payable by Borrower in connection therewith (in each case, paid
to non-Affiliates), (B) transfer taxes, (C) amounts payable to holders of senior
Liens (to the extent such Liens constitute Permitted Encumbrances hereunder), if
any, and (D) an appropriate reserve for income taxes in accordance with GAAP in
connection therewith; provided, however, no prepayment by Borrower shall be
required with respect to proceeds that do not exceed $100,000 in any single
transaction or series of related transactions and $1,000,000 in the aggregate in
any Fiscal Year. Any such prepayment shall be applied in accordance with clause
(c) below.
(c) Application of Certain Mandatory Prepayments. Any prepayments
made by Borrower pursuant to clause (b)(ii) above shall be applied as follows:
first, to Fees and reimbursable expenses of Agent then due and payable pursuant
to any of the Loan Documents; second, to interest then due and payable on the
Revolving Credit Advances; and third, to the outstanding principal balance of
Revolving Credit Advances until the same shall have been paid in full. The
Commitment shall not be permanently reduced by the amount of any such
prepayments, except to the extent such prepayments relate to "asset sale
proceeds" (as defined in the 1997 Senior Notes Indenture) that have not been
reinvested pursuant to (and within the time period specified in) Section 4.13 of
the 1997 Senior Notes Indenture.
4
<PAGE> 12
(d) Application of Prepayments from Insurance Proceeds. Prepayments
from insurance proceeds in accordance with Section 5.4(c) (subject to the
exclusions contained therein) shall be applied as follows: insurance proceeds
from casualties or losses to cash, Inventory, Equipment, Fixtures or Real Estate
shall be applied to the Revolving Credit Advance. The Commitment shall not be
permanently reduced by the amount of any such prepayments.
(e) Nothing in this Section 1.2 shall be construed to constitute
Agent's or any Lender's consent to any transaction referred to in clause (b)(ii)
above which is not permitted by other provisions of this Agreement or the other
Loan Documents.
1.3 Use of Proceeds. Borrower shall utilize the proceeds of the
Revolving Loan solely for the financing of Borrower's ordinary working capital
and general corporate needs (but excluding in any event the making of any
Restricted Payment not specifically permitted by Section 6.14). Disclosure
Schedule (1.3) contains a description of Borrower's sources and uses of funds as
of the Closing Date, including Loans to be made or incurred on that date, and a
funds flow memorandum detailing how funds from each source are to be transferred
to particular uses.
1.4 Interest and Applicable Margins. (a) Borrower shall pay interest
to Agent, for the ratable benefit of Lenders, in arrears on each applicable
Interest Payment Date, at the following rate: with respect to the Revolving
Credit Advances, the Index Rate plus the Applicable Revolver Index Margin per
annum or, at the election of Borrower, the applicable LIBOR Rate plus the
Applicable Revolver LIBOR Margin per annum, based on the aggregate Revolving
Credit Advances outstanding from time to time.
The Applicable Revolver Index Margin and Applicable Revolver LIBOR
Margin will be 1.00% and 2.25% per annum, respectively, as of the Closing Date.
The Applicable Margins will be adjusted (up or down) prospectively on a
quarterly basis as determined by Parent's Interest Coverage Ratio, commencing
with the delivery of Parent's quarterly Financial Statements to Lenders for the
Fiscal Quarter ending September 30, 1997 (subject to adjustment as provided in
the following paragraph).
5
<PAGE> 13
Adjustments in Applicable Margins will be determined by reference to the
following grids:
If Interest Level of
Coverage Ratio is: Applicable Margins:
-------------------
>2.00 Level I
>1.25, but <=2.00 Level II
<=1.25 Level III
Applicable Margins
Level I Level II Level III
------- -------- ---------
Applicable Revolver
Index Margin 0.75% 1.00% 1.25%
Applicable Revolver LIBOR
Margin 2.00% 2.25% 2.50%
All adjustments in the Applicable Margins after September 30, 1997
will be implemented quarterly on a prospective basis, as of the first day of
each calendar month in which there is delivered to Lenders the quarterly
unaudited or annual audited (as applicable) Financial Statements of Parent
evidencing the need for an adjustment, except that there shall be no adjustment
of the Applicable Revolver LIBOR Margin for an outstanding LIBOR Loan during the
LIBOR Period for such Loan. Concurrently with the delivery of those Financial
Statements, Borrower shall deliver to Agent and Lenders a certificate, signed by
Parent's chief financial officer, setting forth in reasonable detail the basis
for the continuance of, or any change in, the Applicable Margins. If the
Financial Statements are delivered late and, after delivery, show that the
Applicable Margins should have increased, such increase shall be retroactive to
the first date such increase would have taken effect if such Financial
Statements had been delivered timely. If a Default or an Event of Default shall
have occurred or be continuing at the time any reduction in the Applicable
Margins is to be implemented, that reduction shall be deferred until the first
day of the first calendar month following the date on which such Default or
Event of Default is waived or cured.
(b) If any payment on any Loan becomes due and payable on a day
other than a Business Day, the maturity thereof will be extended to the next
succeeding Business Day (except as set forth in the definition of LIBOR Period)
and, with respect to payments
6
<PAGE> 14
of principal, interest thereon shall be payable at the then applicable rate
during such extension.
(c) All computations of Fees calculated on a per annum basis and
interest shall be made by Agent on the basis of a three hundred and sixty (360)
day year, in each case for the actual number of days occurring in the period for
which such interest is payable. The Index Rate shall be determined each day
based upon the Index Rate as in effect each day. Each determination by Agent of
an interest rate hereunder shall be conclusive, absent manifest error.
(d) So long as any Default or Event of Default shall have occurred
and be continuing, and at the election of Agent (or upon the written request of
Requisite Lenders) confirmed by written notice from Agent to Borrower, the
interest rates applicable to the Loans shall be increased by two percentage
points (2%) per annum above the rates of interest otherwise applicable hereunder
("Default Rate"), and all outstanding Obligations shall bear interest at the
Default Rate applicable to such Obligations. Interest at the Default Rate shall
accrue from the initial date of such Default or Event of Default until that
Default or Event of Default is cured or waived and shall be payable upon demand.
(e) So long as no Default or Event of Default shall have occurred
and be continuing, and subject to the additional conditions precedent set forth
in Section 2.2, Borrower shall have the option to (i) request that any Revolving
Credit Advances be made as a LIBOR Loan, (ii) convert at any time all or any
part of outstanding Loans from Index Rate Loans to LIBOR Loans, (iii) convert
any LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR breakage costs
in accordance with Section 1.12(b) if such conversion is made prior to the
expiration of the LIBOR Period applicable thereto, or (iv) continue all or any
portion of any Loan as a LIBOR Loan upon the expiration of the applicable LIBOR
Period and the succeeding LIBOR Period of that continued Loan shall commence on
the last day of the LIBOR Period of the Loan to be continued. Any Loan to be
made or continued as, or converted into, a LIBOR Loan must be in a minimum
amount of $2,000,000 and integral multiples of $100,000 in excess of such
amount. Any such election must be made by 11:00 a.m. (New York time) on the
third (3rd) Business Day prior to (1) the date of any proposed Advance which is
to bear interest at the LIBOR Rate, (2) the end of each LIBOR Period with
respect to any LIBOR Loans to be continued as such, or (3) the date on which
Borrower wishes to convert any Index Rate Loan to a LIBOR Loan for a LIBOR
Period designated by Borrower in such election. If no election is received with
respect to a LIBOR Loan by 11:00 a.m. (New York time) on the third (3rd)
Business Day prior to the end of the LIBOR Period with respect thereto (or if a
Default or an Event of Default shall have occurred and be continuing or the
additional conditions precedent set forth in Section 2.2 shall not have been
satisfied), that LIBOR Loan shall be converted to an Index Rate Loan at the end
of its LIBOR Period. Borrower must make such election by notice to Agent in
writing, by telecopy or overnight courier. In the case of any conversion or
continuation, such election must be made pursuant to a written notice (a
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"Notice of Conversion/Continuation") in the form of Exhibit 1.4(e). No Loan may
be made as or converted into a LIBOR Loan with a LIBOR Period of greater than
one month until ninety (90) days after the Closing Date, or such sooner date as
determined by Agent.
(f) Notwithstanding anything to the contrary set forth in this
Section 1.4, if a court of competent jurisdiction determines in a final order
that the rate of interest payable hereunder exceeds the highest rate of interest
permissible under law (the "Maximum Lawful Rate"), then so long as the Maximum
Lawful Rate would be so exceeded, the rate of interest payable hereunder shall
be equal to the Maximum Lawful Rate; provided, however, that if at any time
thereafter the rate of interest payable hereunder is less than the Maximum
Lawful Rate, Borrower shall continue to pay interest hereunder at the Maximum
Lawful Rate until such time as the total interest received by Agent, on behalf
of Lenders, is equal to the total interest which would have been received had
the interest rate payable hereunder been (but for the operation of this
paragraph) the interest rate payable since the Closing Date as otherwise
provided in this Agreement. Thereafter, interest hereunder shall be paid at the
rate(s) of interest and in the manner provided in Sections 1.4(a) through (e)
above, unless and until the rate of interest again exceeds the Maximum Lawful
Rate, and at that time this paragraph shall again apply. In no event shall the
total interest received by any Lender pursuant to the terms hereof exceed the
amount which such Lender could lawfully have received had the interest due
hereunder been calculated for the full term hereof at the Maximum Lawful Rate.
If the Maximum Lawful Rate is calculated pursuant to this paragraph, such
interest shall be calculated at a daily rate equal to the Maximum Lawful Rate
divided by the number of days in the year in which such calculation is made. If,
notwithstanding the provisions of this Section 1.4(f), a court of competent
jurisdiction shall finally determine that a Lender has received interest
hereunder in excess of the Maximum Lawful Rate, Agent shall, to the extent
permitted by applicable law, promptly apply such excess in the order specified
in Section 1.11 and thereafter shall refund any excess to Borrower or as a court
of competent jurisdiction may otherwise order.
1.5 Eligible Accounts. Based on the most recent Borrowing Base
Certificate delivered by Borrower to Agent and on other information available to
Agent, Agent shall in its reasonable credit judgment determine which Accounts of
Borrower and the other Credit Parties (other than Parent) shall be "Eligible
Accounts" for purposes of this Agreement. In determining whether a particular
Account constitutes an Eligible Account, Agent shall not include any such
Account to which any of the exclusionary criteria set forth below applies. Agent
reserves the right, at any time and from time to time after the Closing Date, to
adjust any such criteria, to establish new criteria and to adjust advance rates
with respect to Eligible Accounts, in its reasonable credit judgment. Eligible
Accounts shall not include any Account of such Credit Party:
(a) which does not arise from the sale of goods or the performance
of services by such Credit Party in the ordinary course of its business;
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<PAGE> 16
(b) upon which (i) such Credit Party's right to receive payment is
not absolute or is contingent upon the fulfillment of any material condition
that has not been fulfilled at the time of determination or (ii) such Credit
Party is not able to bring suit or otherwise enforce its remedies against the
Account Debtor through judicial process;
(c) to the extent any defense, counterclaim, setoff or dispute (but
only to the extent of such defense, counterclaim, setoff or dispute) is asserted
as to such Account or if the Account represents a progress billing consisting of
an invoice for goods sold or used or services rendered pursuant to a contract
under which the Account Debtor's obligation to pay that invoice is subject to
Borrower's completion of further performance (not yet performed at the time of
determination) under such contract;
(d) that is not a true and correct statement of bona fide
indebtedness incurred in the amount of the Account for merchandise sold to or
services rendered and accepted by the applicable Account Debtor;
(e) with respect to which an invoice, substantially in the form
currently used by such Credit Party or such other form reasonably acceptable to
Agent in form and substance, has not been sent to the applicable Account Debtor;
(f) that (i) is not owned by such Credit Party or (ii) is subject to
any right, claim, security interest or other interest of any other Person, other
than Liens in favor of Agent, on behalf of itself and Lenders, and Prior Claims
that are unregistered and otherwise unperfected and that secure amounts that are
not yet due and payable;
(g) that arises from a sale to any director, officer, other employee
or Affiliate of any Credit Party;
(h) that is the obligation of an Account Debtor that is the United
States government or a political subdivision thereof, or any state or
municipality or department, agency or instrumentality thereof, or that is the
Canadian Government (Her Majesty the Queen in Right of Canada) or a political
subdivision thereof, or any province or municipality or department, agency or
instrumentality thereof, unless Agent, in its sole discretion, has agreed to the
contrary in writing and such Credit Party, if necessary or desirable, has
complied with the Federal Assignment of Claims Act of 1940, and any amendments
thereto, or the Financial Administration Act (Canada), or any amendments
thereto, or any applicable state statute, provincial law or municipal ordinance
or law of similar purpose and effect, with respect to such obligation;
(i) that is the obligation of an Account Debtor located in a foreign
country other than Canada (excluding (1) the provinces of Newfoundland, Nova
Scotia and Prince Edward Island and the North West Territories and (2) the
province of Quebec if Agent has not confirmed to Borrower in writing that it has
perfected its security interest
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under the laws of the jurisdiction where such Credit Party is domiciled (as
defined under the Quebec Civil Code)) unless payment thereof is assured by a
letter of credit, reasonably satisfactory to Agent as to form, amount and
issuer;
(j) to the extent such Credit Party or any Subsidiary thereof is
liable for goods sold or services rendered by the applicable Account Debtor to
such Credit Party or any Subsidiary thereof but only to the extent of the
potential offset;
(k) that arises with respect to goods which are delivered on a
bill-and-hold, cash-on-delivery basis or placed on consignment, guaranteed sale
or other terms by reason of which the payment by the Account Debtor is or may be
conditional;
(l) that is in default; provided, that, without limiting the
generality of the foregoing, an Account shall be deemed in default upon the
occurrence of any of the following:
(i) it is not paid within one hundred twenty (120) days following
its due date;
(ii) if any Account Debtor obligated upon such Account suspends
business, makes a general assignment for the benefit of creditors, fails
to pay its debts generally as they come due or otherwise is insolvent
under applicable laws of any jurisdiction; or
(iii) if any petition is filed by or against any Account Debtor
obligated upon such Account under any bankruptcy law or any other federal,
state or foreign (including any provincial) receivership, insolvency
relief or other law or laws for the relief of debtors;
(m) which is the obligation of an Account Debtor if fifty percent
(50%) or more of the dollar amount of all Accounts owing by that Account Debtor
are ineligible under the other criteria set forth in this Section 1.5;
(n) as to which Agent's interest, on behalf of itself and Lenders,
or Agent's and Lenders' interest, as applicable, therein is not a first priority
perfected security interest or the applicable equivalent thereof;
(o) as to which any of the representations or warranties pertaining
to Accounts set forth in any of the Loan Documents is untrue in any material
respect;
(p) to the extent such Account is evidenced by a judgment,
Instrument or Chattel Paper;
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(q) to the extent such Account exceeds any credit limit established
by Agent, in its reasonable discretion;
(r) which is payable in any currency other than Dollars or Canadian
dollars; or
(s) which is unacceptable to Agent in its reasonable credit
judgment.
1.6 Eligible Inventory. Based on the most recent Borrowing Base
Certificate delivered by Borrower to Agent and on other information available to
Agent, Agent shall in its reasonable credit judgment determine which Inventory
of Borrower and the other Credit Parties (other than Parent) shall be "Eligible
Inventory" for purposes of this Agreement. In determining whether any particular
Inventory constitutes Eligible Inventory, Agent shall not include any such
Inventory to which any of the exclusionary criteria set forth below applies.
Agent reserves the right, at any time and from time to time after the Closing
Date, to adjust any such criteria, to establish new criteria and to adjust
advance rates with respect to Eligible Inventory, in its reasonable credit
judgment. Eligible Inventory shall not include any Inventory of such Credit
Party:
(a) that is not owned by such Credit Party free and clear of all
Liens and rights of any other Person (including the rights of a purchaser that
has made progress payments, the rights of a surety that has issued a bond to
assure such Credit Party's performance with respect to that Inventory and the
rights of unpaid suppliers under Section 81.1 of the Bankruptcy and Insolvency
Act (Canada)), except the Liens in favor of Agent, on behalf of itself and
Lenders and Prior Claims that are unregistered and otherwise unperfected and
that secure amounts that are not yet due and payable;
(b) that is (i) not located on premises owned and operated by such
Credit Party, unless (A) stored with a bailee, warehouseman or similar Person
and Agent has given its prior consent thereto or (B) located on premises leased
and operated by such Credit Party and unless, in the case of clauses (A) and
(B), (x) a satisfactory bailee letter or landlord waiver, as the case may be,
for such premises or storage location has been delivered to Agent, or (y)
Reserves reasonably satisfactory to Agent have been established with respect
thereto, or (ii) located at any site if the aggregate book value of Inventory at
any such location is less than $200,000 (other than the sites listed on
Disclosure Schedule (1.6(b)) provided that a satisfactory bailee letter for such
site has been delivered to Agent), or (iii) located in a foreign country other
than Canada (excluding (1) the provinces of Newfoundland, Nova Scotia, Prince
Edward Island, British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick
and the North West Territories and Yukon and (2) the province of Quebec unless
the Credit Party has delivered to Agent a duly executed hypothec substantially
in the form of the Canadian Hypothecs, an officer's certificate to which are
attached the Credit Party's constating documents, by-laws and authorizing
resolutions and certifying as to the incumbency of the officers of such Credit
Party
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executing the hypothec, and a legal opinion of the Credit Party's Quebec counsel
as to such legal aspects of the hypothec and the Credit Party as Agent may
reasonably request, all in form and substance satisfactory to Agent);
(c) that is placed on consignment or is in transit;
(d) that is covered by a negotiable document of title, unless such
document has been delivered to Agent;
(e) that in Agent's reasonable determination, is excess, obsolete,
unsalable, shopworn, seconds, damaged or unfit for sale;
(f) that consists of display items or packing or shipping materials,
manufacturing supplies or replacement parts;
(g) that consists of goods which have been returned by the buyer and
which are not saleable in the ordinary course;
(h) that is not of a type held for sale in the ordinary course of
such Credit Party's business;
(i) as to which Agent's Lien, on behalf of itself and Lenders, or
Agent's and Lenders' Liens, as applicable, therein is not a first priority
perfected Lien;
(j) as to which any of the representations or warranties pertaining
to Inventory set forth in any of the Loan Documents is untrue in any material
respect;
(k) consists of any costs associated with "freight-in" charges;
(l) consists of Hazardous Materials or goods that can be transported
or sold only with licenses that are not readily available;
(m) is not covered by casualty insurance which complies with the
requirements of Section 5.4; or
(n) is otherwise unacceptable to Agent in its reasonable credit
judgment.
1.7 Cash Management Systems. On or prior to the Closing Date,
Borrower will establish and will maintain until the Termination Date, the cash
management systems described on Annex C (the "Cash Management Systems").
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1.8 Fees. (a) Borrower shall pay to GE Capital, individually, the
Fees specified in that certain fee letter dated February 10, 1997 between
Parent, Borrower and GE Capital (the "GE Capital Fee Letter"), at the times
specified for payment therein.
(b) As additional compensation for the Revolving Lenders, Borrower
agrees to pay to Agent, for the ratable benefit of such Lenders, in arrears, on
the first Business Day of each month prior to the Commitment Termination Date
and on the Commitment Termination Date, a Fee for Borrower's non-use of
available funds in an amount equal to three eighths percent (3/8%) per annum
(calculated on the basis of a 360 day year for actual days elapsed) of the
difference between (x) the Maximum Amount as it may be reduced from time to time
and (y) the average for the period of the daily closing balances of the
Revolving Loan outstanding during the period for which such Fee is due.
(c) No prepayment fee shall be payable by Borrower if Borrower
prepays the Revolving Loan and reduces or terminates the Commitment, whether
voluntarily or involuntarily and whether before or after acceleration of the
Obligations.
1.9 Receipt of Payments. Borrower shall make each payment under this
Agreement not later than 2:00 p.m. (New York time) on the day when due in
immediately available funds in Dollars to the Collection Account. For purposes
of computing interest and Fees and determining Borrowing Availability or Net
Borrowing Availability as of any date, all payments shall be deemed received on
the day of receipt of immediately available funds therefor in the Collection
Account prior to 2:00 p.m. New York time. Payments received after 2:00 p.m. New
York time on any Business Day shall be deemed to have been received on the
following Business Day.
1.10 Application and Allocation of Payments. (a) So long as no
Default or Event of Default shall have occurred and be continuing, (i) payments
matching specific scheduled payments then due shall be applied to those
scheduled payments; (ii) voluntary prepayments shall be applied as determined by
Borrower, subject to the provisions of Section 1.2(a); and (iii) mandatory
prepayments shall be applied as set forth in Section 1.2. As to each other
payment, and as to all payments made when a Default or Event or Default shall
have occurred and be continuing or following the Commitment Termination Date,
Borrower hereby irrevocably waives the right to direct the application of any
and all payments received from or on behalf of Borrower, and Borrower hereby
irrevocably agrees that Agent shall have the continuing exclusive right to apply
any and all such payments against the Obligations as Agent may deem advisable
notwithstanding any previous entry by Agent in the Loan Account or any other
books and records. In the absence of a specific determination by Agent with
respect thereto, payments shall be applied to amounts then due and payable in
the following order: (1) to Fees and Agent's expenses reimbursable hereunder;
(2) to interest on the Loans, ratably in proportion to the interest accrued as
to each Loan; (3) to principal payments on the Loans; and (4) to all other
Obligations including expenses of Lenders to the extent reimbursable under
Section 11.3.
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(b) Agent is authorized to, and at its sole election may, charge to
the Revolving Loan balance on behalf of Borrower and cause to be paid all Fees,
expenses, Charges, costs (including insurance premiums in accordance with
Section 5.4(a)) and interest and principal owing by Borrower under this
Agreement or any of the other Loan Documents if and to the extent Borrower fails
to promptly pay any such amounts as and when due, even if such charges would
cause the aggregate balance of the Revolving Loan to exceed Borrowing
Availability. At Agent's option and to the extent permitted by law, any charges
so made shall constitute part of the Revolving Loan hereunder.
1.11 Loan Account and Accounting. Agent shall maintain a loan
account (the "Loan Account") on its books to record: (a) all Advances, (b) all
payments made by Borrower, and (c) all other debits and credits as provided in
this Agreement with respect to the Loans or any other Obligations. All entries
in the Loan Account shall be made in accordance with Agent's customary
accounting practices as in effect from time to time. The balance in the Loan
Account, as recorded on Agent's most recent printout or other written statement,
shall be presumptive evidence of the amounts due and owing to Agent and Lenders
by Borrower; provided that any failure to so record or any error in so recording
shall not limit or otherwise affect Borrower's duty to pay the Obligations.
Agent shall render to Borrower a monthly accounting of transactions with respect
to the Loans setting forth the balance of the Loan Account. Unless Borrower
notifies Agent in writing of any objection to any such accounting (specifically
describing the basis for such objection), within thirty (30) days after the date
thereof, each and every such accounting shall (absent manifest error) be deemed
final, binding and conclusive upon Borrower in all respects as to all matters
reflected therein. Only those items expressly objected to in such notice shall
be deemed to be disputed by Borrower.
1.12 Indemnity. (a) Each Credit Party that is a signatory hereto
shall jointly and severally indemnify and hold harmless each of Agent, Lenders
and their respective Affiliates, and each such Person's respective officers,
directors, employees, attorneys, agents and representatives, but only, in the
case of Houbigant (1995) Limited and MEM Company (Canada) Limited, to the extent
that such indemnification would not be prohibited or restricted under applicable
law (each, an "Indemnified Person"), from and against any and all suits,
actions, proceedings, claims, damages, losses, liabilities and expenses
(including reasonable attorneys' fees and disbursements and other reasonable
out-of-pocket costs of investigation or defense, including those incurred upon
any appeal) which may be instituted or asserted against or incurred by any such
Indemnified Person as the result of credit having been extended, suspended or
terminated under this Agreement and the other Loan Documents and the
administration of such credit, and in connection with or arising out of the
transactions contemplated hereunder and thereunder and any actions or failures
to act in connection therewith, including any and all Environmental Liabilities
and reasonable legal costs and expenses arising out of or incurred in connection
with disputes between or among any parties to any of the Loan Documents (other
than disputes arising solely between or among any Lenders) (collectively,
"Indemnified
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Liabilities"); provided, that no such Credit Party shall be liable for any
indemnification to an Indemnified Person to the extent that any such suit,
action, proceeding, claim, damage, loss, liability or expense results solely
from that Indemnified Person's gross negligence or willful misconduct, as
finally determined by a court of competent jurisdiction. NO INDEMNIFIED PERSON
SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY
SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER
PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE,
EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT
HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER ANY LOAN DOCUMENT OR AS A
RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
(b) To induce Lenders to provide the LIBOR Rate option on the terms
provided herein, if (i) any LIBOR Loans are repaid in whole or in part prior to
the last day of any applicable LIBOR Period (whether that repayment is made
pursuant to any provision of this Agreement or any other Loan Document or is the
result of acceleration, by operation of law or otherwise); (ii) Borrower shall
default in payment when due of the principal amount of or interest on any LIBOR
Loan; (iii) Borrower shall default in making any borrowing of, conversion into
or continuation of LIBOR Loans after Borrower has given notice requesting the
same in accordance herewith; or (iv) Borrower shall fail to make any prepayment
of a LIBOR Loan after Borrower has given a notice thereof in accordance
herewith, Borrower shall indemnify and hold harmless each Lender from and
against all losses, costs and expenses resulting from or arising from any of the
foregoing. Such indemnification shall include any loss (including loss of
margin) or expense arising from the reemployment of funds obtained by it or from
fees payable to terminate deposits from which such funds were obtained. For the
purpose of calculating amounts payable to a Lender under this subsection, each
Lender shall be deemed to have actually funded its relevant LIBOR Loan through
the purchase of a deposit bearing interest at the LIBOR Rate in an amount equal
to the amount of that LIBOR Loan and having a maturity comparable to the
relevant Interest Period; provided, however, that each Lender may fund each of
its LIBOR Loans in any manner it sees fit, and the foregoing assumption shall be
utilized only for the calculation of amounts payable under this subsection. This
covenant shall survive the termination of this Agreement and the payment of the
Notes and all other amounts payable hereunder. As promptly as practicable under
the circumstances, each Lender shall provide Borrower with its written
calculation of all amounts payable pursuant to this Section 1.12(b), and such
calculation shall be binding on the parties hereto unless Borrower shall object
in writing within thirty (30) days of receipt thereof, specifying the basis for
such objection in detail.
1.13 Access. Each Credit Party which is a party hereto shall, during
normal business hours, from time to time upon three (3) Business Day's prior
notice as frequently as Agent determines to be appropriate: (a) provide Agent
and any of its officers,
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employees and agents access to its properties, facilities, advisors and
employees (including officers) of each Credit Party and to the Collateral, (b)
permit Agent, and any of its officers, employees and agents, to inspect, audit
and make extracts from any Credit Party's books and records, and (c) permit
Agent, and its officers, employees and agents, to inspect, review, evaluate and
make test verifications and counts of the Accounts, Inventory and other
Collateral of any Credit Party, subject to the fees and expenses limitations set
forth in Section 11.3. If a Default or Event of Default shall have occurred and
be continuing, each such Credit Party shall provide such access to Agent and to
each Lender at all times and without advance notice. Furthermore, so long as any
Event of Default shall have occurred and be continuing, each Credit Party shall
provide Agent and each Lender with access to its suppliers and customers. Each
Credit Party shall make available to Agent and its counsel, as quickly as is
possible under the circumstances, originals or copies of all books and records
which Agent may request. Each Credit Party shall deliver any document or
instrument necessary for Agent, as it may from time to time request, to obtain
records from any service bureau or other Person which maintains records for such
Credit Party, and shall maintain duplicate records or supporting documentation
on media, including computer tapes and discs owned by such Credit Party. Agent
will give Lenders at least ten (10) days' prior written notice of regularly
scheduled audits. Representatives of other Lenders may accompany Agent's
representatives on regularly scheduled audits at no charge to Borrower. The
Credit Parties shall reimburse Agent with respect to such inspections,
verifications and audits as set forth in Section 11.3(f).
1.14 Taxes. (a) Any and all payments by Borrower hereunder or under
the Notes shall be made, in accordance with this Section 1.14, free and clear of
and without deduction for any and all present or future Taxes. If Borrower shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under the Notes, (i) the sum payable shall be increased as much as
shall be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 1.14) Agent
or Lenders, as applicable, receive an amount equal to the sum they would have
received had no such deductions been made, (ii) Borrower shall make such
deductions, and (iii) Borrower shall pay the full amount deducted to the
relevant taxing or other authority in accordance with applicable law. Within
thirty (30) days after the date of any payment of Taxes, Borrower shall furnish
to Agent the original or a certified copy of a receipt evidencing payment
thereof.
(b) Each Credit Party that is a signatory hereto shall indemnify
and, within ten (10) days of demand therefor, pay Agent and each Lender for the
full amount of Taxes (including any Taxes imposed by any jurisdiction on amounts
payable under this Section 1.14) paid by Agent or such Lender, as appropriate,
and any liability (including penalties, interest and expenses) arising therefrom
or with respect thereto, whether or not such Taxes were correctly or legally
asserted.
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(c) Foreign Lenders. Each Lender organized under the laws of a
jurisdiction outside the United States (a "Foreign Lender") as to which payments
to be made under this Agreement or under the Notes are exempt from United States
withholding tax under an applicable statute or tax treaty shall provide to
Borrower and Agent a properly completed and executed IRS Form 4224 or Form 1001
or other applicable form, certificate or document prescribed by the IRS or the
United States certifying as to such Foreign Lender's entitlement to such
exemption (a "Certificate of Exemption"). Any foreign Person that seeks to
become a Lender under this Agreement shall provide a Certificate of Exemption to
Borrower and Agent prior to becoming a Lender hereunder. No foreign Person may
become a Lender hereunder if such Person is unable to deliver a Certificate of
Exemption. Unless Borrower and Agent have received forms or other documents
satisfactory to them indicating that payments to a Foreign Lender under the
Notes are not subject to United States withholding tax or are subject to such
tax at a rate reduced by an applicable tax treaty, Borrower or Agent shall
withhold Taxes from such payments at the applicable statutory rate.
(d) Borrower agrees to pay all present or future stamp, documentary,
goods and services or other similar Taxes that arise from any payment made under
this Agreement, the Notes or any other Loan Document or with respect to this
Agreement, the Notes, the other Loan Documents or any other agreements and
instruments contemplated hereby or thereby.
1.15 Capital Adequacy; Increased Costs; Illegality. (a) If any
Lender shall have determined that the adoption after the date hereof of any law,
treaty, governmental (or quasi-governmental) rule, regulation, guideline or
order regarding capital adequacy, reserve requirements or similar requirements
or compliance by any Lender with any request or directive regarding capital
adequacy, reserve requirements or similar requirements (whether or not having
the force of law) from any central bank or other Governmental Authority
increases or would have the effect of increasing the amount of capital, reserves
or other funds required to be maintained by such Lender and thereby reducing the
rate of return on such Lender's capital as a consequence of its obligations
hereunder, then Borrower shall from time to time upon demand by such Lender
(with a copy of such demand to Agent) pay to Agent, for the account of such
Lender, additional amounts sufficient to compensate such Lender for such
reduction. A certificate as to the amount of that reduction and showing the
basis of the computation thereof submitted by such Lender to Borrower and to
Agent shall, absent manifest error, be final, conclusive and binding for all
purposes.
(b) If, due to either (i) the introduction of or any change in any
law or regulation (or any change in the interpretation thereof) or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), there shall be
any increase in the cost to any Lender of agreeing to make or making, funding or
maintaining any Loan, then Borrower shall from
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time to time, upon demand by such Lender (with a copy of such demand to Agent),
pay to Agent for the account of such Lender additional amounts sufficient to
compensate such Lender for such increased cost. A certificate as to the amount
of such increased cost, submitted to Borrower and to Agent by such Lender, and
showing the basis of such computation shall be conclusive and binding on
Borrower for all purposes, absent manifest error. Each Lender agrees that, as
promptly as practicable after it becomes aware of any circumstances referred to
above which would result in any such increased cost, the affected Lender shall,
to the extent not inconsistent with such Lender's internal policies of general
application, use reasonable commercial efforts to minimize costs and expenses
incurred by it and payable to it by Borrower pursuant to this Section 1.15(b).
(c) Notwithstanding anything to the contrary contained herein, if
the introduction of or any change in any law or regulation (or any change in the
interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for any Lender to agree
to make or to make or to continue to fund or maintain any LIBOR Loan, then,
unless that Lender is able to make or to continue to fund or to maintain such
LIBOR Loan at another branch or office of that Lender without, in that Lender's
opinion, adversely affecting it or its Loans or the income obtained therefrom,
on notice thereof and demand therefor by such Lender to Borrower through Agent,
(i) the obligation of such Lender to agree to make or to make or to continue to
fund or maintain LIBOR Loans shall terminate and (ii) Borrower shall forthwith
prepay in full all outstanding LIBOR Loans owing to such Lender, together with
interest accrued thereon, unless Borrower, within five (5) Business Days after
the delivery of such notice and demand, converts all such Loans into a Loan
bearing interest based on the Index Rate.
(d) Replacement of Lender in Respect of Increased Costs. Within
fifteen (15) days after receipt by Borrower of written notice and demand from
any Lender (an "Affected Lender") for payment of additional amounts or increased
costs as provided in Section 1.14(a), 1.15(a) or 1.15(b), Borrower may, at its
option, notify Agent and such Affected Lender of its intention to replace the
Affected Lender. So long as no Default or Event of Default shall have occurred
and be continuing, Borrower, with the consent of Agent, may obtain, at
Borrower's expense, a replacement Lender ("Replacement Lender") for the Affected
Lender, which Replacement Lender must be satisfactory to Agent. If Borrower
obtains a Replacement Lender, within ninety (90) days following notice of its
intention to replace, the Affected Lender must sell and assign its Loans and
Commitments to such Replacement Lender for an amount equal to the principal
balance of all Loans held by the Affected Lender and all accrued interest and
Fees with respect thereto through the date of such sale, provided that Borrower
shall have reimbursed such Affected Lender for the additional amounts or
increased costs that it is entitled to receive under this Agreement through the
date of such sale and assignment.
Notwithstanding the foregoing, Borrower shall not have the right to
obtain a Replacement Lender if the Affected Lender rescinds in full its demand
for increased costs
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or additional amounts within fifteen (15) days following its receipt of
Borrower's notice of intention to replace such Affected Lender. Furthermore, if
Borrower gives a notice of intention to replace and does not so replace such
Affected Lender within ninety (90) days thereafter, Borrower's rights under this
Section 1.15(d) shall terminate and Borrower shall promptly pay all increased
costs or additional amounts demanded by such Affected Lender pursuant to
Sections 1.14(a), 1.15(a) and 1.15(b).
1.16 Single Loan. All Loans to Borrower and all of the other
Obligations of Borrower arising under this Agreement and the other Loan
Documents shall constitute one general obligation of Borrower secured, until the
Termination Date, by all of its Collateral.
1.17 Obligations of Canadian Subsidiaries. Notwithstanding anything
in this Agreement or any Loan Document to the contrary, wherever in this
Agreement or any Loan Document a representation or warranty, indemnity, covenant
or other obligation is expressed to be given or made by or imposed upon either
of Houbigant (1995) Limited or MEM Company (Canada) Limited (whether by name or
in its capacity as a Credit Party), such representation, warranty, indemnity,
covenant or obligation shall in each case be understood not to impose on such
Canadian Subsidiary any obligation to give financial assistance by way of loan,
guarantee, the giving of security, the payment of money or otherwise within the
meaning of section 44 of the Canada Business Corporations Act, to or for the
benefit of any Credit Party other than Borrower, Holdings or Parent and, in the
case of MEM Company (Canada) Limited, MEM Company, Inc..
2. CONDITIONS PRECEDENT
2.1 Conditions to the Initial Loans.
No Lender shall be obligated to make the initial Loan hereunder, or
to take, fulfill, or perform any other action hereunder, until the following
conditions have been satisfied or provided for in a manner satisfactory to
Agent, or waived by Agent and Requisite Lenders:
(a) Credit Agreement; Loan Documents. This Agreement or counterparts
hereof shall have been duly executed by, and delivered to, Borrower, Agent and
Lenders; and Agent shall have received such documents, instruments, agreements
and legal opinions as Agent shall request in connection with the transactions
contemplated by this Agreement and the other Loan Documents, including all those
listed in the Closing Checklist attached hereto as Annex D, each in form and
substance satisfactory to Agent.
(b) [Intentionally Omitted].
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(c) Approvals. Agent shall have received (i) satisfactory evidence
that the Credit Parties have obtained all required consents and approvals of all
Persons including all requisite Governmental Authorities, to the execution,
delivery and performance of this Agreement and the other Loan Documents and the
consummation of the transactions contemplated hereby or (ii) an officer's
certificate in form and substance satisfactory to Agent affirming that (X) no
such consents or approvals are required, or (Y) if required, that such required
consents or approvals have been obtained.
(d) Opening Availability. The Eligible Accounts and Eligible
Inventory of Borrower supporting the initial Revolving Credit Advance and the
amount of the Reserves to be established on the Closing Date shall be sufficient
in value, as determined by Agent, to provide Borrower with Net Borrowing
Availability, after giving effect to any Revolving Credit Advance that may be
made on the Closing Date and the consummation of the transactions contemplated
hereby (on a pro forma basis, with trade payables being paid currently, and
expenses and liabilities being paid in the ordinary course of business and
without acceleration of sales) of at least $10,000,000.
(e) Payment of Fees. Borrower shall have paid the Fees required to
be paid on the Closing Date in the respective amounts specified in Section 1.8
(including the Fees specified in the GE Capital Fee Letter), and shall have
reimbursed Agent for all fees, costs and expenses of closing presented as of the
Closing Date.
2.2 Further Conditions to Each Loan. Except as otherwise expressly
provided herein, no Lender shall be obligated to fund any Loan, convert or
continue any Loan as a LIBOR Loan, if, as of the date thereof:
(a) Any representation or warranty by any Credit Party contained
herein or in any of the other Loan Documents shall be untrue or incorrect as of
such date in any material respect, except to the extent that such representation
or warranty expressly relates to an earlier date and except for changes therein
expressly permitted or expressly contemplated by this Agreement; or
(b) Any event or circumstance having a Material Adverse Effect shall
have occurred since the date hereof and be continuing; or
(c) (i) Any Event of Default shall have occurred and be continuing
or would result after giving effect to any Loan, or (ii) a Default shall have
occurred and be continuing or would result after giving effect to any Loan, and
Agent or Requisite Revolving Lenders shall have determined not to make any Loan
so long as that Default is continuing; or
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(d) After giving effect to any Advance, the outstanding principal
amount of the Revolving Loan would exceed the lesser of the Borrowing Base (plus
Overadvances as to which demand for payment has not been made) and the Maximum
Amount.
The request and acceptance by Borrower of the proceeds of any Loan, or the
conversion or continuation of any Loan into, or as, a LIBOR Loan, as the case
may be, shall be deemed to constitute, as of the date of such request or
acceptance, (i) a representation and warranty by Borrower that the conditions in
this Section 2.2 have been satisfied and (ii) a reaffirmation by Borrower of the
granting and continuance of Agent's Liens, on behalf of itself and Lenders,
pursuant to the Collateral Documents.
3. REPRESENTATIONS AND WARRANTIES
To induce Lenders to make the Loans, the Credit Parties executing
this Agreement, jointly and severally, make the following representations and
warranties to Agent and each Lender with respect to all Credit Parties, each and
all of which shall survive the execution and delivery of this Agreement.
3.1 Corporate Existence; Compliance with Law. Each Credit Party and
their Subsidiaries: (a) is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation; (b) is duly
qualified to conduct business and is in good standing in each other jurisdiction
where its ownership or lease of property or the conduct of its business requires
such qualification (except for jurisdictions in which such failure to so qualify
or to be in good standing would not have a Material Adverse Effect); (c) has the
requisite corporate power and authority and the legal right to own, pledge,
mortgage or otherwise encumber and operate its properties, to lease the property
it operates under lease and to conduct its business as now conducted; (d) has
all material licenses, permits, consents or approvals from or by, and has made
all filings with, and has given all notices to, all Governmental Authorities
having jurisdiction, to the extent required for such ownership, operation and
conduct; (e) is in compliance with its charter and by-laws; and (f) subject to
specific representations set forth herein regarding ERISA, Environmental Laws,
tax and other laws, is in compliance with all applicable provisions of law,
except where the failure to comply, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
3.2 Executive Offices; FEIN. As of the Closing Date, the current
location of each Credit Party's chief executive office and principal place of
business and, with respect to each Credit Party that has any intangibles or
incorporeal property in Quebec, Canada, such Credit Party's domicile (for
purposes of the Civil Code of Quebec), is set forth in Schedule III to the
Security Agreement or Schedule B to each of the Canadian Security Agreements. In
addition, Disclosure Schedule (3.2) lists the federal employer identification
number of each Credit Party.
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3.3 Corporate Power, Authorization, Enforceable Obligations. The
execution, delivery and performance by each Credit Party of the Loan Documents
to which it is a party and the creation of all Liens provided for therein: (a)
are within such Person's corporate power; (b) have been duly authorized by all
necessary or proper corporate and shareholder action; (c) do not contravene any
provision of such Person's charter or bylaws; (d) do not violate any law or
regulation, or any order or decree of any Governmental Authority; (e) do not
conflict with or result in the breach or termination of, constitute a default
under or accelerate or permit the acceleration of any performance required by,
any indenture, mortgage, deed of trust, lease, agreement or other instrument to
which such Person is a party or by which such Person or any of its property is
bound; (f) do not result in the creation or imposition of any Lien upon any of
the property of such Person other than those in favor of Agent, on behalf of
itself and Lenders, pursuant to the Loan Documents; and (g) do not require the
consent or approval of any Governmental Authority or any other Person, except
those referred to in Section 2.1(c), all of which will have been duly obtained,
made or complied with prior to the Closing Date. On or prior to the Closing
Date, each of the Loan Documents shall have been duly executed and delivered by
each Credit Party thereto and each such Loan Document shall then constitute a
legal, valid and binding obligation of such Credit Party enforceable against it
in accordance with its terms.
3.4 Financial Statements and Projections. Except for the
Projections, all Financial Statements concerning Parent and its Subsidiaries
which are referenced below have been prepared in accordance with GAAP
consistently applied throughout the periods covered (except as disclosed therein
and except, with respect to unaudited Financial Statements, for the absence of
footnotes and normal year-end audit adjustments) and present fairly in all
material respects the financial position of the Persons covered thereby as at
the dates thereof and the results of their operations and cash flows for the
periods then ended.
(a) The following Financial Statements attached hereto as Disclosure
Schedule (3.4(A)) have been delivered on the date hereof:
(i) The audited consolidated balance sheets at March 31, 1996 and
1995 and the related statements of income and cash flows of Parent and its
Subsidiaries for the Fiscal Years then ended, certified by Deloitte &
Touche LLP.
(ii) The unaudited consolidated balance sheet at December 31, 1996
and the related statement of income and cash flows of Parent and its
Subsidiaries for the nine months then ended.
(b) [Intentionally Omitted].
(c) Projections. The Projections delivered on the date hereof and
attached hereto as Disclosure Schedule (3.4(C)) have been prepared by Borrower
in light of
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the past operations of its businesses, and reflect projections for the six year
period beginning on April 1, 1996 on a month by month basis for the first two
Fiscal Years and on a year by year basis thereafter. The Projections are based
upon estimates and assumptions stated therein, all of which Borrower believes to
be reasonable and fair in light of current conditions and current facts known to
Borrower and, as of the Closing Date, reflect Borrower's good faith and
reasonable estimates of the future financial performance of Borrower and the
other Credit Parties and their Subsidiaries and of the other information
projected therein for the period set forth therein.
3.5 Material Adverse Effect. Between March 31, 1996 and the Closing
Date except as set forth on Disclosure Schedule (3.5), (a) no Credit Party has
incurred any obligations, contingent or non-contingent liabilities, liabilities
for Charges, long-term leases or unusual forward or long-term commitments which
are not reflected in the unaudited consolidated balance sheet at December 31,
1996 of Parent or incurred in the ordinary course of business since December 31,
1996 and which, alone or in the aggregate, could reasonably be expected to have
a Material Adverse Effect, (b) no contract, lease or other agreement or
instrument has been entered into by any Credit Party or has become binding upon
any Credit Party's assets and no law or regulation applicable to any Credit
Party has been adopted which has had or could reasonably be expected to have a
Material Adverse Effect, and (c) no Credit Party is in default and to the best
of Borrower's knowledge no third party is in default under any material
contract, lease or other agreement or instrument, which alone or in the
aggregate could reasonably be expected to have a Material Adverse Effect.
Between March 31, 1996 and the Closing Date no event has occurred, which alone
or together with other events, could reasonably be expected to have a Material
Adverse Effect.
3.6 Ownership of Property; Liens. (a) As of the Closing Date, the
real estate ("Real Estate") listed on Disclosure Schedule (3.6) constitutes all
of the real property owned, leased, subleased, or used by any Credit Party. Each
Credit Party owns good and marketable fee simple title to all of its owned real
estate, and valid leasehold interests in all of its leased Real Estate, all as
described on Disclosure Schedule (3.6), and copies of all such leases have been
delivered to Agent. Disclosure Schedule (3.6) further describes any Real Estate
with respect to which any Credit Party is a lessor or sublessor as of the
Closing Date. Each Credit Party also has good and marketable title to, or valid
leasehold interests in, all of its personal properties and assets. Except as set
forth in Disclosure Schedule (6.7), as of the Closing Date, none of the
properties and assets of any Credit Party are subject to any Liens other than
Permitted Encumbrances, and there are no facts, circumstances or conditions
known to any Credit Party that may result in any Liens (including Liens arising
under Environmental Laws) other than Permitted Encumbrances; the Accounts are
not subject to any Liens, and the Inventory is not subject to any Liens other
than Permitted Encumbrances described in clause (f) of the definition thereof.
Each Credit Party has received all material deeds, assignments, waivers,
consents, non-disturbance and recognition or similar agreements, bills of sale
and other documents,
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and has duly effected all recordings, filings and other actions necessary to
establish, protect and perfect such Credit Party's right, title and interest in
and to all such Real Estate and other properties and assets. Disclosure Schedule
(3.6) also describes any purchase options, rights of first refusal or other
similar contractual rights pertaining to any Real Estate. As of the Closing
Date, no portion of any Credit Party's Real Estate has suffered any material
damage by fire or other casualty loss which has not heretofore been repaired and
restored in all material respects to its original condition or otherwise
remedied. As of the Closing Date, all material permits required to have been
issued or appropriate to enable the Real Estate to be lawfully occupied and used
for all of the purposes for which they are currently occupied and used have been
obtained and are in full force and effect.
3.7 Labor Matters. As of the Closing Date (a) no strikes or other
material labor disputes against any Credit Party are pending or, to any Credit
Party's knowledge, threatened; (b) hours worked by and payment made to employees
of each Credit Party comply with the Fair Labor Standards Act and each other
federal, state, provincial, local or foreign law applicable to such matter; (c)
except as set forth in Disclosure Schedule (3.7), all payments due from any
Credit Party for employee health and welfare insurance have been paid or accrued
as a liability on the books of such Credit Party; (d) except as set forth in
Disclosure Schedule (3.7), no Credit Party is a party to or bound by any
collective bargaining agreement, management agreement, consulting agreement or
any employment agreement (and true and complete copies of any agreements
described on Disclosure Schedule (3.7) have been delivered to Agent); (e) there
is no organizing activity involving any Credit Party pending or, to any Credit
Party's knowledge, threatened by any labor union or group of employees; (f)
there are no representation proceedings pending or, to any Credit Party's
knowledge, threatened with the National Labor Relations Board, and no labor
organization or group of employees of any Credit Party has made a pending demand
for recognition; and (g) except as set forth in Disclosure Schedule (3.7), there
are no complaints or charges against any Credit Party pending or, to the
knowledge of any Credit Party, threatened to be filed with any Governmental
Authority or arbitrator based on, arising out of, in connection with, or
otherwise relating to the employment or termination of employment by any Credit
Party of any individual.
3.8 Subsidiaries and Affiliates; Outstanding Stock and Indebtedness.
Except as set forth in Disclosure Schedule (3.8), no Credit Party has any
Subsidiaries, or is an Affiliate of any other Person. All of the issued and
outstanding Stock of each Credit Party and their Subsidiaries is owned by each
of the stockholders and in the amounts set forth on Disclosure Schedule (3.8).
Except as set forth in Disclosure Schedule (3.8), there are no outstanding
rights to purchase, options, warrants or similar rights or agreements pursuant
to which any Credit Party or their Subsidiaries may be required to issue, sell,
repurchase or redeem any of its Stock or other equity securities. All
outstanding Indebtedness of each Credit Party and their Subsidiaries as of the
Closing Date is described in Section 6.3 (including Disclosure Schedule (6.3)).
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3.9 Government Regulation. No Credit Party is an "investment
company" or an "affiliated person" of, or "promoter" or "principal underwriter"
for, an "investment company," as such terms are defined in the Investment
Company Act of 1940, as amended. No Credit Party is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, or any
other federal or state statute that restricts or limits its ability to incur
Indebtedness or to perform its obligations hereunder. The making of the Loans by
Lenders to Borrower, the application of the proceeds thereof and repayment
thereof and the consummation of the transactions contemplated hereby will not
violate any provision of any such statute or any rule, regulation or order
issued by the Securities and Exchange Commission.
3.10 Margin Regulations. No Credit Party is engaged, nor will it
engage, principally or as one of its important activities, in the business of
extending credit for the purpose of "purchasing" or "carrying" any "margin
security" as such terms are defined in Regulation U or G of the Federal Reserve
Board as now and from time to time hereafter in effect (such securities being
referred to herein as "Margin Stock"). No Credit Party owns any Margin Stock,
and none of the proceeds of the Loans or other extensions of credit under this
Agreement will be used, directly or indirectly, for the purpose of purchasing or
carrying any Margin Stock, for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase or carry any Margin Stock
or for any other purpose which might cause any of the Loans or other extensions
of credit under this Agreement to be considered a "purpose credit" within the
meaning of Regulation G, T, U or X of the Federal Reserve Board. No Credit Party
will take or permit to be taken any action which might cause any Loan Document
to violate any regulation of the Federal Reserve Board.
3.11 Taxes. All income and other material tax returns, reports and
statements, including information returns, required by any Governmental
Authority to be filed by any Credit Party have been filed with the appropriate
Governmental Authority and all income and other material Charges have been paid
prior to the date on which any fine, penalty, interest or late charge may be
added thereto for nonpayment thereof (or any such fine, penalty, interest, late
charge or loss has been paid), excluding Charges or other amounts being
contested in accordance with Section 5.2(b). Proper and accurate amounts have
been withheld by each Credit Party from its respective employees for all periods
in full and complete compliance with all applicable federal, state, local and
foreign law and such withholdings have been timely paid to the respective
Governmental Authorities. Disclosure Schedule (3.11) sets forth as of the
Closing Date those taxable years for which any Credit Party's tax returns are
currently being audited by the IRS or any other applicable Governmental
Authority and any assessments or threatened assessments in connection with such
audit. Except as described on Disclosure Schedule (3.11), no Credit Party has
executed or filed with the IRS or any other Governmental Authority any agreement
or other document extending, or having the effect of extending, the period for
assessment or collection of any Charges. None of the Credit Parties and their
respective predecessors are liable for any Charges under any agreement
(including any tax sharing agreements other
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than the Tax Sharing Agreement) or, to each Credit Party's knowledge, as a
transferee. As of the Closing Date, no Credit Party has agreed or been requested
to make any adjustment under IRC Section 481(a), by reason of a change in
accounting method or otherwise, which would have a Material Adverse Effect.
3.12 ERISA. (a) Disclosure Schedule (3.12) lists and separately
identifies all Title IV Plans, Multiemployer Plans, ESOPs and Retiree Welfare
Plans. Copies of all such listed Plans, together with a copy of the latest form
5500 for each such Plan, have been delivered to Agent. Each Qualified Plan has
been determined by the IRS to qualify under Section 401 of the IRC, and the
trusts created thereunder have been determined to be exempt from tax under the
provisions of Section 501 of the IRC, and nothing has occurred which would cause
the loss of such qualification or tax-exempt status or would require a filing
under the IRS's Closing Agreement Program, Voluntary Compliance Resolution
Program or any similar program. Each Plan is in material compliance with the
applicable provisions of ERISA and the IRC, including the filing of reports
required under the IRC or ERISA. No Credit Party or ERISA Affiliate has failed
to make any contribution or pay any amount due as required by either Section 412
of the IRC or Section 302 of ERISA or the terms of any such Plan. No Credit
Party or ERISA Affiliate has engaged in a prohibited transaction, as defined in
Section 4975 of the IRC, in connection with any Plan, which would subject any
Credit Party to a material tax on prohibited transactions imposed by Section
4975 of the IRC. The representations set forth in this Section 3.12(a) shall not
be applicable to Multiemployer Plans covering employees at the Northvale, New
Jersey facilities of MEM Company, Inc. and Tom Fields (a division of MEM
Company, Inc.), except for the representation set forth in the first sentence of
this Section 3.2(a).
(b) Except as set forth in Disclosure Schedule (3.12): (i) no Title
IV Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event
described in Section 4062(e) of ERISA with respect to any Title IV Plan has
occurred or is reasonably expected to occur; (iii) there are no pending, or to
the knowledge of any Credit Party, threatened claims (other than claims for
benefits in the normal course), sanctions, actions or lawsuits, asserted or
instituted against any Plan or any Person as fiduciary or sponsor of any Plan;
(iv) no Credit Party or ERISA Affiliate has incurred or reasonably expects to
incur any liability as a result of a complete or partial withdrawal from a
Multiemployer Plan; (v) within the last five years no Title IV Plan with
Unfunded Pension Liabilities has been transferred outside of the "controlled
group" (within the meaning of Section 4001(a)(14) of ERISA) of any Credit Party
or ERISA Affiliate; and (vi) no liability under any Title IV Plan has been
satisfied with the purchase of a contract from an insurance company that is not
rated AAA by the Standard & Poor's Corporation or the equivalent by another
nationally recognized rating agency. The representations set forth in this
Section 3.12(b) shall not be applicable to Multiemployer Plans covering
employees at the Northvale, New Jersey facilities of MEM Company, Inc. and Tom
Fields (a division of MEM Company, Inc.), except for the representations set
forth in clause (iv) above.
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(c) Disclosure Schedule (3.12) sets forth all Canadian Benefit Plans
and Canadian Pension Plans adopted by each Credit Party. The Canadian Pension
Plans are duly registered under the Income Tax Act (Canada) and all other
applicable laws which require registration and no event has occurred which is
reasonably likely to cause the loss of such registered status. All material
obligations of each Credit Party (including fiduciary, funding, investment and
administration obligations) required to be performed in connection with the
Canadian Pension Plans and the funding agreements therefor have been performed
in a timely fashion. There have been no improper withdrawals or applications of
the assets of the Canadian Pension Plans or the Canadian Benefit Plans. There
are no outstanding disputes concerning the assets of the Canadian Pension Plans
or the Canadian Benefit Plans. Each of the Canadian Pension Plans is fully
funded on a solvency basis (using actuarial methods and assumptions which are
consistent with the valuations last filed with the applicable Governmental
Authorities and which are consistent with generally accepted actuarial
principles).
3.13 No Litigation. No action, claim, lawsuit, demand, investigation
or proceeding is now pending or, to the knowledge of any Credit Party,
threatened against any Credit Party, before any court, board, commission, agency
or instrumentality of any Governmental Authority, or before any arbitrator or
panel of arbitrators (collectively, "Litigation"), which (a) challenges any
Credit Party's right or power to enter into or perform any of its obligations
under the Loan Documents to which it is a party, or the validity or
enforceability of any Loan Document or any action taken thereunder, or (b)
except as set forth on Disclosure Schedule (3.13), is reasonably likely to be
determined adversely to any Credit Party and which, if so determined, could have
a Material Adverse Effect. Except as set forth on Disclosure Schedule (3.13), as
of the Closing Date there is no Litigation pending or threatened which seeks
damages in excess of $100,000 or injunctive relief or alleges criminal
misconduct of any Credit Party.
3.14 Brokers. No broker or finder acting on behalf of any Credit
Party brought about the obtaining, making or closing of the Loans or the
transactions contemplated hereby, and no Credit Party has any obligation to any
Person in respect of any finder's or brokerage fees in connection therewith.
3.15 Intellectual Property. As of the Closing Date, each Credit
Party owns or has rights to use all Intellectual Property necessary to continue
to conduct its business as now or heretofore conducted by it or proposed to be
conducted by it, except for those the absence of which would not have a Material
Adverse Effect, and each U.S. and Canadian Patent, Trademark and Copyright
registration and application and each License is listed in Disclosure Schedule
(3.15) hereto. Each Credit Party conducts its business and affairs without
infringement of or interference with any Intellectual Property of any other
Person, except where the failure to do so would not have a Material Adverse
Effect.
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3.16 Full Disclosure. No information contained in this Agreement,
any of the other Loan Documents, any Projections, Financial Statements or
Collateral Reports or other reports from time to time delivered hereunder or any
written statement furnished by or on behalf of any Credit Party to Agent or any
Lender pursuant to the terms of this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained herein or therein not misleading
in light of the circumstances under which they were made. The Liens granted to
Agent, on behalf of itself and Lenders, pursuant to the Collateral Documents
will at all times be fully perfected first priority Liens in and to the
Collateral described therein, subject, as to priority, only to Permitted
Encumbrances with respect to the Collateral other than Accounts.
3.17 Environmental Matters. (a) Except as set forth in Disclosure
Schedule (3.17), as of the Closing Date: (i) the Real Estate is free of
contamination from any Hazardous Material except for such contamination that
would not adversely impact the value or marketability of such Real Estate and
which would not result in Environmental Liabilities which could reasonably be
expected to exceed $500,000; (ii) no Credit Party has caused or suffered to
occur any Release of Hazardous Materials on, at, in, under, above, to, from or
about any of its Real Estate; (iii) the Credit Parties are and have been in
compliance with all Environmental Laws, except for such noncompliance which
would not result in Environmental Liabilities which could reasonably be expected
to exceed $500,000; (iv) the Credit Parties have obtained, and are in compliance
with, all Environmental Permits required by Environmental Laws for the
operations of their respective businesses as presently conducted or as proposed
to be conducted, except where the failure to so obtain or comply with such
Environmental Permits would not result in Environmental Liabilities which could
reasonably be expected to exceed $500,000, and all such Environmental Permits
are valid, uncontested and in good standing; (v) no Credit Party is involved in
operations or knows of any facts, circumstances or conditions, including any
Releases of Hazardous Materials, that are likely to result in any Environmental
Liabilities of such Credit Party which could reasonably be expected to exceed
$500,000; (vi) the Credit Parties' estimated costs of compliance with
Environmental Laws and Environmental Permits for each of the two Fiscal Years
following the Closing Date are $500,000 and $500,000, respectively; (vii) there
is no Litigation arising under or related to any Environmental Laws,
Environmental Permits or Hazardous Material which seeks damages, penalties,
fines, costs or expenses in excess of $250,000 or injunctive relief, or which
alleges criminal misconduct by any Credit Party; (viii) no notice has been
received by any Credit Party identifying it as a "potentially responsible party"
or requesting information under CERCLA or analogous state, Canadian federal or
provincial statutes, and to the knowledge of the Credit Parties, there are no
facts, circumstances or conditions that may result in any Credit Party being
identified as a "potentially responsible party" or analogous person under CERCLA
or analogous state, Canadian federal or provincial statutes; and (ix) the Credit
Parties have provided to Agent copies of all existing
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environmental reports, reviews and audits and all written information pertaining
to actual or potential Environmental Liabilities, in each case relating to any
Credit Party.
(b) Each Credit Party hereby acknowledges and agrees that Agent (i)
is not now, and has not ever been, in control of any of the Real Estate or any
Credit Party's affairs, and (ii) prior to foreclosure by Agent of any mortgages
on the Real Estate, does not have the capacity through the provisions of the
Loan Documents or otherwise to influence any Credit Party's conduct with respect
to the ownership, operation or management of any of its Real Estate or
compliance with Environmental Laws or Environmental Permits.
3.18 Insurance. Disclosure Schedule (3.18) lists all insurance
policies maintained, as of the Closing Date, for current occurrences by each
Credit Party.
3.19 Deposit and Disbursement Accounts. Disclosure Schedule (3.19)
lists all banks and other financial institutions at which any Credit Party
maintains deposits and/or other accounts as of the Closing Date, including any
Disbursement Accounts, and such Schedule correctly identifies the name, address
and telephone number of each depository, the name in which the account is held,
a description of the purpose of the account, and the complete account number.
3.20 Government Contracts. Except as set forth in Disclosure
Schedule (3.20), as of the Closing Date, no Credit Party is a party to any
material contract or agreement with any Governmental Authority and no Credit
Party's Accounts are subject to the Federal Assignment of Claims Act, as amended
(31 U.S.C. Section 3727) or any similar state, provincial, or local or foreign
law, including without limitation the Financial Administration Act (Canada).
3.21 Customer and Trade Relations. As of the Closing Date, there
exists no actual or, to the knowledge of any Credit Party, threatened
termination or cancellation of, or any material adverse modification or change
in: (a) the business relationship of any Credit Party with any customer or group
of customers whose purchases during the preceding twelve (12) months caused them
to be ranked among the ten largest customers of such Credit Party; or (b) the
business relationship of any Credit Party with any supplier material to its
operations.
3.22 Agreements and Other Documents. As of the Closing Date, each
Credit Party has provided to Agent or its counsel, on behalf of Lenders,
accurate and complete copies (or summaries) of all of the following agreements
or documents to which any it is subject and each of which are listed on
Disclosure Schedule (3.22): (a) supply agreements and purchase agreements not
terminable by such Credit Party within sixty (60) days following written notice
issued by such Credit Party and involving transactions, with respect to such
agreement, in excess of $1,000,000 per annum; (b) any lease of Equipment having
a remaining term of one year or longer and requiring aggregate rental and other
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payments in excess of $1,000,000 per annum; (c) licenses and permits held by the
Credit Parties, the absence of which could be reasonably likely to have a
Material Adverse Effect; (d) instruments or documents evidencing Indebtedness of
such Credit Party and any security interest granted by such Credit Party with
respect thereto; and (e) instruments and agreements evidencing the issuance of
any equity securities, warrants, rights or options to purchase equity securities
of such Credit Party.
3.23 Solvency. Both before and after giving effect to (a) the Loans
to be made or extended on the Closing Date or such other date as Loans requested
hereunder are made or extended, (b) the disbursement of the proceeds of such
Loans pursuant to the instructions of Borrower, (c) the Refinancing and the
consummation of the other transactions contemplated hereby and (d) the payment
and accrual of all transaction costs in connection with the foregoing, each
Credit Party is Solvent.
3.24 Inactive Subsidiaries. Each of the following Subsidiaries of
Borrower is inactive and has no material assets and liabilities: MEM
International, Ltd., Rosemint Cosmetics Company, Inc., St. Thomas Leatherworks
Limited, St. Thomas Holdings, Inc., Financiera de Perfumeria S.A., Perfumes and
Cosmetics Importers, Inc., C.O.M.I.N.S.A., Parfums Dana Export Corp., Victor of
Milano, Ltd., Alliance Trading Co., Inc., Dana Perfumes (Canada) Ltd., and RSH
149 S.A.R.L., Renaissance Guarantor, Inc. ("RGI") is an inactive Subsidiary of
Parent and has no material assets and liabilities other than the 1997 Senior
Notes Escrow Account and its guarantee of the 1997 Senior Notes.
3.25 Parent Debt. As of the Closing Date, Borrower has delivered to
Agent a complete and correct copy of the Parent Notes (including all schedules,
exhibits, amendments, supplements, modifications, assignments and all other
documents delivered pursuant thereto or in connection therewith). Parent has the
corporate power and authority to incur the Indebtedness evidenced by the Parent
Notes. The subordination provisions of the Parent Notes (other than the 1997
Senior Notes) are enforceable against the holders thereof by Agent and Lenders.
All Obligations, including the Obligations to pay principal of and interest on
the Loans, constitute senior Indebtedness entitled to the benefits of the
subordination provisions contained in the Parent Notes (other than the 1997
Senior Notes). The principal of and interest on the Notes, and all other
Obligations will constitute "senior debt" as that or any similar term is or may
be used in any other instrument evidencing or applicable to any other Parent
Debt (other than the 1997 Senior Notes). Borrower acknowledges that Agent and
each Lender are entering into this Agreement and are extending the Commitments
in reliance upon such subordination provisions and this Section 3.25.
4. FINANCIAL STATEMENTS AND INFORMATION
4.1 Reports and Notices. (a) Each Credit Party executing this
Agreement hereby agrees that from and after the Closing Date and until the
Termination
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Date, it shall deliver to Agent and/or Lenders, as required, the Financial
Statements, notices, Projections and other information at the times, to the
Persons and in the manner set forth in Annex E.
(b) Each Credit Party executing this Agreement hereby agrees that
from and after the Closing Date and until the Termination Date, it shall deliver
to Agent and/or Lenders, as required, the various Collateral Reports (including
Borrowing Base Certificates in the form of Exhibit 4.1(b)) at the times, to the
Persons and in the manner set forth in Annex F.
4.2 Communication with Accountants. Each Credit Party executing this
Agreement authorizes Agent and, so long as a Default or Event of Default shall
have occurred and be continuing, each Lender, to communicate directly with its
independent certified public accountants or chartered accountants including
Deloitte & Touche LLP, and authorizes and shall instruct those accountants and
advisors to disclose and make available to Agent and each Lender any and all
Financial Statements and other supporting financial documents, schedules and
information relating to any Credit Party (including copies of any issued
management letters) with respect to the business, financial condition and other
affairs of any Credit Party.
5. AFFIRMATIVE COVENANTS
Each Credit Party executing this Agreement jointly and severally
agrees as to all Credit Parties that from and after the date hereof and until
the Termination Date:
5.1 Maintenance of Existence and Conduct of Business. Each Credit
Party shall except as otherwise permitted in Section 6.1 and 6.8: (a) do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and its rights and franchises, except where such
Credit Party (other than Parent or Borrower) determines that such termination of
its corporate existence would not reasonably be likely to result in a Material
Adverse Effect; (b) continue to conduct its business substantially as now
conducted or as otherwise permitted hereunder; (c) at all times maintain,
preserve and protect all of its material assets and properties used or useful in
the conduct of its business, and keep the same in good repair, working order and
condition in all material respects (taking into consideration ordinary wear and
tear) and from time to time make, or cause to be made, all necessary or
appropriate repairs, replacements and improvements thereto consistent with
industry practices; and (d) transact business only in such corporate and trade
names as are set forth in Disclosure Schedule (5.1) as currently in effect or as
amended on thirty (30) days advance written notice to Agent.
5.2 Payment of Obligations. (a) Subject to Section 5.2(b), each
Credit Party shall pay and discharge or cause to be paid and discharged promptly
all (A) Charges payable by it, including Charges imposed upon it, its income and
profits, or any of its
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property (real, personal or mixed) and all Charges with respect to tax, social
security and unemployment withholding with respect to its employees, and (B)
lawful claims for labor, materials, supplies and services or otherwise,
consistent with past practice.
(b) Each Credit Party may in good faith contest, by appropriate
proceedings, the validity or amount of any Charges or claims described in
Section 5.2(a); provided, that (i) adequate reserves with respect to such
contest are maintained on the books of such Credit Party, in accordance with
GAAP, (ii) such contest is maintained and prosecuted with diligence, (iii) none
of the Collateral becomes subject to forfeiture or loss as a result of such
contest, (iv) no Lien shall be imposed to secure payment of such Charges or
claims other than Permitted Encumbrances, (v) such Credit Party shall promptly
pay or discharge such contested Charges or claims and all additional charges,
interest, penalties and expenses, if any, and shall deliver to Agent evidence
acceptable to Agent of such compliance, payment or discharge, if such contest is
terminated or discontinued adversely to such Credit Party or the conditions set
forth in this Section 5.2(b) are no longer met, and (vi) Agent has not advised
Borrower in writing that Agent reasonably believes that nonpayment or
nondischarge thereof would be reasonably likely to result in a Material Adverse
Effect.
5.3 Books and Records. Each Credit Party shall keep adequate books
and records with respect to its business activities in which proper entries,
reflecting all financial transactions, are made in accordance with GAAP and on a
basis consistent with the Financial Statements attached as Disclosure Schedule
(3.4(A)).
5.4 Insurance; Damage to or Destruction of Collateral. (a) The
Credit Parties shall, at their sole cost and expense, maintain the policies of
insurance described on Disclosure Schedule (3.18), and such other policies as
deemed prudent by the Credit Parties. If any Credit Party at any time or times
hereafter shall fail to obtain or maintain any of the policies of insurance
required above or to pay all premiums relating thereto, Agent may at any time or
times thereafter obtain and maintain such policies of insurance and pay such
premiums and take any other action with respect thereto which Agent deems
advisable. Agent shall have no obligation to obtain insurance for any Credit
Party or pay any premiums therefor. By doing so, Agent shall not be deemed to
have waived any Default or Event of Default arising from any Credit Party's
failure to maintain such insurance or pay any premiums therefor. All sums so
disbursed, including attorneys' fees, court costs and other charges related
thereto, shall be payable on demand by Borrower to Agent and shall be additional
Obligations hereunder secured by the Collateral.
(b) Agent reserves the right at any time after ten (10) Business
Days advance written notice to the Credit Party in question upon any change in
any Credit Party's risk profile (including any change in the product mix
maintained by any Credit Party or any laws affecting the potential liability of
such Credit Party) to require additional forms and limits of insurance to, in
Agent's reasonable opinion, adequately protect both
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Agent's and Lender's interests in all or any portion of the Collateral and to
ensure that each Credit Party is protected by insurance in amounts and with
coverage customary for its industry. If requested by Agent, each Credit Party
shall deliver to Agent from time to time a report of a reputable insurance
broker, satisfactory to Agent, with respect to its insurance policies.
(c) Borrower, on behalf of each Credit Party, shall deliver to
Agent, in form and substance reasonably satisfactory to Agent, endorsements to
(i) all "All Risk" and business interruption insurance naming Agent, on behalf
of itself and Lenders, as loss payee, and (ii) all general liability and other
liability policies naming Agent, on behalf of itself and Lenders, as additional
insured. Each Credit Party irrevocably makes, constitutes and appoints Agent
(and all officers, employees or agents designated by Agent), so long as any
Default or Event of Default shall have occurred and be continuing, as such
Credit Party's true and lawful agent and attorney-in-fact for the purpose of
making, settling and adjusting claims under such "All Risk" policies of
insurance, endorsing the name of such Credit Party on any check or other item of
payment for the proceeds of such "All Risk" policies of insurance and for making
all determinations and decisions with respect to such "All Risk" policies of
insurance. Agent shall have no duty to exercise any rights or powers granted to
it pursuant to the foregoing power-of-attorney. Borrower shall promptly notify
Agent of any loss, damage, or destruction to the Collateral in the amount of
$500,000 or more, whether or not covered by insurance. After deducting from such
proceeds the expenses, if any, incurred by Agent in the collection or handling
thereof, Agent may, at its option, apply such proceeds to the reduction of the
Obligations in accordance with Section 1.2(d), or permit or require the
applicable Credit Party to use such money, or any part thereof, to replace,
repair, restore or rebuild the Collateral in a diligent and expeditious manner
with materials and workmanship of substantially the same quality as existed
before the loss, damage or destruction. Notwithstanding the foregoing, if the
casualty giving rise to such insurance proceeds would not reasonably be expected
to have a Material Adverse Effect and such insurance proceeds do not exceed
$500,000 in the aggregate, Agent shall permit the applicable Credit Party to
replace, restore, repair or rebuild the property; provided that if such Credit
Party has not completed or entered into binding agreements to complete such
replacement, restoration, repair or rebuilding within 180 days of such casualty,
Agent may require such Credit Party to apply such insurance proceeds to the
Obligations in accordance with Section 1.2(d). All insurance proceeds which are
to be so made available to replace, repair, restore or rebuild the Collateral
shall be applied by Agent to reduce the outstanding principal balance of the
Revolving Loan (which application shall not result in a permanent reduction of
the Commitment) and upon such application, Agent shall establish a Reserve
against the Borrowing Base in an amount equal to the amount of such proceeds so
applied. Thereafter, such funds shall be made available to Borrower to provide
funds to replace, repair, restore or rebuild the Collateral as follows: (i)
Borrower shall request a Revolving Credit Advance in the amount requested to be
released; (ii) so long as the conditions set forth in Section 2.2 have been met,
Revolving Lenders shall make such Revolving Credit Advance; and (iii) the
Reserve established with respect to
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such insurance proceeds shall be reduced by the amount of such Revolving Credit
Advance. To the extent not used to replace, repair, restore or rebuild the
Collateral, such insurance proceeds shall be applied in accordance with Section
1.2(d).
(d) Prior to or contemporaneously with the amendment, supplementa
tion or other modification of Houbigant (1995) Limited's or MEM Company (Canada)
Limited's insurance coverage under which Agent is to be named as a loss payee
pursuant to this Agreement, Houbigant (1995) Limited and MEM Company (Canada)
Limited, as the case may be, agrees to deliver to Agent (i) an Assignment of
Monies Payable under the Insurance Policies duly executed by Houbigant (1995)
Limited or MEM Company (Canada) Limited, as the case may be, (ii) a duly
executed confirmation of the applicable insurer confirming the receipt of the
transfer and assignment and authorization provided for in such Assignment of
Monies Payable under Insurance Policies and the duly executed agreement of the
applicable insurer to pay all proceeds of insurance in accordance with the same,
and (iii) a legal opinion of counsel acceptable to Agent and in form and
substance acceptable to Agent as to the Assignment of Monies Payable under
Insurance Policies being enforceable against Houbigant (1995) Limited or MEM
Company (Canada) Limited, as the case may be.
5.5 Compliance with Laws. Each Credit Party shall comply with all
federal, state, provincial, local and foreign laws and regulations applicable to
it, including those relating to the FDA, licensing, labor matters and
Environmental Laws and Environmental Permits, except to the extent that the
failure to comply, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect, provided that each Credit Party
shall comply in all respects and in any event with all such applicable laws
regarding the withholding, collection, payment and/or deposit, as applicable, of
employees' income, unemployment and health insurance and other benefits and
social security.
5.6 Supplemental Disclosure. From time to time as may be requested
by Agent (which request will not be made more frequently than once each year
absent the occurrence and continuance of a Default or an Event of Default), the
Credit Parties shall supplement each Disclosure Schedule hereto, or any
representation herein or in any other Loan Document, with respect to any matter
hereafter arising which, if existing or occurring at the date of this Agreement,
would have been required to be set forth or described in such Disclosure
Schedule or as an exception to such representation or which is necessary to
correct any information in such Disclosure Schedule or representation which has
been rendered inaccurate thereby (and, in the case of any supplements to any
Disclosure Schedule, such Disclosure Schedule shall be appropriately marked to
show the changes made therein); provided that (a) no such supplement to any such
Disclosure Schedule or representation shall be or be deemed a waiver of any
Default or Event of Default resulting from the matters disclosed therein, except
as consented to by Agent and Requisite Lenders
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in writing; and (b) no supplement shall be required as to representations and
warranties that relate solely to the Closing Date.
5.7 Intellectual Property. Each Credit Party will conduct its
business and affairs without infringement of or interference with any
Intellectual Property of any other Person, except where the failure to do so
would not have a Material Adverse Effect.
5.8 Environmental Matters. Each Credit Party shall and shall cause
each Person within its control to: (a) conduct its operations and keep and
maintain its Real Estate in compliance with all Environmental Laws and
Environmental Permits other than noncompliance which could not reasonably be
expected to have a Material Adverse Effect; (b) implement any and all
investigation, remediation, removal and response actions which are appropriate
or necessary to maintain the value and marketability of the Real Estate or to
otherwise comply with Environmental Laws and Environmental Permits pertaining to
the presence, generation, treatment, storage, use, disposal, transportation or
Release of any Hazardous Material on, at, in, under, above, to, from or about
any of its Real Estate; (c) notify Agent promptly after such Credit Party
becomes aware of any violation of Environmental Laws or Environmental Permits or
any Release on, at, in, under, above, to, from or about any Real Estate which is
reasonably likely to result in Environmental Liabilities in excess of $250,000;
and (d) promptly forward to Agent a copy of any order, notice, request for
information or any communication or report received by such Credit Party in
connection with any such violation or Release or any other matter relating to
any Environmental Laws or Environmental Permits that could reasonably be
expected to result in Environmental Liabilities in excess of $250,000, in each
case whether or not the Environmental Protection Agency or any Governmental
Authority has taken or threatened any action in connection with any such
violation, Release or other matter. If Agent at any time has a reasonable basis
to believe that there may be a violation of any Environmental Laws or
Environmental Permits by any Credit Party or any Environmental Liability arising
thereunder, or a Release of Hazardous Materials on, at, in, under, above, to,
from or about any of its Real Estate, which, in each case, could reasonably be
expected to have a Material Adverse Effect, then each Credit Party shall, upon
Agent's written request (i) cause the performance of such environmental audits
including subsurface sampling of soil and groundwater, and preparation of such
environmental reports, at Borrower's expense, as Agent may from time to time
request, which shall be conducted by reputable environmental consulting firms
acceptable to Agent and shall be in form and substance acceptable to Agent, and
(ii) permit Agent or its representatives to have access to all Real Estate for
the purpose of conducting such environmental audits and testing as Agent deems
appropriate, including subsurface sampling of soil and groundwater. Borrower
shall reimburse Agent for the costs of such audits and tests and the same will
constitute a part of the Obligations secured hereunder. Prior to any Credit
Party executing any new lease for, or acquiring title to, any additional real
property, such Credit Party shall provide Agent with a copy of a Phase I
Environmental Site Assessment of such additional real property prepared by an
environmental consultant reasonably acceptable to Agent, which shall demonstrate
to the
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reasonable satisfaction of Agent that such additional real property is free of
any material Environmental Liabilities; provided, however, that no Credit Party
shall have any obligation to obtain such Phase I Environmental Site Assessment
with respect to a new lease of additional real property where the Credit Party
leases less than forty-five percent (45%) of the total available building space
and uses such leasehold for non-manufacturing operations.
5.9 Landlords' Agreements, Mortgagee Agreements and Bailee Letters.
(a) Each Credit Party shall use its reasonable best efforts to obtain a
landlord's agreement, mortgagee agreement or bailee letter, as applicable, from
the lessor of each leased property or mortgagee of owned property or with
respect to any warehouse, processor or converter facility or other location
where Collateral is located, which agreement or letter shall contain a waiver or
subordination of all Liens or claims that the landlord, mortgagee or bailee may
assert against the Inventory or Collateral at that location, and shall otherwise
be reasonably satisfactory in form and substance to Agent. With respect to such
locations or warehouse space leased or owned as of the Closing Date or
thereafter, if Agent has not received a landlord or mortgagee agreement or
bailee letter as of the Closing Date or thereafter, as applicable, the Credit
Party's Eligible Inventory at that location shall, in Agent's discretion, be
excluded from the Borrowing Base or be subject to such Reserves as may be
established by Agent in its reasonable credit judgment. After the Closing Date,
no real property or warehouse space shall be leased or acquired by any Credit
Party and no Inventory shall be shipped to a processor or converter under
arrangements established after the Closing Date, unless and until a satisfactory
landlord (only with respect to leased property at which the Inventory or
Collateral located thereon has a book value in excess of $200,000) and/or
mortgagee agreement, mortgage or bailee letter, as appropriate, shall first have
been obtained and delivered to Agent with respect to each such location;
provided that the Credit Parties may hold Inventory with a book value not to
exceed $200,000 in the aggregate at newly established locations with Agent's
prior approval and subject to a Reserve established at Agent's discretion.
Subject to Section 5.2(b), each Credit Party shall timely and fully pay and
perform its obligations under all leases and other agreements with respect to
each leased location or public warehouse where any Collateral is or may be
located.
(b) In the event that those certain properties located in Northvale,
New Jersey, as more particularly described on Disclosure Schedule (3.6) (the
"Northvale Properties") are not sold on or before the first anniversary of the
date hereof, Borrower and/or the applicable Credit Parties shall deliver to
Agent, each in form and substance satisfactory to Agent, mortgages covering the
Northvale Properties (the "Northvale Mortgages") together with: (a) title
insurance policies, current as-built surveys, zoning letters and certificates of
occupancy, in each case satisfactory in form and substance to Agent, in its sole
discretion; (b) evidence that counterparts of the Northvale Mortgages have been
recorded in all places to the extent necessary or desirable, in the judgment of
Agent, to create valid and enforceable first priority Liens (subject to
Permitted Encumbrances) on the Northvale Properties in favor of Agent for the
benefit of itself and
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Lenders (or in favor of such other trustee as may be required or desired under
local law); (c) opinions of counsel in form and substance satisfactory to Agent
from New Jersey counsel satisfactory to Agent; (d) proof of payment of all title
insurance premiums, documentary, stamp or intangible taxes, recording fees and
mortgage taxes payable in connection with the recording of any of the Loan
Documents or the issuance of the title insurance policies; and (e) such other
documents and instruments as shall be reasonably requested by Agent.
(c) In the event that the certain property located in Boucherville,
Province of Quebec, Canada, as more particularly described on Disclosure
Schedule (3.6) (the "Boucherville Property") is not sold on or before the first
anniversary of the date hereof, Borrower and/or the applicable Credit Parties
shall deliver to Agent, each in form and substance satisfactory to Agent, a deed
of hypothec, in notarial form, hypothecating for the sum of Cdn$ 150,000,000
with interest thereon at the rate of 25% per annum, as security for the
performance of all present and future obligations of MEM Company (Canada)
Limited under the Loan Documents, the Boucherville Property and all present and
future rents produced by the Boucherville Property as well as indemnities paid
under insurance contracts covering such rents (the "Boucherville Hypothec")
together with: (a) insurance policies, current as-built surveys, and certificate
of location, in each case satisfactory in form and substance to Agent, in its
sole discretion; (b) evidence that counterparts of the Boucherville Hypothec
have been signed before a notary in the Province of Quebec and recorded in all
places to the extent necessary or desirable, in the judgment of Agent, to create
a valid and enforceable first priority Lien (subject to Permitted Encumbrances)
on the Boucherville Property in favor of Agent for the benefit of itself and
Lenders; (c) opinions of counsel in form and substance satisfactory to Agent
from Quebec counsel satisfactory to Agent as to the title of the Boucherville
Property, the enforceability of the Boucherville Hypothec and such other matters
as Agent considers necessary or desirable; (d) proof of payment of all
documentary, land transfer, stamp or intangible taxes, recording fees, notarial
fees and mortgage taxes payable in connection with the recording or registration
of any of the Loan Documents; and (e) such other documents and instruments as
shall be reasonably requested by Agent.
5.10 Canadian Pension Plans. (a) For each existing Canadian Pension
Plan, each Credit Party shall use its best efforts to ensure that such plan
retains its registered status under and is administered in a timely manner in
all respects in accordance with the applicable pension plan text, funding
agreement, the Income Tax Act (Canada) and all other applicable laws.
(b) For each Canadian Pension Plan hereafter adopted by any Credit
Party which is required to be registered under the Income Tax Act (Canada) or
any other applicable laws, that Credit Party shall use its best efforts to seek
and receive confirmation in writing from the applicable Governmental Authorities
to the effect that such plan is
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unconditionally registered under the Income Tax Act (Canada) and such other
applicable laws.
(c) For each existing Canadian Pension Plan and Canadian Benefit
Plan hereafter adopted, each Credit Party shall in a timely fashion perform all
obligations (including fiduciary, funding, investment and administration
obligations) required to be performed in connection with such plan and the
funding media therefor.
(d) Borrower shall deliver to Agent if requested by Agent, promptly
after the filing thereof by any Credit Party with any applicable Governmental
Authority, copies of each annual and other return, report or valuation with
respect to each Canadian Pension Plan; promptly after receipt thereof, a copy of
any direction, order, notice, ruling or opinion that any Credit Party may
receive from any applicable Governmental Authority with respect to any Canadian
Pension Plan; and notification within 30 days of any increases in excess of
$50,000, per annum in the benefits of any existing Canadian Pension Plan or
Canadian Benefit Plan, or the establishment of any new Canadian Pension Plan or
Canadian Benefit Plan, or the commencement of contributions to any such plan to
which Borrower or any of its Subsidiaries was not previously contributing.
5.11 Further Assurances. Each Credit Party executing this Agreement
agrees that it shall and shall cause each other Credit Party to, at such Credit
Party's expense and upon reasonable request of Agent, duly execute and deliver,
or cause to be duly executed and delivered, to Agent such further instruments
and do and cause to be done such further acts as may be reasonably necessary or
proper in the reasonable opinion of Agent to carry out more effectually the
provisions and purposes of this Agreement or any other Loan Document.
6. NEGATIVE COVENANTS
Each Credit Party executing this Agreement jointly and severally
agrees as to all Credit Parties that, without the prior written consent of Agent
and the Requisite Lenders, from and after the date hereof until the Termination
Date:
6.1 Mergers, Subsidiaries, Etc. No Credit Party shall directly or
indirectly, by operation of law or otherwise, (a) form or acquire any
Subsidiary, or (b) merge with, consolidate with, acquire all or substantially
all of the assets or capital stock of, or otherwise combine with or acquire, any
Person or operating division of any Person, except mergers, consolidations or
combinations of any Credit Party (other than Parent) with any other Credit Party
(other than Parent (other than a merger of Holdings into Parent)), provided that
no Default or Event of Default shall have occurred and be continuing or would
result from such merger, consolidation or combination and provided further that
Borrower and Parent shall preserve and keep in full force and effect their
respective corporate existence, and provided further that if any Canadian
Subsidiary participates in
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any such transaction, (A) the Person formed thereby or that acquires all or
substantially all of the assets or capital stock of such Canadian Subsidiary
(the "Continuing Person") shall expressly assume in one or more supplemental
indentures (including guarantees, security agreements, hypothecs, assignments
and charges) executed and delivered to Agent in form and substance satisfactory
to Agent, all of the Obligations of such Canadian Subsidiary, (B) there shall be
no impairment to the terms or the priority of the security in the Collateral
held by Agent and Lenders hereunder and thereunder, and (C) Agent and Lenders
receive, in form and substance satisfactory to Agent, legal opinion(s) stating
that Agent or Agent and Lenders, as applicable, hold security from the
Continuing Person constituting a first priority Lien on the Collateral, subject
to any such qualifications as Agent may accept in its discretion. Parent shall
not acquire any assets (other than as permitted by this Section 6.1) except in
the ordinary course of its business as a holding company. None of the
Subsidiaries listed in Section 3.24 shall acquire any material assets
(determined on an aggregate basis for all such Subsidiaries) or conduct any
business.
6.2 Investments; Loans and Advances. Except as otherwise expressly
permitted by this Section 6, no Credit Party shall make or permit to exist any
investment in, or make, accrue or permit to exist loans or advances of money to,
any Person, through the direct or indirect lending of money, holding of
securities or otherwise, except that: (a) each Credit Party may hold investments
comprised of notes payable, or stock or other securities issued by Account
Debtors to such Credit Party pursuant to negotiated agreements with respect to
settlement of such Account Debtor's Accounts in the ordinary course of business,
so long as the aggregate amount of such Accounts so settled by the Credit
Parties does not exceed $250,000 (not counting Accounts settled in accordance
with Section 6.13); (b) each Credit Party may maintain its existing investments
in its Subsidiaries as of the Closing Date and may make additional investments
in any Subsidiary provided that such Subsidiary is a Credit Party; (c) so long
as Agent has not delivered an Activation Notice and no Default or Event of
Default shall have occurred and be continuing, the Credit Parties may make and
own investments in (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof maturing within
one year from the date of acquisition thereof, (ii) commercial paper maturing no
more than one year from the date of creation thereof and currently having the
highest rating obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc., (iii) certificates of deposit, maturing no more than
one year from the date of creation thereof, issued by banks incorporated under
the laws of the United States of America, each having combined capital, surplus
and undivided profits of not less than $300,000,000 and having a senior secured
rating of "A" or better (or the equivalent) by a nationally recognized rating
agency (an "A Rated Bank"), (iv) time deposits, maturing no more than 30 days
from the date of creation thereof with A Rated Banks, and (v) money market funds
that invest substantially all of such funds' assets in investments described in
clauses (i) - (iv) above; provided, however, that so long as there are any
Revolving Credit Advances outstanding, the aggregate amount of such investments
described in clauses (i) - (v) above shall not exceed $5,000,000; (d) the Credit
Parties may make miscellaneous investments in the ordinary course of business in
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the aggregate amount not to exceed $1,000,000 at any time outstanding; (e) each
Credit Party may hold investments comprised of stocks, bonds, notes, debentures,
partnership interests, joint venture interests or other third party securities
that are received in consideration for the consummation of an asset sale
permitted under Section 6.8 to the extent permitted by Section 6.8; (f) the
Credit Parties may make and hold investments in Permitted Joint Ventures; (g)
RGI may maintain the 1997 Senior Notes Escrow Account; and (h) the Credit
Parties may make loans and advances after the Closing Date to Subsidiaries that
are not Credit Parties but are Pledged Entities (as defined in the Pledge
Agreement) in aggregate amount not to exceed $2,000,000 outstanding at any one
time.
6.3 Indebtedness. (a) No Credit Party shall create, incur, assume or
permit to exist any Indebtedness, except (without duplication): (i) Indebtedness
secured by purchase money security interests or Capital Leases permitted in
clause (c) of Section 6.7; (ii) the Loans and the other Obligations; (iii)
additional Indebtedness not to exceed $2,000,000 in aggregate principal amount
outstanding at any time; (iv) unfunded pension fund and other employee benefit
plan obligations and liabilities to the extent they are permitted to remain
unfunded under applicable law except as set forth in Disclosure Schedule (6.3);
(v) existing Indebtedness described in Disclosure Schedule (6.3) and
refinancings thereof or amendments or modifications thereto which do not have
the effect of increasing the principal amount thereof or changing the
amortization thereof (other than to extend the same) and which are otherwise on
terms and conditions no less favorable to any Credit Party, Agent or any Lender,
as reasonably determined by Agent, than the terms of the Indebtedness being
refinanced, amended or modified; (vi) the Parent Notes and RGI's guaranty of the
1997 Senior Notes; (vii) Indebtedness consisting of intercompany loans and
advances made by Borrower to any other Credit Party that is a Guarantor or by
any such Guarantor to Borrower; provided that (A) Borrower shall have executed
and delivered to each such Guarantor, and each such Guarantor shall have
executed and delivered to Borrower, on the Closing Date, a demand note
(collectively, the "Intercompany Notes") to evidence any such intercompany
Indebtedness owing at any time by Borrower to such Guarantor or by such
Guarantor to Borrower, which Intercompany Notes shall be in form and substance
satisfactory to Agent including subordination terms and shall be pledged and
delivered to Agent pursuant to the applicable Pledge Agreement or Security
Agreement as additional collateral security for the Obligations, (B) Borrower
shall record all intercompany transactions on its books and records in a manner
reasonably satisfactory to Agent, (C) at the time any such intercompany loan or
advance is made by Borrower and after giving effect thereto, Borrower shall be
Solvent, (D) no Default or Event of Default would occur and be continuing after
giving effect to any such proposed intercompany loan, (E) the aggregate balance
of all such intercompany loans owing to Borrower shall not exceed $75,000,000 at
any time, (F) the recipient of any such intercompany loans shall be creditworthy
as determined by Agent, and (G) intercompany loans to Parent may only be made if
and to the extent such funds could have been paid to Parent as a Restricted
Payment pursuant to Section 6.14 and the amount of all such outstanding
intercompany loans shall reduce the amount available to be paid as a Restricted
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Payment pursuant to Section 6.14; (viii) Indebtedness to the extent permitted by
Section 6.17; and (ix) unsecured commercial letters of credit in the ordinary
course of business not to exceed $5,000,000 in the aggregate principal amount
outstanding at any time.
(b) No Credit Party (other than Parent) shall, directly or
indirectly, voluntarily purchase, redeem, defease or prepay any principal of,
premium, if any, or other amount (other than interest) payable in respect of the
Parent Debt other than pursuant to refinancings permitted pursuant to Section
6.3(a)(v).
6.4 Employee Loans and Affiliate Transactions.
(a) Except as otherwise expressly permitted in this Section 6 with
respect to Affiliates, no Credit Party shall enter into or be a party to any
transaction with any other Credit Party or any Affiliate thereof except in the
ordinary course of and pursuant to the reasonable requirements of such Credit
Party's business and upon fair and reasonable terms that are no less favorable
to such Credit Party than would be obtained in a comparable arm's length
transaction with a Person not an Affiliate of such Credit Party. All such
transactions existing as of the date hereof are described on Disclosure Schedule
(6.4(a)).
(b) No Credit Party shall enter into any lending or borrowing
transaction with any employees of any Credit Party, except reasonable and
customary loans to their respective employees in the ordinary course of business
consistent with past practices up to a maximum of $1,000,000 in the aggregate at
any one time outstanding.
6.5 Capital Structure and Business. No Credit Party shall (a) make
any changes in any of its business objectives, purposes or operations which
could in any way adversely affect the repayment of the Loans or any of the other
Obligations or could have or result in a Material Adverse Effect, (b) make any
change in its capital structure as described on Disclosure Schedule (3.9),
including the issuance of any shares of Stock, warrants or other securities
convertible into Stock or any revision of the terms of its outstanding Stock,
except that Parent may issue additional shares of its Stock so long as no Change
of Control occurs after giving effect thereto, or (c) amend its charter or
bylaws in a manner which would adversely affect Agent or Lenders or such Credit
Party's duty or ability to repay the Obligations. No Credit Party shall engage
in any business other than the businesses currently engaged in by it or
businesses reasonably related thereto.
6.6 Guaranteed Indebtedness. No Credit Party shall create, incur,
assume or permit to exist any Guaranteed Indebtedness except (a) by endorsement
of instruments or items of payment for deposit to the general account of any
Credit Party, and (b) for Guaranteed Indebtedness incurred for the benefit of
any other Credit Party if the primary obligation is expressly permitted by this
Agreement.
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6.7 Liens. No Credit Party shall create, incur, assume or permit to
exist any Lien on or with respect to its Accounts or any of its other properties
or assets (whether now owned or hereafter acquired) except for: (a) Permitted
Encumbrances; (b) Liens in existence on the date hereof and summarized on
Disclosure Schedule (6.7); and (c) Liens created after the date hereof by
conditional sale or other title retention agreements (including Capital Leases)
or in connection with purchase money Indebtedness with respect to Equipment and
Fixtures acquired by any Credit Party in the ordinary course of business,
involving the incurrence of an aggregate amount of purchase money Indebtedness
and Capital Lease Obligations of not more than $10,000,000 outstanding at any
one time for all such Liens (provided that such Liens attach only to the assets
subject to such purchase money debt or such Capital Lease Obligations and such
Indebtedness is incurred within twenty (20) days following such purchase and
does not exceed 100% of the purchase price of the subject assets). In addition,
no Credit Party shall become a party to any agreement, note, indenture or
instrument, or take any other action, which would prohibit the creation of a
Lien on any of its properties or other assets in favor of Agent, on behalf of
itself and Lenders, as additional collateral for the Obligations, except
operating leases or Capital Leases which prohibit Liens upon the assets that are
subject thereto and proceeds thereof (including, without limitation, insurance
and condemnation proceeds).
6.8 Sale of Stock and Assets. No Credit Party shall sell, transfer,
convey, assign or otherwise dispose of any of its properties or other assets,
including its capital Stock or the capital Stock of any of its Subsidiaries
(whether in a public or a private offering or otherwise but subject, in the case
of Parent, to the provisions of Section 6.5(b)) or any of their Accounts, other
than (a) the sale of Inventory in the ordinary course of business, and (b) the
sale, transfer, conveyance or other disposition by a Credit Party of Equipment,
Fixtures or Real Estate that are obsolete or no longer used or useful in such
Credit Party's business and having a value not exceeding $250,000 in any single
transaction or series of related transactions or $500,000 in the aggregate in
any Fiscal Year, (c) other Equipment and Fixtures having a value not exceeding
$250,000 in any single transaction series of related transactions or $1,000,000
in the aggregate in any Fiscal Year, (d) the sale of the assets described on
Disclosure Schedule (6.8), and (e) the sale of the Northvale Properties and the
Boucherville Property on or before the first anniversary of the date hereof in
accordance with the provisions of Sections 5.9(b) and 5.9(c), respectively. With
respect to any disposition of assets or other properties permitted pursuant to
clause (b) and clause (c) above, Agent agrees on reasonable prior written notice
to release its Lien on such assets or other properties in order to permit the
applicable Credit Party to effect such disposition and shall execute and deliver
to Borrower, at Borrower's expense, appropriate UCC-3 termination statements and
other releases as reasonably requested by Borrower.
6.9 ERISA. Except as set forth in Disclosure Schedule (3.12), no
Credit Party shall, or shall cause or permit any ERISA Affiliate to, cause or
permit to occur an event which could reasonably be expected to result in the
imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of
ERISA.
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6.10 Financial Covenants. Borrower shall not breach or fail to
comply with any of the Financial Covenants (the "Financial Covenants") set forth
in Annex G.
6.11 Hazardous Materials. No Credit Party shall cause or permit a
Release of any Hazardous Material on, at, in, under, above, to, from or about
any of the Real Estate where such Release would (a) violate in any respect, or
form the basis for any Environmental Liabilities under, any Environmental Laws
or Environmental Permits or (b) otherwise adversely impact the value or
marketability of any of the Real Estate or any of the Collateral, other than
such violations or impacts which could not reasonably be expected to have a
Material Adverse Effect.
6.12 Sale-Leasebacks. No Credit Party shall engage in any
sale-leaseback, synthetic lease or similar transaction involving any of its
assets.
6.13 Cancellation of Indebtedness. No Credit Party shall cancel any
claim or debt owing to it, except in the ordinary course of its business
consistent with past practices.
6.14 Restricted Payments. No Credit Party shall make any Restricted
Payment, except: (a) intercompany loans and advances between Borrower and
Guarantors to the extent permitted by Section 6.3 above; (b) employee loans
permitted under Section 6.4(b) above; (c) Restricted Payments to Borrower; (d)
dividends to any Credit Party to the extent used to pay dividends to Parent on
each scheduled interest payment date of the Parent Debt outstanding on the date
hereof as required by the terms thereof as presently in effect and exclusive of
any Exchange Notes which are hereafter issued pursuant to the terms of the
Cumulative Exchangeable Preferred Stock in an amount not to exceed the scheduled
interest thereon then due and payable at the rate then in effect (the "Scheduled
Interest Payments"), provided that (A) no payment Default shall have occurred
and be continuing, (B) no Event of Default (other than a payment Default) shall
have occurred during the preceding 179 calendar days and be continuing, and (C)
during the first two years after the "Issue Date" of the 1997 Senior Notes (as
defined in the 1997 Senior Notes Indenture), any such dividend on a semi-annual
interest payment date shall not exceed the semi-annual interest on the 1997
Senior Notes then due and payable less the sum of (X) earnings on amounts held
in the 1997 Senior Notes Escrow Account and (Y) $4,375,000; (e) dividends to
Parent in an amount to pay management fees when due and payable pursuant to the
Kidd Kamm Management Agreement as in effect on the Closing Date (the "Kidd Kamm
Fees"), provided that no Event of Default shall have occurred and be continuing
or would result from giving effect to any such dividend; (f) dividends to Parent
for the purposes of Parent making tax payments in accordance with the terms of
the Tax Sharing Agreement as in effect on the Closing Date; (g) dividends to
Parent with respect to expenses incurred by Parent for directors' and officers'
liability insurance, customary corporate filings, trustee fees provided for in
the 1997 Senior Notes Indenture and 1994 Senior Notes Indenture, legal and
accounting fees and expenses, and other customary
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administrative expenses of Parent; (h) to pay dividends on the Parent's
preferred Stock payable solely in shares of Parent's preferred Stock of the same
class and dividends payable in kind on such additional shares; (i) the purchase,
redemption or other acquisition for value of shares of common Stock of Parent
(or options to acquire such shares) held by Parent's or its Subsidiaries' former
employees (or their estates) following the death or termination of employment of
such employees and the payment of dividends to be used for such purpose, in an
aggregate amount not to exceed $1,000,000 during any consecutive twelve month
period after the Closing Date, provided that no Event of Default shall have
occurred and be continuing or would result from giving effect to any such
purchase, redemption or other acquisition; (j) the acquisition of any shares of
Stock of Parent or the repurchase, redemption or other repayment of Parent Notes
solely out of the proceeds of the substantially concurrent sale of shares of
Stock of Parent; (k) acquisitions or repayments of Parent Debt in connection
with refinancings permitted pursuant to Section 6.3(a)(v); (l) dividends on the
Parent's common Stock payable solely in shares of Parent's common Stock of the
same class or in options, warrants or other rights to purchase shares of
Parent's common Stock and dividends payable in kind on such additional shares;
(m) dividends to any Credit Party to the extent used to pay cash dividends to
Parent on each scheduled dividend payment date after August 15, 1997 of the
Cumulative Exchangeable Preferred Stock as required by the terms thereof as
presently in effect in an amount not to exceed the scheduled dividend thereon
then due and payable at the rate then in effect (the "Scheduled Dividend
Payments"), provided that (A) no Event of Default shall have occurred and be
continuing or would result from giving effect to any such dividend and (B) Net
Borrowing Availability, after giving effect to such dividends, shall be at least
$5,000,000; and (n) the payment by Parent of the Scheduled Interest Payments,
Kidd Kamm Fees, and Scheduled Dividend Payments. The foregoing provisions of
this Section 6.14 with respect to Restricted Payments to Parent are subject to
the provisions of Section 6.3(a)(vii)(G).
6.15 Change of Corporate Name or Location; Change of Fiscal Year. No
Credit Party shall (a) change its corporate name, or (b) except as set forth in
Disclosure Schedule (6.15), change its chief executive office, principal place
of business, corporate offices or warehouses or locations at which Collateral is
held or stored, or the location of its records concerning the Collateral, or, in
the case of Houbigant (1995) Limited, MEM Company (Canada) Limited and any other
Credit Party that has intangible or incorporeal property in Quebec, its domicile
within the meaning of the Civil Code of the Province of Quebec, in any case
without at least thirty (30) days prior written notice to Agent and after
Agent's written acknowledgment that any reasonable action requested by Agent in
connection therewith, including to continue the perfection of any Liens in favor
of Agent, on behalf of Lenders, in any Collateral, has been completed or taken,
and provided that as to each Credit Party other than Houbigant (1995) Limited
and MEM Company (Canada) Limited any such new location shall be in the
continental United States and as to Houbigant (1995) Limited and MEM Company
(Canada) Limited any such new location shall be in the provinces of Quebec or
Ontario. Without limiting the foregoing, no Credit
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Party shall change its name, identity or corporate structure in any manner which
might make any financing or continuation statement filed in connection herewith
seriously misleading within the meaning of Section 9-402(7) of the Code or any
other then applicable provision of the Code except upon prior written notice to
Agent and Lenders and after Agent's written acknowledgment that any reasonable
action requested by Agent in connection therewith, including to continue the
perfection of any Liens in favor of Agent, on behalf of Lenders, in any
Collateral, has been completed or taken. No Credit Party shall change its Fiscal
Year.
6.16 No Impairment of Intercompany Transfers. No Credit Party shall
directly or indirectly enter into or become bound by any agreement, instrument,
indenture or other obligation with a third party (other than this Agreement and
the other Loan Documents) which could directly or indirectly restrict, prohibit
or require the consent of any Person with respect to the payment of dividends or
distributions or the making or repayment of intercompany loans by a Subsidiary
of Borrower to Borrower.
6.17 No Speculative Transactions. No Credit Party shall engage in
any transaction involving commodity options, futures contracts or similar
transactions, except solely to hedge against fluctuations in the prices of
commodities owned or purchased by it and the values of foreign currencies
receivable or payable by it.
6.18 [Intentionally Omitted].
6.19 Changes Relating to Parent Debt. No Credit Party shall change
or amend the terms of any Parent Debt (or any indenture or agreement in
connection therewith) if the effect of such amendment is to: (a) increase the
interest rate on such Parent Debt; (b) change the dates upon which payments of
principal or interest are due on such Parent Debt other than to extend such
dates; (c) change any default or event of default other than to delete or make
less restrictive any default provision therein, or add any covenant with respect
to such Parent Debt; (d) change the redemption or prepayment provisions of such
Parent Debt other than to extend the dates therefor or to reduce the premiums
payable in connection therewith; (e) grant any security or collateral to secure
payment of such Parent Debt; or (f) change or amend any other term if such
change or amendment would materially increase the obligations of the obligor or
confer additional material rights to the holder of such Parent Debt in a manner
adverse to any Credit Party, Agent or any Lender. No Credit Party shall change
or amend the terms of the 1994 Senior Notes Indenture if the effect of such
amendment would be as to the items set forth above in clauses (a) - (f) with
respect to any Indebtedness issued under such 1994 Senior Notes Indenture.
6.20 Canadian Benefit and Pension Plans. None of the Credit Parties
shall permit the solvency deficiency under Canadian Pension Plans, but only to
the extent they are permitted to remain unfunded under applicable laws, to
exceed (in the aggregate,
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taking into account all Canadian Pension Plans of all Credit Parties) $100,000;
make any improper withdrawals or applications of assets of a Canadian Pension
Plan or Canadian Benefit Plan; accept payment of any amount from any Canadian
Pension Plan; or merge any Canadian Pension Plan with any other pension plan.
7. TERM
7.1 Termination. The financing arrangements contemplated hereby
shall be in effect until the Commitment Termination Date, and the Loans and all
other Obligations shall be automatically due and payable in full on such date.
7.2 Survival of Obligations Upon Termination of Financing
Arrangements. Except as otherwise expressly provided for in the Loan Documents,
no termination or cancellation (regardless of cause or procedure) of any
financing arrangement under this Agreement shall in any way affect or impair the
obligations, duties and liabilities of the Credit Parties or the rights of Agent
and Lenders relating to any unpaid portion of the Loans or any other
Obligations, due or not due, liquidated, contingent or unliquidated or any
transaction or event occurring prior to such termination, or any transaction or
event, the performance of which is required after the Commitment Termination
Date. Except as otherwise expressly provided herein or in any other Loan
Document, all undertakings, agreements, covenants, warranties and
representations of or binding upon the Credit Parties, and all rights of Agent
and each Lender, all as contained in the Loan Documents, shall not terminate or
expire, but rather shall survive any such termination or cancellation and shall
continue in full force and effect until the Termination Date; provided however,
that in all events the provisions of Section 11, the indemnities contained in
the Loan Documents and the payment obligations contained in Sections 1.14 and
1.15 shall survive the Termination Date.
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
8.1 Events of Default. The occurrence of any one or more of the
following events (regardless of the reason therefor) shall constitute an "Event
of Default" hereunder:
(a) Borrower (i) fails to make any payment of principal of, or
interest on, or Fees owing in respect of, the Loans when due and payable, or
(ii) fails to pay or reimburse Agent or Lenders for any expense reimbursable
hereunder or under any other Loan Document within ten (10) Business Days
following Agent's demand for such reimbursement or payment of expenses.
(b) Any Credit Party shall fail or neglect to perform, keep or
observe any of the provisions of Sections 1.3 or 6, or any of the provisions set
forth in Annexes C or G, respectively.
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(c) Borrower shall fail or neglect to perform, keep or observe any
of the provisions of Section 4 or any provisions set forth in Annexes E or F,
respectively, or any Credit Party shall fail or neglect to perform, keep or
observe any of the provisions of Sections 1.7 or 5.4, and the same shall remain
unremedied for five (5) days or more.
(d) Any Credit Party shall fail or neglect to perform, keep or
observe any other provision of this Agreement or of any of the other Loan
Documents (other than any provision embodied in or covered by any other clause
of this Section 8.1) and the same shall remain unremedied for thirty (30) days
or more.
(e) A default or breach shall occur and be continuing under any
other agreement, document or instrument to which any Credit Party is a party
which is not cured within any applicable grace period, and such default or
breach (i) involves the failure to make any payment when due in respect of any
Indebtedness (other than the Obligations) of any Credit Party in excess of
$1,000,000 in the aggregate, or (ii) causes, or permits any holder of such
Indebtedness or a trustee to cause, Indebtedness or a portion thereof in excess
of $1,000,000 in the aggregate to become due prior to its stated maturity or
prior to its regularly scheduled dates of payment, regardless of whether such
default is waived, or such right is exercised, by such holder or trustee.
(f) Any information contained in any Borrowing Base Certificate is
untrue or incorrect in any material respect, or any representation or warranty
herein or in any Loan Document or in any written statement, report, financial
statement or certificate (other than a Borrowing Base Certificate) made or
delivered to Agent or any Lender by any Credit Party is untrue or incorrect in
any material respect as of the date when made or deemed made.
(g) Assets of any Credit Party or any of their Subsidiaries with a
fair market value of $500,000 or more shall be attached, seized, levied upon or
subjected to a writ or distress warrant, or come within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors of any
Credit Party and such condition continues for thirty (30) days or more.
(h) A case or proceeding shall have been commenced against any
Credit Party or any of their Subsidiaries seeking a decree or order in respect
of any Credit Party or any of their Subsidiaries (i) under Title 11 of the
United States Code, as now constituted or hereafter amended or any other
applicable federal, state or foreign bankruptcy or other similar law, (ii)
appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator
(or similar official) for any Credit Party or any of their Subsidiaries or of
any substantial part of any such Person's assets, or (iii) ordering the
winding-up or liquidation of the affairs of any Credit Party or any of their
Subsidiaries, and such case or proceeding shall remain undismissed or unstayed
for sixty (60) days or more or such court shall enter a decree or order granting
the relief sought in such case or proceeding.
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(i) Any Credit Party or any of their Subsidiaries (i) shall file a
petition seeking relief under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable federal, state or
foreign bankruptcy or other similar law, (ii) shall fail to contest in a timely
and appropriate manner or shall consent to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) of any Credit Party or any of their
Subsidiaries or of any substantial part of any such Person's assets, (iii) shall
make an assignment for the benefit of creditors, or (iv) shall take any
corporate action in furtherance of any of the foregoing, or (v) shall admit in
writing its inability to, or shall be generally unable to, pay its debts as such
debts become due or shall otherwise be insolvent under any applicable law.
(j) A final judgment or judgments for the payment of money in excess
of $500,000 in the aggregate at any time outstanding shall be rendered against
any Credit Party or any of their Subsidiaries and the same shall not, within
sixty (60) days after the entry thereof, have been discharged or execution
thereof stayed or bonded pending appeal, or shall not have been discharged prior
to the expiration of any such stay.
(k) Any material provision of any Loan Document shall for any reason
cease to be valid, binding and enforceable in accordance with its terms (or any
Credit Party shall challenge the enforceability of any Loan Document or shall
assert in writing, or engage in any action or inaction based on any such
assertion, that any provision of any of the Loan Documents has ceased to be or
otherwise is not valid, binding and enforceable in accordance with its terms),
or any security interest created under any Loan Document shall cease to be a
valid and perfected first priority security interest or Lien (except as
otherwise permitted herein or therein) in any of the Collateral purported to be
covered thereby having a value in excess of $250,000.
(l) Any "Change of Control" shall occur.
(m) Any default or breach by any Credit Party shall occur and be
continuing under any of the Houbigant License Agreements which causes or permits
the licensor to terminate any such agreement or any of such agreements shall be
terminated for any reason.
8.2 Remedies. (a) If any Default or Event of Default shall have
occurred and be continuing, Agent may (and at the written request of the
Requisite Lenders shall), without notice, suspend this facility with respect to
further Advances whereupon any further Advances shall be made or extended in
Agent's sole discretion (or in the sole discretion of the Requisite Lenders, if
such suspension occurred at their direction) so long as such Default or Event of
Default is continuing. If any Default or Event of Default shall have occurred
and be continuing, Agent may (and at the written request of Requisite
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Lenders shall), without notice except as otherwise expressly provided herein,
increase the rate of interest applicable to the Loans to the Default Rate.
(b) If any Event of Default shall have occurred and be continuing,
Agent may (and at the written request of the Requisite Lenders shall), without
notice, (i) terminate this facility with respect to further Advances; (ii)
declare all or any portion of the Obligations, including all or any portion of
any Loan to be forthwith due and payable, all without presentment, demand,
protest or further notice of any kind, all of which are expressly waived by
Borrower and each other Credit Party; and (iii) exercise any rights and remedies
provided to Agent under the Loan Documents and/or at law or equity, including
all remedies provided under the Code; provided, however, that upon the
occurrence of an Event of Default specified in Sections 8.1(g), (h) or (i), all
of the Obligations, including the Revolving Loan, shall become immediately due
and payable without declaration, notice or demand by any Person.
8.3 Waivers by Credit Parties. Except as otherwise provided for in
this Agreement or by applicable law, each Credit Party waives: (a) presentment,
demand and protest and notice of presentment, dishonor, notice of intent to
accelerate, notice of acceleration, protest, default, nonpayment, maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, contract rights, documents, instruments, chattel paper and
guaranties at any time held by Agent on which any Credit Party may in any way be
liable, and hereby ratifies and confirms whatever Agent may do in this regard,
(b) all rights to notice and a hearing prior to Agent's taking possession or
control of, or to Agent's replevy, attachment or levy upon, the Collateral or
any bond or security which might be required by any court prior to allowing
Agent to exercise any of its remedies, and (c) the benefit of all valuation,
appraisal, marshalling and exemption laws.
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT
9.1 Assignment and Participations. (a) The Credit Parties signatory
hereto consent to any Lender's assignment of, and/or sale of participations in,
at any time or times, any of the Loans, Loan Documents, any Commitment or of any
portion thereof or interest therein, including any Lender's rights, title,
interests, remedies, powers or duties thereunder, whether evidenced by a writing
or not. Any assignment by a Lender shall (i) require the consent of Agent and
Borrower (which, in each case, shall not be unreasonably withheld or delayed)
and the execution of an assignment agreement (an "Assignment Agreement"
substantially in the form attached hereto as Exhibit 9.1(a) and otherwise in
form and substance satisfactory to, and acknowledged by, Agent, provided,
however, that such consent of Borrower shall not be required if a Default or
Event of Default shall have occurred and be continuing or for any assignment by
a Lender to another Lender; (ii) be conditioned on such assignee Lender
representing to the assigning Lender and Agent that it is purchasing the
applicable Loans to be assigned to it for its own account, for investment
purposes and not with a view to the distribution thereof; (iii) if a partial
assignment, be in
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an amount at least equal to $5,000,000 and, after giving effect to any such
partial assignment, the assigning Lender shall have retained Commitments in an
amount at least equal to $7,500,000; and (iv) include a payment by the assigning
Lender to Agent of an assignment fee of $3,500. In the case of an assignment by
a Lender under this Section 9.1, the assignee shall have, to the extent of such
assignment, the same rights, benefits and obligations as it would if it were a
Lender hereunder. The assigning Lender shall be relieved of its obligations
hereunder with respect to its Commitments or assigned portion thereof from and
after the date of such assignment. Borrower hereby acknowledges and agrees that
any assignment will give rise to a direct obligation of Borrower to the assignee
and that the assignee shall be considered to be a "Lender". In all instances,
each Lender's liability to make Loans hereunder shall be several and not joint
and shall be limited to such Lender's Pro Rata Share of the applicable
Commitment. In the event Agent or any Lender assigns or otherwise transfers all
or any part of a Note, Agent or any such Lender shall so notify Borrower and
Borrower shall, upon the request of Agent or such Lender, execute new Notes in
exchange for the Notes being assigned. Notwithstanding the foregoing provisions
of this Section 9.1(a), any Lender may at any time pledge or assign all or any
portion of such Lender's rights under this Agreement and the other Loan
Documents to a Federal Reserve Bank; provided, however, that no such pledge or
assignment shall release such Lender from such Lender's obligations hereunder or
under any other Loan Document.
(b) Any participation by a Lender of all or any part of its
Commitments shall be in an amount at least equal to $5,000,000, and with the
understanding that all amounts payable by Borrower hereunder shall be determined
as if that Lender had not sold such participation, and that the holder of any
such participation shall not be entitled to require such Lender to take or omit
to take any action hereunder except actions directly affecting (i) any reduction
in the principal amount of, or interest rate or Fees payable with respect to,
any Loan in which such holder participates, (ii) any extension of the scheduled
amortization of the principal amount of any Loan in which such holder
participates or the final maturity date thereof, and (iii) any release of all or
substantially all of the Collateral (other than in accordance with the terms of
this Agreement, the Collateral Documents or the other Loan Documents). Solely
for purposes of Sections 1.12, 1.14, 1.15 and 9.8, Borrower acknowledges and
agrees that a participation shall give rise to a direct obligation of Borrower
to the participant and the participant shall be considered to be a "Lender".
Except as set forth in the preceding sentence neither Borrower nor any other
Credit Party shall have any obligation or duty to any participant. Neither Agent
nor any Lender (other than the Lender selling a participation) shall have any
duty to any participant and may continue to deal solely with the Lender selling
a participation as if no such sale had occurred.
(c) Except as expressly provided in this Section 9.1, no Lender
shall, as between Borrower and that Lender, or Agent and that Lender, be
relieved of any of its obligations hereunder as a result of any sale,
assignment, transfer or negotiation of, or
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granting of participation in, all or any part of the Loans, the Notes or other
Obligations owed to such Lender.
(d) Each Credit Party executing this Agreement shall assist any
Lender permitted to sell assignments or participations under this Section 9.1 as
reasonably required to enable the assigning or selling Lender to effect any such
assignment or participation, including the execution and delivery of any and all
agreements, notes and other documents and instruments as shall be requested and
the preparation of informational materials for, and the participation of
management in meetings with, potential assignees or participants. Each Credit
Party executing this Agreement shall certify the correctness, completeness and
accuracy of all descriptions of the Credit Parties and their affairs contained
in any selling materials provided by it and all other information provided by it
and included in such materials, except that any Projections delivered by
Borrower shall only be certified by Borrower as having been prepared by Borrower
in compliance with the representations contained in Section 3.4(c).
(e) A Lender may furnish any information concerning Borrower in the
possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants). Each Lender shall obtain
from assignees or participants confidentiality covenants substantially
equivalent to those contained in Section 11.8.
(f) So long as no Event of Default shall have occurred and be
continuing, no Lender shall assign or sell participations in any portion of its
Loans or Commitments to a potential Lender or participant, if, as of the date of
the proposed assignment or sale, the assignee Lender or participant would be
subject to capital adequacy or similar requirements under Section 1.15(a),
increased costs under Section 1.15(b), an inability to fund LIBOR Loans under
Section 1.15(c), or withholding taxes in accordance with Section 1.15(d).
9.2 Appointment of Agent. GE Capital is hereby appointed to act on
behalf of all Lenders as Agent under this Agreement and the other Loan
Documents. The provisions of this Section 9.2 are solely for the benefit of
Agent and Lenders and no Credit Party nor any other Person shall have any rights
as a third party beneficiary of any of the provisions hereof. In performing its
functions and duties under this Agreement and the other Loan Documents, Agent
shall act solely as an agent of Lenders and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of agency or trust
with or for any Credit Party or any other Person. Agent shall have no duties or
responsibilities except for those expressly set forth in this Agreement and the
other Loan Documents. The duties of Agent shall be mechanical and administrative
in nature and Agent shall not have, or be deemed to have, by reason of this
Agreement, any other Loan Document or otherwise a fiduciary relationship in
respect of any Lender. Neither Agent nor any of its Affiliates nor any of their
respective officers, directors, employees, agents or
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representatives shall be liable to any Lender for any action taken or omitted to
be taken by it hereunder or under any other Loan Document, or in connection
herewith or therewith, except for damages solely caused by its or their own
gross negligence or willful misconduct as finally determined by a court of
competent jurisdiction.
If Agent shall request instructions from Requisite Lenders or all
affected Lenders with respect to any act or action (including failure to act) in
connection with this Agreement or any other Loan Document, then Agent shall be
entitled to refrain from such act or taking such action unless and until Agent
shall have received instructions from Requisite Lenders or all affected Lenders,
as the case may be, and Agent shall not incur liability to any Person by reason
of so refraining. Agent shall be fully justified in failing or refusing to take
any action hereunder or under any other Loan Document (a) if such action would,
in the opinion of Agent, be contrary to law or the terms of this Agreement or
any other Loan Document, (b) if such action would, in the opinion of Agent,
expose Agent to Environmental Liabilities or (c) if Agent shall not first be
indemnified to its satisfaction against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
Without limiting the foregoing, no Lender shall have any right of action
whatsoever against Agent as a result of Agent acting or refraining from acting
hereunder or under any other Loan Document in accordance with the instructions
of Requisite Lenders or all affected Lenders, as applicable.
9.3 Agent's Reliance, Etc. Neither Agent nor any of its Affiliates
nor any of their respective directors, officers, agents or employees shall be
liable for any action taken or omitted to be taken by it or them under or in
connection with this Agreement or the other Loan Documents, except for damages
solely caused by its or their own gross negligence or willful misconduct as
finally determined by a court of competent jurisdiction. Without limitation of
the generality of the foregoing, Agent: (a) may treat the payee of any Note as
the holder thereof until Agent receives written notice of the assignment or
transfer thereof signed by such payee and in form satisfactory to Agent; (b) may
consult with legal counsel, independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations made in or in connection with this Agreement or the other Loan
Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or the other Loan Documents on the part of any Credit Party or to
inspect the Collateral (including the books and records) of any Credit Party;
(e) shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
the other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto; and (f) shall incur no liability under or in respect of this
Agreement or the other Loan Documents by acting upon any notice, consent,
certificate
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or other instrument or writing (which may be by telecopy, telegram, cable or
telex) believed by it to be genuine and signed or sent by the proper party or
parties.
9.4 GE Capital and Affiliates. With respect to its Commitments
hereunder, GE Capital shall have the same rights and powers under this Agreement
and the other Loan Documents as any other Lender and may exercise the same as
though it were not Agent; and the term "Lender" or "Lenders" shall, unless
otherwise expressly indicated, include GE Capital in its individual capacity. GE
Capital and its Affiliates may lend money to, invest in, and generally engage in
any kind of business with, any Credit Party, any of their Affiliates and any
Person who may do business with or own securities of any Credit Party or any
such Affiliate, all as if GE Capital were not Agent and without any duty to
account therefor to Lenders. GE Capital and its Affiliates may accept fees and
other consideration from any Credit Party for services in connection with this
Agreement or otherwise without having to account for the same to Lenders. Each
Lender acknowledges the potential conflict of interest between GE Capital as a
Lender holding interests in the Loans and GE Capital as Agent.
9.5 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon Agent or any other Lender and based on
the Financial Statements referred to in Section 3.4(a) and such other documents
and information as it has deemed appropriate, made its own credit and financial
analysis of the Credit Parties and its own decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance upon 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 decisions in taking or not taking action under this Agreement. Each
Lender acknowledges the potential conflict of interest of each other Lender as a
result of Lenders holding disproportionate interests in the Loans, and expressly
consents to, and waives any claim based upon, such conflict of interest.
9.6 Indemnification. Lenders agree to indemnify Agent (to the extent
not reimbursed by Borrower and without limiting the obligations of Borrower
hereunder), ratably according to their respective Pro Rata Shares, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against
Agent in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted by Agent in connection therewith;
provided, however, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from Agent's gross negligence
or wilful misconduct as finally determined by a court of competent jurisdiction.
Without limiting the foregoing, each Lender agrees to reimburse Agent promptly
upon demand for its ratable share of any out-of-pocket expenses (including
counsel fees) incurred by Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement
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(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement and each
other Loan Document, to the extent that Agent is not reimbursed for such
expenses by Borrower.
9.7 Successor Agent. Agent may resign at any time by giving not less
than thirty (30) days' prior written notice thereof to Lenders and Borrower.
Upon any such resignation, the Requisite Lenders shall have the right to appoint
a successor Agent. If no successor Agent shall have been so appointed by the
Requisite Lenders and shall have accepted such appointment within 30 days after
the resigning Agent's giving notice of resignation, then the resigning Agent
may, on behalf of Lenders, appoint a successor Agent, which shall be a Lender,
if a Lender is willing to accept such appointment, or otherwise shall be a
commercial bank or financial institution or a subsidiary of a commercial bank or
financial institution if such commercial bank or financial institution is
organized under the laws of the United States of America or of any State thereof
and has a combined capital and surplus of at least $300,000,000. If no successor
Agent has been appointed pursuant to the foregoing, by the 30th day after the
date such notice of resignation was given by the resigning Agent, such
resignation shall become effective and the Requisite Lenders shall thereafter
perform all the duties of Agent hereunder until such time, if any, as the
Requisite Lenders appoint a successor Agent as provided above. Any successor
Agent appointed by Requisite Lenders or the Agent hereunder shall be subject to
the approval of Borrower, such approval not to be unreasonably withheld or
delayed; provided that such approval shall not be required if a Default or an
Event of Default shall have occurred and be continuing. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall succeed to and become vested with all the rights, powers, privileges and
duties of the resigning Agent. Upon the earlier of the acceptance of any
appointment as Agent hereunder by a successor Agent or the effective date of the
resigning Agent's resignation, the resigning Agent shall be discharged from its
duties and obligations under this Agreement and the other Loan Documents, except
that any indemnity rights or other rights in favor of such resigning Agent shall
continue. After any resigning Agent's resignation hereunder, the provisions of
this Section 9 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under this Agreement and the other Loan
Documents. Agent may be removed at the written direction of the holders (other
than Agent) of three-fourths or more of the Commitments (excluding Agent's
Commitment); provided that in so doing, such Lenders shall be deemed to have
waived and released any and all claims they may have against Agent.
9.8 Setoff and Sharing of Payments. 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 holder of any Note is hereby authorized at any time or from
time to time, without notice to any Credit Party or to any other Person, any
such notice being hereby expressly waived, to set off and to appropriate and to
apply any and all balances held by it at any of
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its offices for the account of any Credit Party (regardless of whether such
balances are then due to such Credit Party) and any other properties or assets
any time held or owing by that Lender or that holder to or for the credit or for
the account of any Credit Party against and on account of any of the Obligations
which are not paid when due. Any Lender or holder of any Note exercising a right
to set off or otherwise receiving any payment on account of the Obligations in
excess of its Pro Rata Share thereof shall purchase for cash (and the other
Lenders or holders shall sell) such participations in each such other Lender's
or holder's Pro Rata Share of the Obligations as would be necessary to cause
such Lender to share the amount so set off or received with each other Lender or
holder in accordance with their respective Pro Rata Shares. Each Credit Party
agrees, to the fullest extent permitted by law, that (a) any Lender or holder
may exercise its right to set off with respect to amounts in excess of its Pro
Rata Share of the Obligations and may sell participations in such amount so set
off to other Lenders and holders and (b) any Lender or holders so purchasing a
participation in the Loans made or other Obligations held by other Lenders or
holders may exercise all rights of set-off, bankers' lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender or
holder were a direct holder of the Loans and the other Obligations in the amount
of such participation. Notwithstanding the foregoing, if all or any portion of
the set-off amount or payment otherwise received is thereafter recovered from
the Lender that has exercised the right of set-off or received such payment, the
purchase of participations by that Lender shall be rescinded and the purchase
price restored without interest.
9.9 Advances; Payments; Non-Funding Lenders; Information; Actions in
Concert.
(a) Advances; Payments. (i) Agent shall notify Revolving Lenders,
promptly after receipt of a Notice of Revolving Advance and in any event prior
to 1:00 p.m. (New York time) on the date such Notice of Revolving Advance is
received, by telecopy, telephone or other similar form of transmission. Each
Revolving Lender shall make the amount of such Lender's Pro Rata Share of each
Revolving Credit Advance available to Agent in same day funds by wire transfer
to Agent's account as set forth in Annex H not later than 3:00 p.m. (New York
time) on the requested funding date, in the case of an Index Rate Loan and not
later than 11:00 a.m. (New York time) on the requested funding date in the case
of a LIBOR Loan. After receipt of such wire transfers (or, in the Agent's sole
discretion, before receipt of such wire transfers), subject to the terms hereof,
Agent shall make the requested Revolving Credit Advance to Borrower. All
payments by each Revolving Lender shall be made without setoff, counterclaim or
deduction of any kind.
(ii) On the second (2nd) Business Day of each calendar week or
more frequently as aggregate cumulative payments in excess of $5,000,000 are
received with respect to the Loans (each, a "Settlement Date"), Agent will
advise each Lender by telephone or telecopy of the amount of such Lender's Pro
Rata Share of principal, interest
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and Fees paid for the benefit of Lenders with respect to each applicable Loan.
Provided that such Lender has made all payments required to be made by it and
purchased all participations required to be purchased by it under this Agreement
and the other Loan Documents as of such Settlement Date, Agent will pay to each
Lender such Lender's Pro Rata Share of principal, interest and Fees paid by
Borrower since the previous Settlement Date for the benefit of that Lender on
the Loans held by it. Such payments shall be made by wire transfer to such
Lender's account (as specified by such Lender in Annex H or the applicable
Assignment Agreement) not later than 2:00 p.m. (New York time) on the next
Business Day following each Settlement Date.
(b) Availability of Lender's Pro Rata Share. Agent may assume that
each Revolving Lender will make its Pro Rata Share of each Revolving Credit
Advance available to Agent on each funding date. If such Pro Rata Share is not,
in fact, paid to Agent by such Revolving Lender when due, Agent will be entitled
to recover such amount on demand from such Revolving Lender without set-off,
counterclaim or deduction of any kind. If any Revolving Lender fails to pay the
amount of its Pro Rata Share forthwith upon Agent's demand, Agent shall promptly
notify Borrower and Borrower shall immediately repay such amount to Agent.
Nothing in this Section 9.9(b) or elsewhere in this Agreement or the other Loan
Documents shall be deemed to require Agent to advance funds on behalf of any
Revolving Lender or to relieve any Revolving Lender from its obligation to
fulfill its Commitments hereunder or to prejudice any rights that Borrower may
have against any Revolving Lender as a result of any default by such Revolving
Lender hereunder. To the extent that Agent advances funds to Borrower on behalf
of any Revolving Lender and is not reimbursed therefor on the same Business Day
as such Advance is made, Agent shall be entitled to retain for its account all
interest accrued on such Advance until reimbursed by the applicable Revolving
Lender.
(c) Return of Payments (i) If Agent pays an amount to a Lender under
this Agreement in the belief or expectation that a related payment has been or
will be received by Agent from Borrower and such related payment is not received
by Agent, then Agent will be entitled to recover such amount from such Lender on
demand without set-off, counterclaim or deduction of any kind.
(ii) If Agent determines at any time that any amount received
by Agent under this Agreement must be returned to Borrower or paid to any other
Person pursuant to any insolvency law or otherwise, then, notwithstanding any
other term or condition of this Agreement or any other Loan Document, Agent will
not be required to distribute any portion thereof to any Lender. In addition,
each Lender will repay to Agent on demand any portion of such amount that Agent
has distributed to such Lender, together with interest at such rate, if any, as
Agent is required to pay to Borrower or such other Person, without set-off,
counterclaim or deduction of any kind.
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(d) Non-Funding Lenders. The failure of any Revolving Lender (such
Revolving Lender, a "Non-Funding Lender") to make any Revolving Credit Advance
on the date specified therefor shall not relieve any other Revolving Lender
(each such other Revolving Lender, an "Other Lender") of its obligations to make
such Advance on such date, but neither any Other Lender nor Agent shall be
responsible for the failure of any Non-Funding Lender to make an Advance to be
made by such Non-Funding Lender, and no Non-Funding Lender shall have any
obligation to Agent or any Other Lender for the failure by such Non-Funding
Lender. Notwithstanding anything set forth herein to the contrary, a Non-Funding
Lender shall not have any voting or consent rights under or with respect to any
Loan Document or constitute a "Lender" or a "Revolving Lender" (or be included
in the calculation of "Requisite Lenders" hereunder) for any voting or consent
rights under or with respect to any Loan Document.
(e) Dissemination of Information. Agent will use reasonable efforts
to provide Lenders with any notice of Default or Event of Default received by
Agent from, or delivered by Agent to, any Credit Party, with notice of any Event
of Default of which Agent has actually become aware and with notice of any
action taken by Agent following any Event of Default; provided, however, that
Agent shall not be liable to any Lender for any failure to do so, except to the
extent that such failure is attributable solely to Agent's gross negligence or
willful misconduct as finally determined by a court of competent jurisdiction.
Lenders acknowledge that Borrower is required to provide Financial Statements
and Collateral Reports to Lenders in accordance with Annexes E and F hereto and
agree that Agent shall have no duty to provide the same to Lenders.
(f) Actions in Concert. Anything in this Agreement to the contrary
notwithstanding, each Lender hereby agrees with each other Lender that no Lender
shall take any action to protect or enforce its rights arising out of this
Agreement or the Notes (including exercising any rights of set-off) without
first obtaining the prior written consent of Agent or Requisite Lenders, it
being the intent of Lenders that any such action to protect or enforce rights
under this Agreement and the Notes shall be taken in concert and at the
direction or with the consent of Agent.
10. SUCCESSORS AND ASSIGNS
10.1 Successors and Assigns. This Agreement and the other Loan
Documents shall be binding on and shall inure to the benefit of each Credit
Party, Agent, Lenders and their respective successors and assigns (including, in
the case of any Credit Party, a debtor-in-possession on behalf of such Credit
Party), except as otherwise provided herein or therein. No Credit Party may
assign, transfer, hypothecate or otherwise convey its rights, benefits,
obligations or duties hereunder or under any of the other Loan Documents without
the prior express written consent of Agent and Requisite Lenders. Any such
purported assignment, transfer, hypothecation or other conveyance by any Credit
Party without the prior express written consent of Agent and Requisite Lenders
shall be
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void. The terms and provisions of this Agreement are for the purpose of defining
the relative rights and obligations of each Credit Party, Agent and Lenders with
respect to the transactions contemplated hereby and no Person shall be a third
party beneficiary of any of the terms and provisions of this Agreement or any of
the other Loan Documents.
11. MISCELLANEOUS
11.1 Complete Agreement; Modification of Agreement. The Loan
Documents constitute the complete agreement between the parties with respect to
the subject matter thereof and may not be modified, altered or amended except as
set forth in Section 11.2 below. Any letter of interest or fee letter (other
than the GE Capital Fee Letter) between any Credit Party and Agent or any Lender
or any of their respective affiliates, predating this Agreement and relating to
a financing of substantially similar form, purpose or effect shall be superseded
by this Agreement.
11.2 Amendments and Waivers. (a) Except for actions expressly
permitted to be taken by Agent, no amendment, modification, termination or
waiver of any provision of this Agreement or any of the Notes, or any consent to
any departure by any Credit Party therefrom, shall in any event be effective
unless the same shall be in writing and signed by Agent and Borrower, and by
Requisite Lenders or all affected Lenders, as applicable. Except as set forth in
clause (b) below, all such amendments, modifications, terminations or waivers
requiring the consent of any Lenders shall require the written consent of
Requisite Lenders.
(b) No amendment, modification, termination or waiver shall, unless
in writing and signed by Agent and each Lender directly affected thereby, do any
of the following: (i) increase the principal amount of any Lender's Commitment
(which action shall be deemed to directly affect all Lenders); (ii) reduce the
principal of, rate of interest on or Fees payable with respect to any Loan of
any affected Lender; (iii) extend any scheduled payment date or final maturity
date of the principal amount of any Loan of any affected Lender; (iv) waive,
forgive, defer, extend or postpone any payment of interest or Fees as to any
affected Lender; (v) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which shall be required for
Lenders or any of them to take any action hereunder; and (vi) amend or waive
this Section 11.2 or the definitions of the terms "Requisite Lenders" insofar as
such definitions affect the substance of this Section 11.2. Furthermore, no
amendment, modification, termination or waiver affecting the rights or duties of
Agent under this Agreement or any other Loan Document shall be effective unless
in writing and signed by Agent, in addition to Lenders required hereinabove to
take such action. Each amendment, modification, termination or waiver shall be
effective only in the specific instance and for the specific purpose for which
it was given. No amendment, modification, termination or waiver shall be
required for Agent to take additional Collateral pursuant to any Loan Document.
No amendment, modification, termination or waiver of any provision of any Note
shall be effective without the written
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concurrence of the holder of that Note. No notice to or demand on any Credit
Party in any case shall entitle such Credit Party or any other Credit Party to
any other or further notice or demand in similar or other circumstances. Any
amendment, modification, termination, waiver or consent effected in accordance
with this Section 11.2 shall be binding upon each holder of the Notes at the
time outstanding and each future holder of the Notes.
(c) If in connection with any proposed amendment, modification,
waiver or termination (a "Proposed Change") requiring the consent of all
affected Lenders, the consent of Requisite Lenders is obtained, but the consent
of other Lenders whose consent is required is not obtained (any such Lender
whose consent is not obtained being referred to as a "Non-Consenting Lender"),
then so long as Agent is not a Non-Consenting Lender, at Borrower's request
Agent, or a Person acceptable to Agent, shall have the right with Agent's
consent and in Agent's sole discretion (but shall have no obligation) to
purchase from such Non-Consenting Lenders, and such Non-Consenting Lenders agree
that they shall, upon Agent's request, sell and assign to Agent or such Person,
all of the Commitments of such Non-Consenting Lender for an amount equal to the
principal balance of all Loans held by the Non-Consenting Lender and all accrued
interest and Fees with respect thereto through the date of sale, such purchase
and sale to be consummated pursuant to an executed Assignment Agreement.
(d) Upon payment in full in cash and performance of all of the
Obligations (other than indemnification Obligations under Section 1.12),
termination of the Commitments and a release of all claims against Agent and
Lenders, and so long as no suits, actions proceedings, or claims are pending or
threatened against any Indemnified Person asserting any damages, losses or
liabilities that are Indemnified Liabilities, Agent shall deliver to Borrower
termination statements, mortgage releases and other documents as the Borrower
may reasonably deem necessary or appropriate to evidence the termination of the
Liens securing payment of the Obligations.
11.3 Fees and Expenses. Borrower shall reimburse Agent for all
out-of-pocket expenses incurred in connection with the preparation of the Loan
Documents (including the reasonable fees and expenses of all of its special loan
counsel, advisors, consultants and auditors retained in connection with the Loan
Documents and the transactions contemplated hereby and thereby and advice in
connection therewith). Borrower shall reimburse Agent (and, with respect to
clauses (c) and (d) below, all Lenders) for all reasonable out-of-pocket fees,
costs and expenses, including the reasonable fees, costs and expenses of counsel
or other advisors (including environmental and management consultants and
appraisers) for advice, assistance, or other representation in connection with:
(a) the forwarding to Borrower or any other Person on behalf
of Borrower by Agent of the proceeds of the Loans;
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(b) any amendment, modification or waiver of, or consent with
respect to, any of the Loan Documents or documents contemplated hereby or
thereby or advice in connection with the administration of the Loans made
pursuant hereto or its rights hereunder or thereunder;
(c) any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Agent, any Lender, any Credit Party or any other
Person) in any way relating to the Collateral, any of the Loan Documents or any
other agreement to be executed or delivered in connection therewith or herewith,
whether as party, witness, or otherwise, including any litigation, contest,
dispute, suit, case, proceeding or action, and any appeal or review thereof, in
connection with a case commenced by or against any Credit Party or any other
Person that may be obligated to Agent by virtue of the Loan Documents; including
any such litigation, contest, dispute, suit, proceeding or action arising in
connection with any work-out or restructuring of the Loans during the pendency
of one or more Events of Default;
(d) any attempt to enforce any remedies of Agent or any Lender
against any or all of the Credit Parties or any other Person that may be
obligated to Agent or any Lender by virtue of any of the Loan Documents;
including any such attempt to enforce any such remedies in the course of any
work-out or restructuring of the Loans during the pendency of one or more Events
of Default;
(e) any work-out or restructuring of the Loans during the
pendency of one or more Events of Default;
(f) efforts to (i) monitor the Loans or any of the other
Obligations, (ii) evaluate, observe or assess any of the Credit Parties or their
respective affairs, and (iii) verify, protect, evaluate, assess, appraise,
collect, sell, liquidate or otherwise dispose of any of the Collateral, except
that if a Default or Event of Default shall not have occurred and be continuing,
Agent shall be entitled to reimbursement for no more than two inspections,
audits and verifications of properties, books and records and Collateral plus
one inspection, audit and verification accompanying the Credit Parties'
independent accountants for the physical count of Inventory (in each case, as
contemplated by Section 1.13) in any Fiscal Year;
including all reasonable attorneys' and other professional and service
providers' fees arising from such services, including those in connection with
any appellate proceedings; and all expenses, costs, charges and other reasonable
fees incurred by such counsel and others in any way or respect arising in
connection with or relating to any of the events or actions described in this
Section 11.3 shall be payable, on demand, by Borrower to Agent. Without limiting
the generality of the foregoing, such expenses, costs, charges and fees may
include: reasonable fees, costs and expenses of accountants, environmental
advisors, appraisers, investment bankers, management and other consultants and
paralegals; court
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costs and expenses; photocopying and duplication expenses; court reporter fees,
costs and expenses; long distance telephone charges; air express charges;
telegram or telecopy charges; secretarial overtime charges; and expenses for
travel, lodging and food paid or incurred in connection with the performance of
such legal or other advisory services.
11.4 No Waiver. Agent's or any Lender's failure, at any time or
times, to require strict performance by the Credit Parties of any provision of
this Agreement and any of the other Loan Documents shall not waive, affect or
diminish any right of Agent or such Lender thereafter to demand strict
compliance and performance therewith. Any suspension or waiver of an Event of
Default shall not suspend, waive or affect any other Event of Default whether
the same is prior or subsequent thereto and whether the same or of a different
type. Subject to the provisions of Section 11.2, none of the undertakings,
agreements, warranties, covenants and representations of any Credit Party
contained in this Agreement or any of the other Loan Documents and no Default or
Event of Default by any Credit Party shall be deemed to have been suspended or
waived by Agent or any Lender, unless such waiver or suspension is by an
instrument in writing signed by an officer of or other authorized employee of
Agent and the applicable required Lenders and directed to Borrower specifying
such suspension or waiver.
11.5 Remedies. Agent's and Lenders' rights and remedies under this
Agreement shall be cumulative and nonexclusive of any other rights and remedies
which Agent or any Lender may have under any other agreement, including the
other Loan Documents, by operation of law or otherwise. Recourse to the
Collateral shall not be required.
11.6 Severability. Wherever possible, each provision of this
Agreement and the other Loan Documents shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
11.7 Conflict of Terms. Except as otherwise provided in this
Agreement or any of the other Loan Documents by specific reference to the
applicable provisions of this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision in any of the
other Loan Documents, the provision contained in this Agreement shall govern and
control.
11.8 Confidentiality. Agent and each Lender agree to use
commercially reasonable efforts (equivalent to the efforts Agent or such Lender
applies to maintain the confidentiality of its own confidential information) to
maintain as confidential all confidential information provided to them by the
Credit Parties and designated as confidential for a period of two (2) years
following receipt thereof, except that Agent and
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each Lender may disclose such information (a) to Persons employed or engaged by
Agent or such Lender in evaluating, approving, structuring or administering the
Loans and the Commitments; (b) to any assignee or participant or potential
assignee or participant that has agreed to comply with the covenant contained in
this Section 11.8 (and any such assignee or participant or potential assignee or
participant may disclose such information to Persons employed or engaged by them
as described in clause (a) above); (c) as required or requested by any
Governmental Authority or if based on the advice of legal counsel to Agent or
such Lender proposing to make such disclosure, Agent or such Lender is required
or compelled to do so by any court decree, subpoena or legal or administrative
order or process, provided that in any such instance in which Agent or such
Lender intends to make such disclosure, Agent or such Lender shall give Borrower
such prior written notice thereof as is reasonably practicable under the
circumstances in order to allow the Credit Party or Credit Parties affected
thereby opportunity to seek a protective order or injunctive relief; (d) as, in
the opinion of Agent's or such Lender's counsel, required by law; (e) in
connection with the exercise of any right or remedy under the Loan Documents or
in connection with any Litigation to which Agent or such Lender is a party; or
(f) which ceases to be confidential through no fault of Agent or such Lender.
11.9 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF
THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE
AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH CREDIT PARTY
HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK
COUNTY, CITY OF NEW YORK, NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY CREDIT PARTY, AGENT AND LENDERS
PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS,
PROVIDED, THAT AGENT, LENDERS AND EACH CREDIT PARTY ACKNOWLEDGE THAT ANY APPEALS
FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK
COUNTY, CITY OF NEW YORK, NEW YORK AND, PROVIDED, FURTHER NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN FAVOR OF AGENT. EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS
IN
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ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND EACH CREDIT PARTY HEREBY WAIVES ANY OBJECTION WHICH SUCH CREDIT PARTY MAY
HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS. EACH CREDIT PARTY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL ADDRESSED TO SUCH CREDIT PARTY AT THE ADDRESS SET FORTH IN
ANNEX I OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
UPON THE EARLIER OF SUCH CREDIT PARTY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS
AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
11.10 Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other parties, or whenever any of the parties desires to give or
serve upon any other parties any communication with respect to this Agreement,
each such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be deemed to have been validly
served, given or delivered (a) upon the earlier of actual receipt and three (3)
Business Days after deposit in the United States Mail, registered or certified
mail, return receipt requested, with proper postage prepaid, (b) upon
transmission, when sent by telecopy or other similar facsimile transmission
(with such telecopy or facsimile promptly confirmed by delivery of a copy by
personal delivery or United States Mail as otherwise provided in this Section
11.10), (c) one (1) Business Day after deposit with a reputable overnight
courier with all charges prepaid or (d) when delivered, if hand-delivered by
messenger, all of which shall be addressed to the party to be notified and sent
to the address or facsimile number indicated on Annex I or to such other address
(or facsimile number) as may be substituted by notice given as herein provided.
The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice. Failure or delay in delivering copies of
any notice, demand, request, consent, approval, declaration or other
communication to any Person (other than Borrower or Agent) designated on Annex I
to receive copies shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other communication.
11.11 Section Titles. The Section titles and Table of Contents
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto.
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11.12 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which shall collectively and separately
constitute one agreement.
11.13 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,
TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, AMONG AGENT, LENDERS AND ANY CREDIT PARTY ARISING
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
11.14 Press Releases. Each Credit Party executing this Agreement
agrees that neither it nor its Affiliates will in the future issue any press
releases or other public disclosure using the name of GE Capital or its
affiliates or referring to this Agreement, the other Loan Documents or the
documents contemplated hereby or thereby without at least two (2) Business Days'
prior notice to GE Capital and without the prior written consent of GE Capital
unless (and only to the extent that) such Credit Party or Affiliates is required
to do so under law and then, in any event, such Credit Party or its Affiliate
will consult with GE Capital before issuing such press release or other public
disclosure. Each Credit Party consents to the publication by Agent or any Lender
of a tombstone or similar advertising material relating to the financing
transactions contemplated by this Agreement.
11.15 Reinstatement. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Borrower for liquidation or reorganization, should Borrower become insolvent or
make an assignment for the benefit of any creditor or creditors or should a
receiver or trustee be appointed for all or any significant part of Borrower's
assets, and shall continue to be effective or to be reinstated, as the case may
be, if at any time payment and performance of the Obligations, or any part
thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Obligations, whether as
a "voidable preference," "fraudulent conveyance," or otherwise, all as though
such payment or performance had not been made. In the event that any payment, or
any part thereof, is rescinded, reduced, restored or returned, the Obligations
shall be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.
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11.16 Advice of Counsel. Each of the parties represents to each
other party hereto that it has discussed this Agreement and, specifically, the
provisions of Sections 11.9 and 11.13, with its counsel.
11.17 No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above.
DANA PERFUMES CORP.
By: ________________________________
Title:______________________________
GENERAL ELECTRIC CAPITAL
CORPORATION,
Commitment as Agent and Lender
$75,000,000
By: ________________________________
Title: _____________________________
The following Persons are signatories to this Agreement as to
covenants and representations, other than payment obligations herein contained.
Credit Parties:
RENAISSANCE COSMETICS, INC.
By: ________________________________
Title:______________________________
COSMAR CORPORATION
By: ________________________________
Title:______________________________
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GREAT AMERICAN COSMETICS, INC.
By: ________________________________
Title:______________________________
HOUBIGANT (1995) LIMITED
By: ________________________________
Title:______________________________
MEM COMPANY, INC.
By: ________________________________
Title:______________________________
ARISTOCRAT LEATHER PRODUCTS,
INC.
By: ________________________________
Title:______________________________
MARTON FRERES, INC.
By: ________________________________
Title:______________________________
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MEM COMPANY (CANADA) LIMITED
By: ________________________________
Title:______________________________
ENGLISH LEATHER, INC.
By: ________________________________
Title:______________________________
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ANNEX A (Recitals)
to
CREDIT AGREEMENT
DEFINITIONS
Capitalized terms used in the Loan Documents shall have (unless
otherwise provided elsewhere in the Loan Documents) the following respective
meanings and all section references in the following definitions shall refer to
Sections of the Agreement:
"1994 Senior Notes" those certain 13 3/4% Senior Notes due 2001,
Series B, issued by Parent in an aggregate original principal amount of
$65,000,000.
"1994 Senior Notes Indenture" shall mean the Indenture, dated as of
August 18, 1994, among Parent, the guarantors named therein, and American Bank
National Association, as it may from time to time be amended, modified or
supplemented.
"1997 Senior Notes" shall mean those certain 11 3/4% Senior Notes
due 2004 issued by Parent in an aggregate principal amount of $200,000,000.
"1997 Senior Notes Escrow Account" shall mean the escrow account
established pursuant to the 1997 Senior Notes Escrow Agreement, into which RGI
has initially deposited $17,500,000, which it received from Parent out of the
net proceeds from the offering of 1997 Senior Notes.
"1997 Senior Notes Escrow Agreement" shall mean the Escrow and
Disbursement Agreement, dated as of February 7, 1997, among United States Trust
Company of New York, as escrow agent, United States Trust Company of New York,
as trustee under the 1997 Senior Notes Indenture, Parent and RGI.
"1997 Senior Notes Indenture" shall mean the Indenture, dated as of
February 7, 1997, among Parent, RGI and United States Trust Company of New York,
as trustee.
"Account Debtor" shall mean any Person who may become obligated to
any Credit Party under, with respect to, or on account of, an Account.
"Accounts" shall mean all "accounts," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party and, in any event,
including (a) all accounts receivable, other receivables, book debts and other
forms of obligations (other than forms of obligations evidenced by Chattel
Paper, Documents or Instruments) now owned or hereafter received or acquired by
or belonging or owing to any Credit Party,
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whether arising out of goods sold or services rendered by it or from any other
transaction (including any such obligations which may be characterized as an
account or contract right under the Code), (b) all of each Credit Party's rights
in, to and under all purchase orders or receipts now owned or hereafter acquired
by it for goods or services, (c) all of each Credit Party's rights to any goods
represented by any of the foregoing (including unpaid sellers' rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods), (d) all monies due or to become due
to any Credit Party, under all purchase orders and contracts for the sale of
goods or the performance of services or both by such Credit Party or in
connection with any other transaction (whether or not yet earned by performance
on the part of such Credit Party) now or hereafter in existence, including the
right to receive the proceeds of said purchase orders and contracts, and (e) all
collateral security and guarantees of any kind, now or hereafter in existence,
given by any Person with respect to any of the foregoing.
"Activation Event" and "Activation Notice" shall have the meanings
set forth in Annex C.
"Advance" shall mean any Revolving Credit Advance.
"Affiliate" shall mean, with respect to any Person, (a) each Person
that, directly or indirectly, owns or controls, whether beneficially, or as a
trustee, guardian or other fiduciary, ten percent (10%) or more of the Stock
having ordinary voting power in the election of directors of such Persons, (b)
each Person that controls, is controlled by or is under common control with such
Person, (c) each of such Person's officers, directors, joint venturers and
partners and (d) in the case of Borrower, the immediate family members, spouses
and lineal descendants of individuals who are Affiliates of Borrower. For the
purposes of this definition, "control" of a Person shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of its
management or policies, whether through the ownership of voting securities, by
contract or otherwise; provided, however, that the term "Affiliate" shall
specifically exclude Agent and each Lender.
"Agent" shall mean GE Capital or its successor appointed pursuant to
Section 9.7.
"Agreement" shall mean the Credit Agreement by and among Borrower,
the other Credit Parties, GE Capital, as Agent and Lender and the other Lenders
signatory from time to time to the Agreement.
"Appendices" shall have the meaning assigned to it in the recitals
to the Agreement.
"Applicable Margins" means collectively the Applicable Revolver
Index Margin and the Applicable Revolver LIBOR Margin.
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"Applicable Revolver Index Margin" shall mean the per annum interest
rate margin from time to time in effect and payable in addition to the Index
Rate applicable to the Revolving Loan, as determined by reference to Section
1.4(a) of the Agreement.
"Applicable Revolver LIBOR Margin" shall mean the per annum interest
rate from time to time in effect and payable in addition to the LIBOR Rate
applicable to the Revolving Loan, as determined by reference to Section 1.4(a)
of the Agreement.
"Assignment Agreement" shall have the meaning assigned to it in
Section 9.1(a).
"Assignment of Monies Payable under Insurance Policies" shall mean
each Assignment of Monies Payable under Insurance Policies to be executed by
Houbigant (1995) Limited or MEM Company (Canada) Limited in favor of Agent, for
the benefit of Agent and Lenders, in form and substance satisfactory to Agent,
as restated, amended, supplemented or otherwise modified from time to time, in
form and substance satisfactory to Agent, and shall refer to each Assignment of
Monies Payable under Insurance Policies as the same may be in effect at the time
such reference becomes operative.
"Borrower" shall have the meaning assigned thereto in the recitals
to the Agreement.
"Borrowing Availability" shall have the meaning assigned to it in
Section 1.1(a)(i).
"Borrowing Base" shall mean, as of any date of determination by
Agent, from time to time, an amount equal to the sum at such time of:
(a) up to eighty-five percent (85%) of Eligible Accounts, less any
Reserves established by Agent at such time; and
(b) up to seventy-five percent (75%) of the book value of Eligible
Inventory valued on a first-in, first-out basis (at the lower of cost or
market), less any Reserves established by Agent at such time.
"Borrowing Base Certificate" shall mean a certificate to be executed
and delivered from time to time by Borrower in the form attached to the
Agreement as Exhibit 4.1(b).
"Boucherville Hypothec" shall have the meaning assigned to it in
Section 5.9(c).
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"Boucherville Property" shall have the meaning assigned to it in
Section 5.9(c).
"Business Day" shall mean any day that is not a Saturday, a Sunday
or a day on which banks are required or permitted to be closed in the State of
New York and in reference to LIBOR Loans shall mean any such day that is also a
LIBOR Business Day.
"Canadian Benefit Plans" shall mean all material employee benefit
plans of any nature or kind whatsoever maintained or contributed to by any
Credit Party having employees in Canada that are not Canadian Pension Plans.
"Canadian Guarantees" shall mean the Houbigant Guarantee and the MEM
Canada Guarantee of even date herewith entered into between Agent, on behalf of
itself and Lenders, and Houbigant (1995) Limited and MEM Company (Canada)
Limited, respectively.
"Canadian Hypothecs" shall mean the Houbigant Deed of Hypothec and
the MEM Canada Deed of Hypothec of even date herewith entered into between
Agent, Lenders and Houbigant (1995) Limited and MEM Company (Canada) Limited,
respectively.
"Canadian Intellectual Property Acknowledgement" shall mean the
Acknowledgement and Consent of even date herewith given by Houbigant, Inc.,
Chase Manhattan Bank and Fleet Bank, in respect of certain intellectual property
of Houbigant (1995) Limited in favor of Agent, on behalf of itself and Lenders.
"Canadian Intellectual Property Security Agreements" shall mean the
Houbigant Intellectual Property Security Agreement, the United States Trademark
Security Agreement and the MEM Canada Intellectual Property Security Agreement
of even date herewith entered into between Agent, on behalf of itself and
Lenders, and Houbigant (1995) Limited and MEM Company (Canada) Limited,
respectively.
"Canadian Pension Plans" shall mean each plan which is considered to
be a pension plan for the purposes of any applicable pension benefits standards
statute and/or regulation in Canada established, maintained or contributed to by
any Credit Party for its employees or former employees.
"Canadian Security Agreements" shall mean the Houbigant Security
Agreement and the MEM Canada Security Agreement of even date herewith entered
into between Agent, on behalf of itself and Lenders, and Houbigant (1995)
Limited and MEM Company (Canada) Limited, respectively.
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"Capital Expenditures" shall mean, with respect to any Person, all
expenditures (by the expenditure of cash or the incurrence of Indebtedness) by
such Person during any measuring period for any fixed assets or improvements or
for replacements, substitutions or additions thereto that have a useful life of
more than one year and are required to be capitalized under GAAP.
"Capital Lease" shall mean, with respect to any Person, any lease of
any property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, would be required to be classified and accounted for as a
capital lease on a balance sheet of such Person.
"Capital Lease Obligation" shall mean, with respect to any Capital
Lease of any Person, the amount of the obligation of the lessee thereunder that,
in accordance with GAAP, would appear on a balance sheet of such lessee in
respect of such Capital Lease.
"Cash Management Systems" shall have the meaning assigned to it in
Section 1.7.
"Change of Control" shall mean the occurrence of one or more of the
following events: (a) any Person (including a Person's Affiliates and
associates), other than a Principal, becomes the beneficial owner (as defined
under Rule 13d-3 or any successor rule or regulation promulgated under the
Securities Exchange Act of 1934, as amended) of 50% or more of the total voting
power of Parent's common Stock; (b) prior to a public offering by Parent of
shares of its common Stock, the Principals collectively shall dispose of more
than 50% of the shares of Parent's common Stock owned by the Principals in the
aggregate as of the date hereof (excluding dispositions made to another
Principal); (c) prior to a public offering by Parent of shares of its common
Stock, any Person (including a Person's Affiliates and associates), other than a
Principal, becomes the beneficial owner of more than 35% of the total voting
power of Parent's common Stock, or the Principals together with the officers and
employees of the Parent beneficially own, in the aggregate, a lesser percentage
of the total voting power of the Parent's 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 Parent;
(d) subsequent to a public offering by Parent of shares of its common Stock, any
Person (including a Person's Affiliates and associates), other than a Principal,
becomes the beneficial owner of more than 35% of the total voting power of
Parent's common stock, and the Principals together with the officers and
employees of the Parent beneficially own, in the aggregate, a lesser percentage
of the total voting power of the Parent's 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 Parent;
(e) subsequent to a public offering by Parent of shares of its common Stock,
during any period of two consecutive years, individuals who at the beginning of
such period constituted the board of directors of Parent (together with any new
directors whose election by such board of
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directors or whose nomination for election by the stockholders of Parent 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 Parent; (f) Parent shall cease to own and control all of
the economic and voting rights associated with all of the outstanding capital
Stock of Holdings, or if Holdings is merged out of existence, Borrower; or (g)
Holdings (or if Holdings is merged out of existence, Parent) shall cease to own
and control all of the economic and voting rights associated with all of the
outstanding capital Stock of Borrower.
"Charges" shall mean all federal, state, county, city, municipal,
local, foreign or other governmental taxes (including taxes owed to the PBGC at
the time due and payable), levies, assessments, charges, liens, claims or
encumbrances upon or relating to (a) the Collateral, (b) the Obligations, (c)
the employees, payroll, income or gross receipts of any Credit Party, (d) any
Credit Party's ownership or use of any properties or other assets, or (e) any
other aspect of any Credit Party's business.
"Chattel Paper" shall mean any "chattel paper," as such term is
defined in the Code, now owned or hereafter acquired by any Credit Party,
wherever located.
"CIBC Credit Documents" shall mean the Senior Secured Credit
Agreement dated as of December 4, 1996, by and among Holdings, Parent, certain
Subsidiaries of Parent, and the lenders named therein, the notes issued pursuant
thereto, and all related documents executed pursuant thereto or in connection
therewith, as any of the foregoing may from time to time be amended, modified or
supplemented.
"Closing Date" shall mean the date of execution of this Agreement.
"Closing Checklist" shall mean the schedule, including all
appendices, exhibits or schedules thereto, listing certain documents and
information to be delivered in connection with the Agreement, the other Loan
Documents and the transactions contemplated thereunder, substantially in the
form attached hereto as Annex D.
"Code" shall mean the Uniform Commercial Code as the same may, from
time to time, be enacted and in effect in the State of New York; provided,
however, in the event that, by reason of mandatory provisions of law, any or all
of the attachment, perfection or priority of Agent's or any Lender's security
interest in any Collateral is governed by the Uniform Commercial Code as enacted
and in effect in a jurisdiction other than the State of New York, the term
"Code" shall mean the Uniform Commercial Code as enacted and in effect in such
other jurisdiction solely for purposes of the provisions hereof relating to such
attachment, perfection or priority and for purposes of definitions related to
such provisions.
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"Collateral" shall mean the property covered by the Security
Agreement, the Canadian Security Agreements, the Canadian Hypothecs, the
Mortgages and the other Collateral Documents and any other property, real or
personal, tangible or intangible, now existing or hereafter acquired, that may
at any time be or become subject to a security interest or Lien in favor of
Agent, on behalf of itself and Lenders, to secure the Obligations.
"Collateral Documents" shall mean the Security Agreement, the
Canadian Security Agreements, the Canadian Hypothecs, the Pledge Agreement, the
Guaranty, the Canadian Guarantees, the Mortgages, the Patent Security Agreement,
the Trademark Security Agreement, the Copyright Security Agreement, the Canadian
Intellectual Property Security Agreements and all similar agreements entered
into guaranteeing payment of, or granting a Lien upon property as security for
payment of, the Obligations.
"Collateral Reports" shall mean the reports with respect to the
Collateral referred to in Annex F.
"Collection Account" shall mean that certain account of Agent,
account number 502-328-54 in the name of Agent at Bankers Trust Company in New
York, New York.
"Commitment Termination Date" shall mean the earliest of (a) March
12, 2002, (b) the date of termination of Lenders' obligations to make Advances
or permit existing Loans to remain outstanding pursuant to Section 8.2(b), and
(c) the date of indefeasible prepayment in full by Borrower of the Loans and the
permanent reduction of the Commitment to zero dollars ($0), in accordance with
the provisions of Section 1.2(a).
"Commitments" shall mean (a) as to any Lender, the aggregate
commitment of such Lender to make Revolving Credit Advances as set forth on the
signature page to the Agreement or in the most recent Assignment Agreement
executed by such Lender and (b) as to all Lenders, the aggregate commitment of
all Lenders to make Revolving Credit Advances, which aggregate commitment shall
be Seventy Five Million Dollars ($75,000,000) on the Closing Date, as such
amount may be adjusted, if at all, from time to time in accordance with the
Agreement.
"Compliance Certificate" shall have the meaning assigned to it in
Annex E.
"Continuing Person" shall have the meaning assigned to it in Section
6.1.
"Contracts" shall mean all "contracts," as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party, in any event,
including all contracts, undertakings, or agreements (other than rights
evidenced by Chattel Paper, Documents or Instruments) in or under which any
Credit Party may now or hereafter have any right, title
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or interest, including any agreement relating to the terms of payment or the
terms of performance of any Account.
"Control Letter" means a letter agreement between Agent and (i) the
issuer of uncertificated securities with respect to uncertificated securities in
the name of a Credit Party, or (ii) a securities intermediary with respect to
securities, whether certificated or uncertificated, securities entitlements and
other financial assets held in a securities account in the name of a Credit
Party, whereby, among other things, the issuer or securities intermediary
disclaims any security interest in the applicable financial assets, acknowledges
the Lien of Agent, on behalf of itself and Lenders, on such financial assets,
and agrees to follow the instructions or entitlement orders of Agent without
further consent by such Credit Party.
"Copyright License" shall mean any and all rights now owned or
hereafter acquired by any Credit Party under any written agreement granting any
right to use any Copyright or Copyright registration.
"Copyrights" shall mean all of the following in which any Credit
Party now holds or hereafter acquires any interest: (a) all copyrights and
general intangibles of like nature (whether registered or unregistered), now
owned or existing or hereafter adopted or acquired, all registrations and
recordings thereof, and all applications in connection therewith, including all
registrations, recordings and applications in the United States Copyright Office
or in any similar office or agency of the United States, any state or territory
thereof, or any other country or any political subdivision thereof, and (b) all
reissues, extensions or renewals thereof.
"Copyright Security Agreement" shall mean the Copyright Security
Agreement made in favor of Agent, on behalf of itself and Lenders, by each
applicable Credit Party.
"Credit Parties" shall mean Borrower, Parent, Holdings, Great
American Cosmetics, Inc., Houbigant (1995) Limited, MEM Company, Inc.,
Aristocrat Leather Products, Inc., Marton Freres, Inc., MEM Company (Canada)
Limited, English Leather, Inc. and the other credit parties identified as such
on the signature pages to this Agreement.
"Credit Party Accounts" shall have the meaning assigned to it in
Annex C.
"Cumulative Exchangeable Preferred Stock" shall mean the Cumulative
Exchangeable Preferred Stock of Parent.
"Default" shall mean any event which, with the passage of time or
notice or both, would, unless cured or waived, become an Event of Default.
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"Default Rate" shall have the meaning assigned to it in Section
1.4(d).
"Disbursement Accounts" shall have the meaning assigned to it on
Annex C.
"Disclosure Schedules" shall mean the Schedules prepared by Borrower
and denominated as Disclosure Schedules 1.3 through 6.15 in the Index to the
Agreement.
"Documents" shall mean any "documents," as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party, wherever located.
"Dollars" or "$" shall mean lawful currency of the United States of
America.
"EBITDA" shall mean, with respect to any Person for any fiscal
period, an amount equal to (a) consolidated net income of such Person for such
period, minus (b) the sum of (i) income tax credits, (ii) interest income, (iii)
gain from extraordinary items for such period, (iv) any aggregate net gain (but
not any aggregate net loss) during such period arising from the sale, exchange
or other disposition of capital assets by such Person (including any fixed
assets, whether tangible or intangible, all inventory sold in conjunction with
the disposition of fixed assets and all securities), and (v) any other non-cash
gains which have been added in determining consolidated net income, in each case
to the extent included in the calculation of consolidated net income of such
Person for such period in accordance with GAAP, but without duplication, plus
(c) the sum of (i) any provision for income taxes, (ii) Interest Expense, (iii)
loss from extraordinary items for such period, (iv) the amount of non-cash
charges (including depreciation and amortization) for such period, (v) amortized
debt discount for such period, and (vi) the amount of any deduction to
consolidated net income as the result of any grant to any members of the
management of such Person of any Stock, in each case to the extent included in
the calculation of consolidated net income of such Person for such period in
accordance with GAAP, but without duplication. For purposes of this definition,
the following items shall be excluded in determining consolidated net income of
a Person: (1) the income (or deficit) of any other Person accrued prior to the
date it became a Subsidiary of, or was merged or consolidated into, such Person
or any of such Person's Subsidiaries; (2) the income (or deficit) of any other
Person (other than a Subsidiary) in which such Person has an ownership interest,
except to the extent any such income has actually been received by such Person
in the form of cash dividends or distributions; (3) the undistributed earnings
of any Subsidiary of such Person to the extent that the declaration or payment
of dividends or similar distributions by such Subsidiary is not at the time
permitted by the terms of any contractual obligation or requirement of law
applicable to such Subsidiary; (4) any restoration to income of any contingency
reserve, except to the extent that provision for such reserve was made out of
income accrued during such period; (5) any write-up of any asset; (6) any net
gain from the collection of the proceeds of life insurance policies; (7) any net
gain arising from the acquisition of any securities, or the extinguishment,
under GAAP, of any Indebtedness, of
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such Person, (8) in the case of a successor to such Person by consolidation or
merger or as a transferee of its assets, any earnings of such successor prior to
such consolidation, merger or transfer of assets, and (9) any deferred credit
representing the excess of equity in any Subsidiary of such Person at the date
of acquisition of such Subsidiary over the cost to such Person of the investment
in such Subsidiary.
"Eligible Accounts" shall have the meaning assigned to it in Section
1.5 of the Agreement.
"Eligible Inventory" shall have the meaning assigned to it in
Section 1.6 of the Agreement.
"Environmental Laws" shall mean all applicable federal, state,
provincial, local and foreign laws, statutes, ordinances, codes, rules,
standards and regulations, now or hereafter in effect, and in each case as
amended or supplemented from time to time, and any applicable judicial or
administrative interpretation thereof, including any applicable judicial or
administrative order, consent decree, order or judgment, imposing liability or
standards of conduct for or relating to the regulation and protection of human
health, safety, the environment and natural resources (including ambient air,
surface water, groundwater, wetlands, land surface or subsurface strata,
wildlife, aquatic species and vegetation). Environmental Laws include the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(42 U.S.C. ss.ss. 9601 et seq.) ("CERCLA"); the Hazardous Materials
Transportation Authorization Act of 1994 (49 U.S.C. ss.ss. 5101 et seq.); the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. ss.ss. 136 et
seq.); the Solid Waste Disposal Act (42 U.S.C. ss.ss. 6901 et seq.); the Toxic
Substance Control Act (15 U.S.C. ss.ss. 2601 et seq.); the Clean Air Act (42
U.S.C. ss.ss. 7401 et seq.); the Federal Water Pollution Control Act (33 U.S.C.
ss.ss. 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C. ss.ss.
651 et seq.); and the Safe Drinking Water Act (42 U.S.C. ss.ss. 300(f) et seq.),
each as from time to time amended, and any and all regulations promulgated
thereunder, and all analogous state, provincial, local and foreign counterparts
or equivalents and any transfer of ownership notification or approval statutes.
"Environmental Liabilities" shall mean, with respect to any Person,
all liabilities, obligations, responsibilities, response, remedial and removal
costs, investigation and feasibility study costs, capital costs, operation and
maintenance costs, losses, damages, punitive damages, property damages, natural
resource damages, consequential damages, treble damages, costs and expenses
(including all fees, disbursements and expenses of counsel, experts and
consultants), fines, penalties, sanctions and interest incurred as a result of
or related to any claim, suit, action, investigation, proceeding or demand by
any Person, whether based in contract, tort, implied or express warranty, strict
liability, criminal or civil statute or common law, including any arising under
or related to any Environmental Laws, Environmental Permits, or in connection
with any Release or threatened Release or
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presence of a Hazardous Material whether on, at, in, under, from or about or in
the vicinity of any real or personal property.
"Environmental Permits" shall mean all permits, licenses,
authorizations, certificates, approvals, registrations or other written
documents required by any Governmental Authority under any Environmental Laws.
"Equipment" shall mean all "equipment," as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party, wherever located
and, in any event, including all such Credit Party's machinery and equipment,
including processing equipment, conveyors, machine tools, data processing and
computer equipment with software and peripheral equipment (other than software
constituting part of the Accounts), and all engineering, processing and
manufacturing equipment, office machinery, furniture, materials handling
equipment, tools, attachments, accessories, automotive equipment, trailers,
trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock and other
equipment of every kind and nature, trade fixtures and fixtures not forming a
part of real property, all whether now owned or hereafter acquired, and wherever
situated, together with all additions and accessions thereto, replacements
therefor, all parts therefor, all substitutes for any of the foregoing, fuel
therefor, and all manuals, drawings, instructions, warranties and rights with
respect thereto, and all products and proceeds thereof and condemnation awards
and insurance proceeds with respect thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974 (or any successor legislation thereto), as amended from time to time, and
any regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to any Credit Party, any
trade or business (whether or not incorporated) which, together with such Credit
Party, are treated as a single employer within the meaning of Sections 414(b),
(c), (m) or (o) of the IRC.
"ERISA Event" shall mean, with respect to any Credit Party or any
ERISA Affiliate, (a) any event described in Section 4043(c) of ERISA with
respect to a Title IV Plan; (b) the withdrawal of any Credit Party or ERISA
Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan
year in which it was a substantial employer, as defined in Section 4001(a)(2) of
ERISA; (c) the complete or partial withdrawal of any Credit Party or any ERISA
Affiliate from any Multiemployer Plan; (d) the filing of a notice of intent to
terminate a Title IV Plan or the treatment of a plan amendment as a termination
under Section 4041 of ERISA; (e) the institution of proceedings to terminate a
Title IV Plan or Multiemployer Plan by the PBGC; (f) the failure by any Credit
Party or ERISA Affiliate to make when due required contributions to a
Multiemployer Plan or Title IV Plan unless such failure is cured within 30 days;
(g) any other event or condition which might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to
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administer, any Title IV Plan or Multiemployer Plan or for the imposition of
liability under Section 4069 or 4212(c) of ERISA; (h) the termination of a
Multiemployer Plan under Section 4041A of ERISA or the reorganization or
insolvency of a Multiemployer Plan under Section 4241 of ERISA; or (i) the loss
of a Qualified Plan's qualification or tax exempt status.
"ESOP" shall mean a Plan which is intended to satisfy the
requirements of Section 4975(e)(7) of the IRC.
"Event of Default" shall have the meaning assigned to it in Section
8.1.
"FDA" shall mean the Food and Drug Administration or any successor
thereto.
"Federal Funds Rate" shall mean, for any day, a floating rate equal
to the weighted average of the rates on overnight federal funds transactions
among members of the Federal Reserve System, as determined by Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System, or any successor thereto.
"Fees" shall mean any and all fees payable to Agent or any Lender
pursuant to the Agreement or any of the other Loan Documents.
"Financial Statements" shall mean the consolidated and consolidating
income statements, statements of cash flows and balance sheets of Borrower
delivered in accordance with Section 3.4 of the Agreement and Annex E to the
Agreement.
"Fiscal Month" shall mean any of the monthly accounting periods of
Borrower.
"Fiscal Quarter" shall mean any of the quarterly accounting periods
of Borrower, ending on June 30, September 30, December 31 and March 31 of each
year.
"Fiscal Year" shall mean any of the annual accounting periods of
Borrower ending on March 31 of each year.
"Fixtures" shall mean any "fixtures" as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party.
"Funded Debt" shall mean, with respect to any Person, all
Indebtedness for borrowed money evidenced by notes, bonds, debentures, or
similar evidences of Indebtedness and which by its terms matures more than one
year from, or is directly or
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indirectly renewable or extendible at such Person's option under a revolving
credit or similar agreement obligating the lender or lenders to extend credit
over a period of more than one year from the date of creation thereof, and
specifically including Capital Lease Obligations, current maturities of
long-term debt, revolving credit and short-term debt extendible beyond one year
at the option of the debtor, and also including, in the case of Borrower, the
Obligations.
"GAAP" shall mean generally accepted accounting principles in the
United States of America (or, in the case of Houbigant (1995) Limited and MEM
Company (Canada) Limited, in Canada) as in effect on the Closing Date,
consistently applied as such term is further defined in Annex G to the
Agreement.
"GE Capital Fee Letter" shall mean that certain letter dated
February 10, 1997, between GE Capital, Parent and Borrower with respect to
certain Fees to be paid from time to time by Borrower to GE Capital.
"General Intangibles" shall mean any "general intangibles," as such
term is defined in the Code, now owned or hereafter acquired by any Credit
Party, and, in any event, including all right, title and interest which such
Credit Party may now or hereafter have in or under any Contract, all customer
lists, Licenses, Copyrights, Trademarks, Patents, and all applications therefor
and reissues, extensions or renewals thereof, rights in Intellectual Property,
interests in partnerships, joint ventures and other business associations,
licenses, permits, copyrights, trade secrets, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, experience, processes, models, drawings, materials and
records, goodwill (including the goodwill associated with any Trademark or
Trademark License), all rights and claims in or under insurance policies
(including insurance for fire, damage, loss and casualty, whether covering
personal property, real property, tangible rights or intangible rights, all
liability, life, key man and business interruption insurance, and all unearned
premiums), uncertificated securities, choses in action, deposit, checking and
other bank accounts, rights to receive tax refunds and other payments and rights
of indemnification.
"Governmental Authority" shall mean any nation or federal, state,
local or foreign government, any state, province or other political subdivision
thereof, and any agency, department or other entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any
obligation of such Person guaranteeing any indebtedness, lease, dividend, or
other obligation ("primary obligations") of any other Person (the "primary
obligor") in any manner, including any obligation or arrangement of such Person
(a) to purchase or repurchase any such primary obligation, (b) to advance or
supply funds (i) for the purchase or payment of any such
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primary obligation or (ii) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet condition of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (d) to indemnify the owner of such primary
obligation against loss in respect thereof. The amount of any Guaranteed
Indebtedness at any time shall be deemed to be an amount equal to the lesser at
such time of (x) the stated or determinable amount of the primary obligation in
respect of which such Guaranteed Indebtedness is made and (y) the maximum amount
for which such Person may be liable pursuant to the terms of the instrument
embodying such Guaranteed Indebtedness; or, if not stated or determinable, the
maximum reasonably anticipated liability (assuming full performance) in respect
thereof.
"Guaranties" shall mean, collectively, the Guaranty, the Canadian
Guarantees and any other guaranty executed by any Guarantor in favor of Agent
and Lenders in respect of the Obligations.
"Guarantors" shall mean Parent, Holdings, and each of their and
Borrower's domestic or Canadian Subsidiaries except Dana Perfumes (Canada)
Limited, and each other Person, if any, which executes a guarantee or other
similar agreement in favor of Agent in connection with the transactions
contemplated by the Agreement and the other Loan Documents.
"Guaranty" shall mean the guaranty of even date herewith executed by
Parent, Holdings and each of their and Borrower's domestic and Canadian
Subsidiaries in favor of Agent and Lenders.
"Hazardous Material" shall mean any substance, material or waste
which is regulated by or forms the basis of liability now or hereafter under,
any Environmental Laws, including any material or substance which is (a) defined
as a "solid waste," "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste," "restricted hazardous waste,"
"pollutant," "contaminant," "hazardous constituent," "special waste," "toxic
substance" or other similar term or phrase under any Environmental Laws, (b)
petroleum or any fraction or by-product thereof, asbestos, polychlorinated
biphenyls (PCB's), or any radioactive substance.
"Holdings" shall have the meaning ascribed thereto in the recitals
to the Agreement.
"Houbigant License Agreements" shall mean: (i) the License
Agreement, dated May 2, 1994, between Houbigant, Inc. and Parfums Parquet
Incorporated, as amended (the "Houbigant U.S. License"); (ii) the License
Agreement, dated August 10, 1994, between Houbigant, Inc., Houbigant, GmbH, and
Parfums Parquet Incorporated, as
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amended (the "Houbigant Worldwide License Agreement"); and (iii) the License
Agreement between Houbigant, Inc. and Houbigant (1995) Limited, as amended (the
"Houbigant Canadian License"), and any other material license agreement under
which Houbigant (1995) Limited or any other Canadian Subsidiary may receive
rights to use intellectual property of another Person.
"Indebtedness" of any Person shall mean without duplication (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property payment for which is deferred six (6) months or more, but
excluding obligations to trade creditors incurred in the ordinary course of
business that are not overdue by more than six (6) months unless being contested
in good faith, (b) all reimbursement and other obligations with respect to
letters of credit, bankers' acceptances and surety bonds, whether or not
matured, (c) all obligations evidenced by notes, bonds, debentures or similar
instruments, (d) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (e) all Capital Lease Obligations, (f) all obligations of such Person
under commodity purchase or option agreements or other commodity price hedging
arrangements, in each case whether contingent or matured, (g) all obligations of
such Person under any foreign exchange contract, currency swap agreement,
interest rate swap, cap or collar agreement or other similar agreement or
arrangement designed to alter the risks of that Person arising from fluctuations
in currency values or interest rates, in each case whether contingent or
matured, (h) all Indebtedness referred to above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property or other assets (including accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness, and (i) the
Obligations.
"Indemnified Liabilities" shall have the meaning assigned to it in
Section 1.12.
"Index Rate" shall mean, for any day, a floating rate equal to the
higher of (i) the rate publicly quoted from time to time by The Wall Street
Journal as the "base rate on corporate loans at large U.S. money center
commercial banks" (or, if The Wall Street Journal ceases quoting a base rate of
the type described, the highest per annum rate of interest published by the
Federal Reserve Board in Federal Reserve statistical release H.15 (519) entitled
"Selected Interest Rates" as the Bank prime loan rate or its equivalent), and
(ii) the Federal Funds Rate plus fifty (50) basis points per annum. Each change
in any interest rate provided for in the Agreement based upon the Index Rate
shall take effect at the time of such change in the Index Rate.
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"Index Rate Loan" shall mean a Loan or portion thereof bearing
interest by reference to the Index Rate.
"Instruments" shall mean any "instrument," as such term is defined
in the Code, now owned or hereafter acquired by any Credit Party, wherever
located, and, in any event, including all certificated securities, all
certificates of deposit, and all notes and other, without limitation, evidences
of indebtedness, other than instruments that constitute, or are a part of a
group of writings that constitute, Chattel Paper.
"Intellectual Property" shall mean any and all Licenses, Patents,
Copyrights, Trademarks, trade secrets and customer lists.
"Intercompany Notes" shall have the meaning assigned to it in
Section 6.3.
"Interest Coverage Ratio" shall mean, with respect to any Person for
any period, the ratio of (a) EBITDA, to (b) cash Interest Expense (without
regard to interest income), less any portion thereof paid out of the 1997 Senior
Notes Escrow Account, plus cash dividends paid to holders of Cumulative
Exchangeable Preferred Stock.
"Interest Expense" shall mean, with respect to any Person for any
fiscal period, interest expense (whether cash or non-cash) of such Person
determined in accordance with GAAP for the relevant period ended on such date,
including, in any event, interest expense with respect to any Funded Debt of
such Person.
"Interest Payment Date" means (a) as to any Index Rate Loan, the
first Business Day of each month to occur while such Loan is outstanding, (b) as
to any LIBOR Loan, the last day of the applicable LIBOR Period provided that, in
addition to the foregoing, each of (x) the date upon which all of the
Commitments have been terminated and the Loans have been paid in full and (y)
the Commitment Termination Date shall be deemed to be an "Interest Payment Date"
with respect to any interest which is then accrued under the Agreement.
"Inventory" shall mean any "inventory," as such term is defined in
the Code, now or hereafter owned or acquired by any Credit Party, wherever
located, and in any event including inventory, merchandise, goods and other
personal property which are held by or on behalf of any Credit Party for sale or
lease or are furnished or are to be furnished under a contract of service, or
which constitute raw materials, work in process or materials used or consumed or
to be used or consumed in such Credit Party's business or in the processing,
production, packaging, promotion, delivery or shipping of the same, including
other supplies.
"Investment Property" shall have the meaning ascribed thereto in
Section 9-115 of the Code in those jurisdictions in which such definition has
been adopted and shall
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include (i) all securities, whether certificated or uncertificated, including
stocks, bonds, interests in limited liability companies, partnership interests,
treasuries, certificates of deposit, and mutual fund shares; (ii) all securities
entitlements of any Credit Party, including the rights of any Credit Party to
any securities account and the financial assets held by a securities
intermediary in such securities account and any free credit balance or other
money owing by any securities intermediary with respect to that account; (iii)
all securities accounts held by any Credit Party; (iv) all commodity contracts
held by any Credit Party; and (v) all commodity accounts held by any Credit
Party.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, and
any successor thereto.
"IRS" shall mean the Internal Revenue Service, or any successor
thereto.
"Kidd Kamm Management Agreement" shall mean the Management
Services Agreement, dated August 16, 1994, between Kidd, Kamm & Company and
Parent.
"Lenders" shall mean GE Capital, the other Lenders named on the
signature page of the Agreement, and, if any such Lender shall decide to assign
all or any portion of the Obligations as permitted in accordance with the terms
of the Agreement, such term shall include such permitted assignee.
"Leverage Ratio" shall mean, with respect to any Person as of any
date of determination, the ratio of (a) Funded Debt excluding Parent Debt, to
(b) EBITDA for the 12-month period then ended. For the purpose hereof, the
amount of Revolving Loans to be included in the calculation of Funded Debt as of
any date shall be the average amount of Revolving Loans outstanding as of the
end of each month during the prior 3-month period.
"LIBOR Business Day" shall mean a Business Day on which banks in the
city of London are generally open for interbank or foreign exchange
transactions.
"LIBOR Loan" shall mean a Loan or any portion thereof bearing
interest by reference to the LIBOR Rate.
"LIBOR Period" shall mean, with respect to any LIBOR Loan, each
period commencing on a LIBOR Business Day selected by Borrower pursuant to the
Agreement and ending one, two or three months thereafter, as selected by
Borrower's irrevocable notice to Agent as set forth in Section 1.4(e); provided
that the foregoing provision relating to LIBOR Periods is subject to the
following:
(a) if any LIBOR Period would otherwise end on a day that is not a
LIBOR Business Day, such LIBOR Period shall be extended to the next
succeeding LIBOR
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Business Day unless the result of such extension would be to carry such
LIBOR Period into another calendar month in which event such LIBOR Period
shall end on the immediately preceding LIBOR Business Day;
(b) any LIBOR Period that would otherwise extend beyond the
Commitment Termination Date shall end two (2) LIBOR Business Days prior to
such date;
(c) any LIBOR Period pertaining to a LIBOR Loan that begins on the
last LIBOR Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of
such LIBOR Period) shall end on the last LIBOR Business Day of a calendar
month;
(d) Borrower shall select LIBOR Periods so as not to require a
payment or prepayment of any LIBOR Loan during a LIBOR Period for such
Loan; and
(e) Borrower shall select LIBOR Periods so that there shall be no
more than three (3) separate LIBOR Loans in existence at any one time.
"LIBOR Rate" shall mean for each LIBOR Period, a rate of interest
determined by Agent equal to:
(a) the offered rate for deposits in United States Dollars for the
applicable LIBOR Period which appears on Telerate Page 3750 as of 11:00
a.m., London time, on the second full LIBOR Business Day next preceding
the first day of each LIBOR Period (unless such date is not a Business
Day, in which event the next succeeding Business Day will be used);
divided by
(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) LIBOR Business Days
prior to the beginning of such LIBOR Period (including basic,
supplemental, marginal and emergency reserves under any regulations of the
Board of Governors of the Federal Reserve system or other governmental
authority having jurisdiction with respect thereto, as now and from time
to time in effect) for Eurocurrency funding (currently referred to as
"Eurocurrency liabilities" in Regulation D of such Board) which are
required to be maintained by a member bank of the Federal Reserve System
(such rate to be adjusted to the nearest one sixteenth of one percent
(1/16th of 1%) or, if there is not a nearest one sixteenth of one percent
(1/16th of 1%), to the next highest one sixteenth of one percent (1/16th
of 1%).
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If such interest rates shall cease to be available from Telerate
News Service, the LIBOR Rate shall be determined from such financial
reporting service or other information as shall be mutually acceptable to
Agent and Borrower.
"License" shall mean any Copyright License, Patent License,
Trademark License or other license of rights or interests in which any Credit
Party now holds or hereafter acquires any interest.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security interest
under the Code or comparable law of any jurisdiction concerning property owned
by the debtor thereunder).
"Litigation" shall have the meaning assigned to it in Section 3.13.
"Loan Account" shall have the meaning assigned to it in Section
1.11.
"Loan Documents" shall mean the Agreement, the Notes, the Collateral
Documents and all other agreements, instruments, documents and certificates
identified in the Closing Checklist executed and delivered to, or in favor of,
Agent and/or Lenders and including all other pledges, powers of attorney,
consents, assignments, contracts, notices hereafter executed by or on behalf of
any Credit Party, or any employee of any Credit Party, and delivered to Agent or
any Lender in connection with the Agreement or the transactions contemplated
hereby. Any reference in the Agreement or any other Loan Document to a Loan
Document shall include all appendices, exhibits or schedules thereto, and all
amendments, restatements, supplements or other modifications thereto, and shall
refer to such Agreement as the same may be in effect at any and all times such
reference becomes operative.
"Loans" shall mean the Revolving Loan.
"Material Adverse Effect" shall mean a material adverse effect on
(a) the business, assets, operations, or financial or other condition of the
Credit Parties considered as a whole, (b) Borrower's or any Guarantor's ability
to pay any of the Loans or any of the other Obligations in accordance with the
terms of the Agreement, and the Guaranties, respectively, (c) the Collateral or
Agent's Liens, on behalf of itself and Lenders, on the Collateral or the
priority of such Liens, or (d) Agent's or any Lender's rights and remedies under
the Agreement and the other Loan Documents.
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"Maximum Amount" shall mean, at any particular time, an amount equal
to the Commitment of all Lenders.
"Mortgaged Properties" shall have the meaning assigned to it in
Annex D.
"Mortgages" shall mean each of the mortgages, deeds of trust,
leasehold mortgages, leasehold deeds of trust, collateral assignments of leases
or other real estate security documents delivered by any Credit Party to Agent
with respect to the Mortgaged Properties, all in form and substance satisfactory
to Agent.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 3(37)(A) of ERISA, and to which any Credit Party or ERISA Affiliate is
making, or is obligated to make, contributions on behalf of participants who are
or were employed by any of them.
"Net Borrowing Availability" shall mean as of any date of
determination, the lesser of (i) the Maximum Amount and (ii) the Borrowing Base,
in each case less the Revolving Loan then outstanding.
"Northvale Mortgages" shall have the meaning assigned to it in
Section 5.9(b).
"Northvale Properties" shall have the meaning assigned to it in
Section 5.9(b).
"Notes" shall mean the Revolving Notes, collectively.
"Notice of Conversion/Continuation" shall have the meaning assigned
to it in Section 1.4(e).
"Notice of Revolving Credit Advance" shall have the meaning assigned
to it in Section 1.1(a).
"Obligations" shall mean all loans, advances, debts, liabilities and
obligations, for the performance of covenants, tasks or duties or for payment of
monetary amounts (whether or not such performance is then required or
contingent, or such amounts are liquidated or determinable) owing by any Credit
Party to Agent or any Lender, and all covenants and duties regarding such
amounts, of any kind or nature, present or future, whether or not evidenced by
any note, agreement or other instrument, arising under the Agreement or any of
the other Loan Documents. This term includes all principal, interest (including
all interest which accrues after the commencement of any case or proceeding in
bankruptcy after the insolvency of, or for the reorganization of any Credit
Party, whether or not allowed in such proceeding), Fees, Charges, expenses,
attorneys' fees and any other
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sum chargeable to any Credit Party under the Agreement or any of the other Loan
Documents.
"Overadvance" shall have the meaning assigned to it in Section
1.1(a)(iii).
"Parent" shall have the meaning ascribed thereto in the recitals to
the Agreement.
"Parent Debt" shall mean the Indebtedness of Parent evidenced by the
1997 Senior Notes, and those certain subordinated seller notes due August 15,
2002 issued by Parent in the aggregate original principal amount of $5,000,000.
"Parent Notes" shall mean the 1997 Senior Notes and the seller notes
referred to in the definition of Parent Debt.
"Patent License" shall mean rights now owned or hereafter acquired
by any Credit Party under any written agreement granting any right with respect
to any invention on which a Patent is in existence.
"Patents" shall mean all of the following in which any Credit Party
now holds or hereafter acquires any interest: (a) all letters patent of the
United States or any other country, all registrations and recordings thereof,
and all applications for letters patent of the United States or any other
country, including registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State or Territory thereof, or any other country, and (b) all
reissues, continuations, continuations-in-part or extensions thereof.
"Patent Security Agreement" shall mean the Patent Security Agreement
made in favor of Agent, on behalf of itself and Lenders, by each applicable
Credit Party.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor thereto.
"Permitted Encumbrances" shall mean the following encumbrances: (a)
Liens for taxes or assessments or other governmental Charges not yet due and
payable; (b) pledges or deposits securing obligations under workmen's
compensation, unemployment insurance, social security or public liability laws
or similar legislation; (c) pledges or deposits securing bids, tenders,
contracts (other than contracts for the payment of money) or leases to which any
Credit Party is a party as lessee made in the ordinary course of business; (d)
deposits securing statutory obligations of any Credit Party; (e) inchoate and
unperfected workers', mechanics', suppliers' or similar liens arising in the
ordinary course of business; (f) carriers', warehousemen's or other similar
possessory liens arising in the ordinary course of business and securing
liabilities in an outstanding aggregate amount not
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in excess of $ 250,000 at any time; (g) deposits securing, or in lieu of,
surety, appeal or customs bonds in proceedings to which any Credit Party is a
party; (h) any attachment or judgment lien not constituting an Event of Default
under Section 8.1(j); (i) zoning restrictions, easements, licenses, or other
restrictions on the use of any Real Estate or other minor irregularities in
title (including leasehold title) thereto, so long as the same do not materially
impair the use, value, or marketability of such Real Estate; (j) presently
existing or hereafter created Liens in favor of Agent, on behalf of Lenders; and
(k) Liens expressly permitted under clauses (b) and (c) of Section 6.7 of the
Agreement.
"Permitted Joint Venture" shall mean a Person (other than an
individual or Governmental Authority) (i) that is not a Subsidiary of a Credit
Party, (ii) a majority of whose revenues are derived or will, as a consequence
of a Credit Party's investment therein, be derived from the operation of any
line of business engaged in or reasonably related to a line of business engaged
in by the Credit Parties and their Subsidiaries as of the date hereof, (iii)
with respect to which a Credit Party has the power to direct or cause the
direction of the management and policies, as a consequence of a Credit Party's
investment therein; provided that the aggregate amount of the Credit Parties'
investments in Permitted Joint Ventures at any one time outstanding shall not
exceed $15,000,000 until the first anniversary of the Closing Date and
$20,000,000 (less the outstanding amount of loans and advances made pursuant to
clause (h) of Section 6.2 of the Agreement) thereafter and provided that the
Credit Party's interest in Permitted Joint Ventures is pledged in accordance
with the Pledge Agreement.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefit corporation,
other entity or government (whether federal, state, province, county, city,
municipal, local, foreign, or otherwise, including any instrumentality,
division, agency, body or department thereof).
"Plan" shall mean, at any time, an employee benefit plan, as defined
in Section 3(3) of ERISA, which any Credit Party maintains, contributes to or
has an obligation to contribute to on behalf of participants who are or were
employed by any Credit Party.
"Pledge Agreement" shall mean the Pledge Agreement of even date
herewith executed by the Credit Parties signatory thereto in favor of Agent, on
behalf of itself and Lenders, pledging 66% of the outstanding Stock of each
non-Canadian foreign Subsidiary of any Credit Party owned or held by such
pledgor and all Intercompany Notes owing to or held by such pledgor.
"Principals" means Kidd Kamm Equity Partners, L.P. and Thomas V.
Bonoma.
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"Prior Claims" shall mean all Liens created by applicable law (in
contrast with Liens voluntarily granted) which rank, or are capable of ranking,
prior or pari passu with Agent's security interest or Agent's and Lender's
hypothec (or the applicable equivalent thereof) against all or a part of the
Collateral, including for amounts owing for wages, employee deductions, goods
and services taxes, sales taxes, income taxes, employer health taxes, municipal
taxes, workers' compensation, pension fund obligations and overdue rents.
"Prior Lender" shall mean the lenders under the CIBC Credit
Documents.
"Prior Lender Obligations" shall mean the obligations of the Credit
Parties or any of their Subsidiaries under the CIBC Credit Documents.
"Proceeds" shall mean "proceeds," as such term is defined in the
Code and, in any event, shall include (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to any Credit Party from time to time
with respect to any of the Collateral, (b) any and all payments (in any form
whatsoever) made or due and payable to any Credit Party from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any Governmental Authority
(or any Person acting under color of governmental authority), (c) any claim of
any Credit Party against third parties (i) for past, present or future
infringement of any Patent or Patent License, or (ii) for past, present or
future infringement or dilution of any Copyright, Copyright License, Trademark
or Trademark License, or for injury to the goodwill associated with any
Trademark or Trademark License, (d) any recoveries by any Credit Party against
third parties with respect to any litigation or dispute concerning any of the
Collateral, and (e) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral, upon disposition or
otherwise.
"Projections" means Parent's forecasted consolidated and
consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash flow
statements; and (d) capitalization statements, all prepared on a Subsidiary by
Subsidiary or division by division basis, if applicable, and otherwise
consistent with the historical Financial Statements of Parent, together with
appropriate supporting details and a statement of underlying assumptions.
"Pro Rata Share" shall mean with respect to all matters relating to
any Lender with respect to the Revolving Loan, the percentage obtained by
dividing (i) the Commitment of that Lender by (ii) the aggregate Commitments of
all Lenders, as any such percentages may be adjusted by assignments permitted
pursuant to Section 9.1.
"Qualified Plan" shall mean a Plan (other than a Multiemployer Plan)
which is intended to be tax-qualified under Section 401(a) of the IRC.
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"Real Estate" shall have the meaning assigned to it in Section 3.6.
"Refinancing" shall mean the repayment in full by Holdings of the
Prior Lender Obligations on or prior to the Closing Date.
"Release" shall mean any release, threatened release, spill,
emission, leaking, pumping, pouring, emitting, emptying, escape, injection,
deposit, disposal, discharge, dispersal, dumping, leaching or migration of
Hazardous Material in the indoor or outdoor environment, including the movement
of Hazardous Material through or in the air, soil, surface water, ground water
or property.
"Requisite Lenders" shall mean (a) Lenders having at least sixty-six
and two-thirds percent (66 2/3%) of the Commitments of all Lenders, or (b) if
the Commitments have been terminated, at least sixty-six and two-thirds percent
(66 2/3%) of the aggregate outstanding amount of the Loans.
"Reserves" shall mean, with respect to the Borrowing Base (a)
reserves established by Agent from time to time against Eligible Inventory
pursuant to Section 5.9, (b) reserves established pursuant to Section 5.4(c),
and (c) such other reserves (including in respect of Prior Claims) against
Eligible Accounts or Eligible Inventory of the Credit Parties which Agent may,
in its reasonable credit judgment, establish from time to time. Without limiting
the generality of the foregoing, Reserves established to ensure the payment of
accrued Obligations shall be deemed to be a reasonable exercise of Agent's
credit judgment.
"Restricted Payment" shall mean (a) the declaration or payment of
any dividend or the incurrence of any liability to make any other payment or
distribution of cash or other property or assets in respect of a Person's Stock,
(b) any payment on account of the purchase, redemption, defeasance, sinking fund
or other retirement of a Person's Stock or any other payment or distribution
made in respect thereof, either directly or indirectly, (c) any payment or
prepayment of principal of, premium, if any, or interest, fees or other charges
on or with respect to, and any redemption, purchase, retirement, defeasance,
sinking fund or similar payment and any claim for rescission with respect to,
any Parent Debt; (d) any payment made to redeem, purchase, repurchase or retire,
or to obtain the surrender of, any outstanding warrants, options or other rights
to acquire Stock of such Person now or hereafter outstanding; (e) any payment of
a claim for the rescission of the purchase or sale of, or for material damages
arising from the purchase or sale of, any shares of such Person's Stock or of a
claim for reimbursement, indemnification or contribution arising out of or
related to any such claim for damages or rescission; and (f) any payment of
management fees (or other fees of a similar nature) by such Person to any
Stockholder of such Person or their Affiliates.
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"Retiree Welfare Plan" shall mean, at any time, a Plan (other than a
Multiemployer Plan) that is a "welfare plan" as defined in Section 3(2) of
ERISA, that provides for continuing coverage or benefits for any participant or
any beneficiary of a participant after such participant's termination of
employment, other than continuation coverage provided pursuant to Section 4980B
of the IRC or other applicable state or other continuation of coverage laws and
at the sole expense of the participant or the beneficiary of the participant.
"Revolving Credit Advance" shall have the meaning assigned to it in
Section 1.1(a)(i).
"Revolving Lenders" shall mean, as of any date of determination,
Lenders having a Commitment.
"Revolving Loan" shall mean, at any time, the aggregate amount of
Revolving Credit Advances outstanding to Borrower.
"Revolving Note" shall have the meaning assigned to it in Section
1.1(a)(ii).
"RGI" shall have the meaning assigned thereto in Section 3.24.
"Security Agreement" shall mean the Security Agreement of even date
herewith entered into among Agent, on behalf of itself and Lenders, and each
Credit Party that is a signatory thereto.
"Solvent" shall mean, with respect to any Person on a particular
date, that on such date (a) the fair value (or, in the case of Houbigant (1995)
Limited and MEM Company (Canada) Limited, the realizable value) of the property
of such Person is greater than the total amount of liabilities, including
contingent liabilities, of such Person (and, in the case of Houbigant (1995)
Limited and MEM Company (Canada) Limited, the stated capital of all classes);
(b) the present fair salable value of the assets of such Person is not less than
the amount that will be required to pay the probably liability of such Person on
its debts as they become absolute and matured; (c) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature; and (d) such
Person is not engaged in a business or transaction, and is not about to engage
in a business or transaction, for which such Person's property would constitute
an unreasonably small capital. The amount of contingent liabilities (such as
litigation, guarantees and pension plan liabilities) at any time shall be
computed as the amount which, in light of all the facts and circumstances
existing at the time, represents the amount which can be reasonably be expected
to become an actual or matured liability.
"Stock" shall mean all shares, options, warrants, general or limited
partnership interests or other equivalents (regardless of how designated) of or
in a
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corporation, partnership or equivalent entity whether voting or nonvoting,
including common stock, preferred stock or any other "equity security" (as such
term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended).
"Subsidiary" shall mean, with respect to any Person, (a) any
corporation of which an aggregate of more than fifty percent (50%) of the
outstanding Stock having ordinary voting power to elect a majority of the board
of directors of such corporation (without regard to any Stock which might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned legally or beneficially by such Person and/or one
or more Subsidiaries of such Person, or with respect to which any such Person
has the right to vote or designate the vote of more than fifty percent (50%) of
such Stock whether by proxy, agreement, operation of law or otherwise, and (b)
any partnership, joint venture, association or limited liability company in
which such Person and/or one or more Subsidiaries of such Person shall have an
interest (whether in the form of voting or participation in profits or capital
contribution) of more than fifty percent (50%) or of which any such Person is a
general partner or may exercise the powers of a general partner.
"Supplier Waiver and Assignment" shall mean each agreement to be
executed by each Affiliate supplier of a Credit Party (other than another Credit
Party) in favor of Agent, for the benefit of Agent and Lenders, substantially in
the form of Annex 7.9 to each Canadian Guarantee, including all amendments,
restatements, modifications and supplements thereto, in form and substance
satisfactory to Agent, and shall refer to each Supplier Waiver and Assignment as
the same may be in effect at the time such reference becomes operative.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges or
withholdings, and all liabilities with respect thereto, excluding taxes imposed
on or measured by the net income of Agent or a Lender by the jurisdictions under
the laws of which Agent and Lenders are organized or any political subdivision
thereof.
"Tax Sharing Agreement" shall mean the Tax Sharing Agreement among
Parent and all of its domestic Subsidiaries, of even date herewith.
"Termination Date" shall mean the date on which the Loans have been
indefeasibly repaid in full and all other Obligations under the Agreement and
the other Loan Documents have been completely discharged, and Borrower shall not
have any further right to borrow any monies under the Agreement.
"Title IV Plan" shall mean an employee pension benefit plan, as
defined in Section 3 (2) of ERISA (other than a Multiemployer Plan), which is
covered by Title IV of ERISA, and which any Credit Party or ERISA Affiliate
maintains, contributes to or has an
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obligation to contribute to on behalf of participants who are or were employed
by any of them.
"Trademark License" shall mean rights now owned or hereafter
acquired by any Credit Party under any written agreement granting any right to
use any Trademark.
"Trademarks" shall mean all of the following in which any Credit
Party now holds or hereafter acquires any interest: (a) all trademarks, trade
names, corporate names, business names, trade styles, service marks, logos,
other source or business identifiers, prints and labels on which any of the
foregoing have appeared or appear, designs and general intangibles of like
nature (whether registered or unregistered), now owned or existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state or territory thereof, or any
other country or any political subdivision thereof; (b) all reissues, extensions
or renewals thereof; and (c) all goodwill associated with or symbolized by any
of the foregoing.
"Trademark Security Agreement" shall mean the Trademark Security
Agreement made in favor of Agent, on behalf of Lenders, by each applicable
Credit Party.
"Unfunded Pension Liability" shall mean, at any time, the aggregate
amount, if any, of the sum of (a) the amount by which the present value of all
accrued benefits under each Title IV Plan exceeds the fair market value of all
assets of such Title IV Plan allocable to such benefits in accordance with Title
IV of ERISA, all determined as of the most recent valuation date for each such
Title IV Plan using the actuarial assumptions for funding purposes in effect
under such Title IV Plan, and (b) for a period of five (5) years following a
transaction which might reasonably be expected to be covered by Section 4069 of
ERISA, the liabilities (whether or not accrued) that could be avoided by any
Credit Party or any ERISA Affiliate as a result of such transaction.
All other undefined terms contained in any of the Loan Documents
shall, unless the context indicates otherwise, have the meanings provided for by
the Code as in effect in the State of New York to the extent the same are used
or defined therein. Unless otherwise specified, references in the Agreement or
any of the Appendices to a Section, subsection or clause refer to such Section,
subsection or clause as contained in the Agreement. The words "herein," "hereof"
and "hereunder" and other words of similar import refer to the Agreement as a
whole, including all Annexes, Exhibits and Schedules, as the same may from time
to time be amended, restated, modified or supplemented, and not to any
particular section, subsection or clause contained in the Agreement or any such
Annex, Exhibit or Schedule.
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Wherever from the context it appears appropriate, each term stated
in either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter genders. The words "including", "includes" and
"include" shall be deemed to be followed by the words "without limitation";
references to Persons include their respective successors and assigns (to the
extent and only to the extent permitted by the Loan Documents) or, in the case
of governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of the same and any successor statutes and regulations. Whenever
any provision in any Loan Document refers to the knowledge (or an analogous
phrase) of any Credit Party, such words are intended to signify that such Credit
Party has actual knowledge or awareness of a particular fact or circumstance or
that such Credit Party, if it had exercised reasonable diligence, would have
known or been aware of such fact or circumstance.
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ANNEX B
to
CREDIT AGREEMENT
[Intentionally Omitted]
B-1
<PAGE> 105
ANNEX C (Section 1.7)
to
CREDIT AGREEMENT
CASH MANAGEMENT SYSTEMS
Each Credit Party shall establish and maintain the Cash Management Systems
described below:
(a) On or before the Closing Date and until the Termination Date,
each Credit Party shall deposit or cause to be deposited promptly, and in any
event no later than the first Business Day (as defined, in the case of Houbigant
(1995) Limited and MEM Company (Canada) Limited, in clause (h) below) after the
date of receipt thereof, all cash, checks, drafts or other similar items of
payment relating to or constituting payments made in respect of any and all
Collateral into bank accounts in such Credit Party's name (collectively, the
"Credit Party Accounts") at banks set forth on Disclosure Schedule (3.19) (each,
a "Relationship Bank").
(b) Subject, in the case of MEM Company (Canada) Limited, to the
next paragraph, on or before the Closing Date (or such later date as Agent shall
consent to in writing), each bank where a Disbursement Account is located and
all other Relationship Banks shall have entered into tri-party pledged account
agreements with Agent, for the benefit of itself and Lenders, and the applicable
Credit Party, in form and substance acceptable to Agent, which shall become
operative on or prior to the Closing Date. Each such pledged account agreement
shall provide, among other things, that (i) all items of payment deposited in
such account and proceeds thereof deposited in the Credit Party Accounts are
held by such bank as agent or bailee-in-possession for Agent, on behalf of
Lenders, (ii) the bank executing such agreement has no rights of setoff or
recoupment or any other claim against such account, as the case may be, other
than for payment of its service fees and other charges directly related to the
administration of such account and for returned checks or other items of
payment, and, with respect to the pledged account agreement governing the
pledged accounts of any Canadian Subsidiary that is a Credit Party, for the
amount of any required adjustments due to clerical or calculation errors
directly related to accounts and in accordance with any court order or notice of
garnishment binding on the Relationship Bank party thereto or any applicable law
binding on such bank and (iii) from and after the Closing Date (A) with respect
to banks at which a Credit Party Account is located, such bank agrees, from and
after the receipt of a notice (an "Activation Notice") from Agent (which
Activation Notice may be given by Agent at any time at which (1) a Default or
Event of Default shall have occurred and be continuing, (2) Agent reasonably
believes based upon information available to it that a Default or an Event of
Default is likely to occur; (3) Agent reasonably believes that an event or
circumstance which is likely to have a Material Adverse Effect has occurred, or
(4) Agent reasonably has
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grounds to question the integrity of the Credit Parties' Cash Management Systems
or the Credit Parties' compliance with the provisions of this Annex C or any
other provisions of the Loan Documents to the extent related to such Cash
Management Systems (any of the foregoing being referred to herein as an
"Activation Event"), to forward immediately all amounts in each Credit Party
Account to the Collection Account (except in the case of amounts in each
Canadian Subsidiary's Credit Party Account which shall be forwarded immediately
to a Borrower's Credit Party Account and then forwarded from such account to the
Collection Account) and to commence the process of daily sweeps from such Credit
Party Account into the Collection Account (except in the case of amounts in each
Canadian Subsidiary's Credit Party Account which shall be forwarded immediately
to a Borrower's Credit Party Account and then forwarded from such account to the
Collection Account). From and after the date Agent has delivered an Activation
Notice to any bank with respect to any Credit Party Account(s), the Credit
Parties shall not accumulate or maintain cash in disbursement or payroll
accounts as of any date of determination in excess of checks outstanding against
such accounts as of that date and amounts necessary to meet minimum balance
requirements.
The immediately preceding paragraph of this Annex C shall not apply
to MEM Company (Canada) Limited until the earlier of MEM Company (Canada)
Limited's failure to close its Credit Party Accounts on or before the date
specified below for their closure and an Activation Event. MEM Company (Canada)
Limited shall close its Canadian dollar Credit Party Account and its US dollar
Credit Party Account located at Royal Bank of Canada, 582 Place TransCanada,
Longueil, Quebec, on or before March 31, 1997. MEM Company (Canada) Limited
shall not maintain at any time prior to the closure of these accounts or
compliance with the immediately preceding paragraph of this Annex C an amount in
excess of checks outstanding against these accounts.
(c) So long as no Default or Event of Default has occurred and is
continuing, Borrower may amend Disclosure Schedule (3.19) to add or replace a
Relationship Bank or Credit Party Account or to replace any Disbursement
Account; provided, however, that (i) Agent shall have consented in writing in
advance to the opening of such account with the relevant bank (which consent
shall not be unreasonably withheld) and (ii) prior to the time of the opening of
such account, the applicable Credit Party, and such bank shall have executed and
delivered to Agent a tri-party pledged account agreement, in form and substance
satisfactory to Agent. Each Credit Party shall close any of its accounts (and
establish replacement accounts in accordance with the foregoing sentence)
promptly and in any event within thirty (30) days of notice from Agent that the
creditworthiness of any bank holding an account is no longer acceptable in
Agent's reasonable judgment, or as promptly as practicable and in any event
within sixty (60) days of notice from Agent that the operating performance,
funds transfer and/or availability procedures or performance with respect to
accounts of the bank holding such accounts or Agent's liability under any
tri-party pledged account agreement with such bank is no longer acceptable in
Agent's reasonable judgment; provided, however, the Credit Parties shall not
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be required to close up to five (5) accounts in the aggregate so long as the
balance of any such account does not exceed $30,000 per account.
(d) The Credit Party Accounts and Disbursement Accounts shall be
cash collateral accounts, with all cash, checks and other similar items of
payment in such accounts securing payment of the Loans and all other
Obligations, and in which each Credit Party shall have granted a Lien to Agent,
on behalf of itself and Lenders, pursuant to the Security Agreement.
(e) All amounts deposited in the Collection Account shall be deemed
received by Agent in accordance with Section 1.9 of the Agreement and shall be
applied (and allocated) by Agent in accordance with Section 1.10 of the
Agreement. In no event shall any amount be so applied unless and until such
amount shall have been credited in immediately available funds to the Collection
Account.
(f) Borrower may maintain, in its name, an account (each a
"Disbursement Account" and collectively, the "Disbursement Accounts") at a bank
acceptable to Agent into which Agent shall, from time to time, deposit proceeds
of Revolving Credit Advances made to Borrower pursuant to Section 1.1 for use by
Borrower solely in accordance with the provisions of Section 1.3.
(g) Each Credit Party shall and shall cause its Affiliates,
officers, employees, agents, directors or other Persons acting for or in concert
with such Credit Party (each a "Related Person") to (i) hold in trust for Agent,
for the benefit of itself and Lenders, all checks, cash and other items of
payment received by such Credit Party or any such Related Person, and (ii)
within one (1) Business Day (as defined, in the case of Houbigant (1995) Limited
and MEM Company (Canada) Limited, in clause (h) below) after receipt by such
Credit Party or any such Related Person of any checks, cash or other items or
payment, deposit the same into a Credit Party Account of such Credit Party. All
proceeds of the sale or other disposition of any Collateral, shall be deposited
directly into Credit Party Accounts.
(h) For purposes of this Annex C, with respect to obligations of
Houbigant (1995) Limited and MEM Company (Canada) Limited, the term "Business
Day" has the meaning assigned to it in the pledged account agreements to which
Houbigant (1995) Limited and MEM Company (Canada) Limited is a party.
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ANNEX D (Section 2.1(a))
to
CREDIT AGREEMENT
SCHEDULE OF ADDITIONAL CLOSING DOCUMENTS
In addition to, and not in limitation of, the conditions described in Section
2.1 of the Agreement, pursuant to Section 2.1(a), the following items must be
received by Agent in form and substance satisfactory to Agent on or prior to the
Closing Date, except as otherwise provided below (each capitalized term used but
not otherwise defined herein shall have the meaning ascribed thereto in Annex A
to the Agreement):
A. Appendices. All Appendices to the Agreement, in form and substance
satisfactory to Agent.
B. Revolving Notes. Duly executed originals of the Revolving Notes for
each applicable Lender, dated the Closing Date.
C. Security Agreement. Duly executed originals of each of the Security
Agreement and the Canadian Security Agreement, each dated the Closing Date, and
all instruments, documents and agreements executed pursuant thereto.
D. Insurance. (a) Satisfactory evidence that the insurance policies
required by Section 5.4 are in full force and effect, together with appropriate
evidence showing loss payable and/or additional insured clauses or endorsements,
as requested by Agent, in favor of Agent, on behalf of Lenders.
(b) Duly executed originals of each Canadian Assignment of Monies
Payable under Insurance Policies, together with acknowledgements executed by the
applicable insurers.
E. Security Interests and Code Filings. (a) Evidence satisfactory to Agent
that Agent (for the benefit of itself and Lenders) has a valid and perfected
first priority security interest in the Collateral, including (i) such documents
duly executed by each Credit Party (including financing statements under the
Code and other applicable documents under the laws of any jurisdiction with
respect to the perfection of Liens) as Agent may request in order to perfect its
security interests in the Collateral and (ii) copies of Code search reports
listing all effective financing statements that name any Credit Party as debtor,
together with copies of such financing statements, none of which shall cover the
Collateral, except for those relating to the Prior Lender Obligations (all of
which shall be terminated on the Closing Date).
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(b) Evidence satisfactory to Agent, including copies, of all UCC-1
and other financing statements filed in favor of any Credit Party with respect
to each location, if any, at which Inventory may be consigned.
(c) Control Letters from (i) all issuers of uncertificated
securities and financial assets held by any Credit Party, (ii) all securities
intermediaries with respect to all securities accounts and securities
entitlements of any Credit Party, and (iii) all futures commission agents and
clearing houses with respect to all commodities contracts and commodities
accounts held by Credit Party.
F. Payoff Letter; Termination Statements. Copies of a duly executed payoff
letter, in form and substance satisfactory to Agent, by and between all parties
to the CIBC Credit Documents evidencing repayment in full of all Prior Lender
Obligations, together with (a) UCC-3 or other appropriate termination
statements, in form and substance satisfactory to Agent, manually signed by the
Prior Lender releasing all liens of Prior Lender upon any of the personal
property of each Credit Party, (b) termination of all blocked account
agreements, bank agency agreements or other similar agreements or arrangements
or arrangements in favor of Prior Lender or relating to the Prior Lender
Obligations, and (c) releases, which are in recordable form and are in form and
substance satisfactory to Agent, manually signed by the Prior Lender, releasing
all existing mortgages upon any of the Real Estate of any Credit Party.
G. Intellectual Property Security Agreements. Duly executed originals of
the Trademark Security Agreement, Copyright Security Agreement, Patent Security
Agreement and the Canadian Intellectual Property Security Agreements, each dated
the Closing Date and signed by each Credit Party which owns or has the right to
use Trademarks, Copyrights and/or Patents, as applicable, and duly executed
originals of the Canadian Intellectual Property Acknowledgement, each dated on
or before the Closing Date and signed by all the parties signatory thereto, all
in form and substance satisfactory to Agent, together with all instruments,
documents and agreements executed pursuant thereto.
H. Guaranties. Duly executed originals of each of the Guaranty and the
Canadian Guarantees, each dated the Closing Date, and all documents, instruments
and agreements executed pursuant thereto.
I. Initial Borrowing Base Certificate. Duly executed originals of an
initial Borrowing Base Certificate from Borrower, dated the Closing Date and
dated the date of the initial Loan, reflecting information concerning Eligible
Accounts and Eligible Inventory of the Credit Parties.
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J. Initial Notice of Revolving Credit Advance. Duly executed originals of
a Notice of Revolving Credit Advance, dated the date of the initial Loan, with
respect to the initial Revolving Credit Advance to be requested by Borrower on
such date.
K. Letter of Direction. Duly executed originals of a letter of direction
from Borrower addressed to Agent, on behalf of itself and Lenders, with respect
to the disbursement of the proceeds of the initial Revolving Credit Advance on
the date thereof.
L. Cash Management System; Pledged Account Agreements. Evidence
satisfactory to Agent that, as of the Closing Date, Cash Management Systems
complying with Annex C to the Agreement have been established and are currently
being maintained in the manner set forth in such Annex C, together with copies
of duly executed tri-party pledged account agreements, satisfactory to Agent,
with the banks as required by Annex C.
M. Charter and Good Standing. For each Credit Party, such Person's (a)
charter and all amendments thereto, (b) good standing certificates (including
verification of tax status) in its state of incorporation and (c) good standing
certificates (including verification of tax status) and certificates of
qualification to conduct business in each jurisdiction where its ownership or
lease of property or the conduct of its business requires such qualification,
each dated a recent date prior to the Closing Date and certified by the
applicable Secretary of State or other authorized Governmental Authority.
N. Bylaws and Resolutions. For each Credit Party, (a) such Person's
bylaws, together with all amendments thereto and (b) resolutions of such
Person's Board of Directors, approving and authorizing the execution, delivery
and performance of the Loan Documents to which such Person is a party and the
transactions to be consummated in connection therewith, each certified as of the
Closing Date by such Person's corporate secretary or an assistant secretary as
being in full force and effect without any modification or amendment.
O. Incumbency Certificates. For each Credit Party, signature and
incumbency certificates of the officers of each such Person executing any of the
Loan Documents, certified as of the Closing Date by such Person's corporate
secretary or an assistant secretary as being true, accurate, correct and
complete.
P. Opinions of Counsel. Duly executed originals of opinions of Brownstein
Hyatt Farber & Strickland, P.C., counsel for the Credit Parties, together with
any local counsel opinions requested by Agent, each in form and substance
satisfactory to Agent and its counsel, dated the Closing Date, and each
accompanied by a letter addressed to such counsel from the Credit Parties,
authorizing and directing such counsel to address its opinion to Agent, on
behalf of Lenders, and to include in such opinion an express statement to the
effect that Agent and Lenders are authorized to rely on such opinion.
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Q. Pledge Agreements. Duly executed originals of the Pledge Agreement
accompanied by (as applicable) (a) share certificates representing all of the
outstanding Stock being pledged pursuant to the Pledge Agreement and stock
powers for such share certificates executed in blank and (b) the original
Intercompany Notes being pledged pursuant to the Pledge Agreement, duly endorsed
in blank and, on or prior to the date of the initial Loan, evidence satisfactory
to Agent that all such deliveries have been made and such pledge of shares has
been duly perfected under the applicable laws of the jurisdiction of
incorporation of the relevant pledged entity.
R. Accountants' Letter. A letter authorizing the independent certified
public accountants of the Credit Parties to communicate with Agent and Lenders
in accordance with Section 4.2.
S. Fee Letter. Duly executed originals of the GE Capital Fee Letter.
T. Officer's Certificate. Agent shall have received duly executed
originals of a certificate of the Chief Financial Officer of Borrower, dated the
Closing Date, stating that: (i) since March 31, 1996, (a) no event or condition
has occurred or is existing which could reasonably be expected to have a
Material Adverse Effect, (b) there has been no material adverse change in the
industry in which any Credit Party operates, (c) no Litigation has been
commenced which, if successful, would have a Material Adverse Effect or could
challenge any of the transactions contemplated by the Agreement and the other
Loan Documents, and (d) there has been no material increase in liabilities,
liquidated or contingent, and no material decrease in assets of any Credit Party
or any of their Subsidiaries; (ii) since September 30, 1996, there have been no
Restricted Payments made by any Credit Party except as disclosed in such
certificate; (iii) Parent has purchased all of its aggregate $65.0 million
principal of its outstanding 1994 Senior Notes, in accordance with the terms of
its offer to purchase commenced on December 24, 1996; (iv) Parent has obtained
the consent of the holders of at least a majority of the aggregate principal of
the 1994 Senior Notes outstanding to amend the terms of the 1994 Senior Notes
Indenture (pursuant to which such Notes were issued) to eliminate substantially
all of the restrictive covenants contained in the 1994 Senior Notes Indenture,
and such Indenture has been amended as contemplated by the offer to purchase as
in effect; and (v) the proceeds of the offering of 1997 Senior Notes in an
amount of $200,000,000 have been used to fund the 1997 Senior Notes Escrow
Account, to repay all outstanding indebtedness under the CIBC Credit Documents,
to finance the purchase by Parent of its outstanding 1994 Senior Notes, and to
pay related fees and expenses, and such offering has been consummated in
accordance with its terms.
U. Waivers. Agent, on behalf of Lenders, shall have received landlord
waivers and consents, bailee letters and mortgagee agreements in form and
substance satisfactory to Agent, in each case as required pursuant to Section
5.9.
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V. Mortgages. Mortgages covering all of the Real Estate (the "Mortgaged
Properties") together with: (a) title insurance policies, current as-built
surveys, zoning letters and certificates of occupancy, in each case satisfactory
in form and substance to Agent, in its sole discretion; (b) evidence that
counterparts of the Mortgages have been recorded in all places to the extent
necessary or desirable, in the judgment of Agent, to create a valid and
enforceable first priority lien (subject to Permitted Encumbrances) on each
Mortgaged Property in favor of Agent for the benefit of itself and Lenders (or
in favor of such other trustee as may be required or desired under local law);
(c) an opinion of counsel in each state in which any Mortgaged Property is
located in form and substance and from counsel satisfactory to Agent; and (d)
proof of payment of all title insurance premiums, documentary, stamp or
intangible taxes, recording fees and mortgage taxes payable in connection with
the recording of any of the Loan Documents or the issuance of the title
insurance policies.
W. Subordination and Intercreditor Agreements. Agent and Lenders shall
have received any and all subordination and/or intercreditor agreements or
provisions, all in form and substance reasonably satisfactory to Agent, in its
sole discretion, with respect to the Parent Debt (other than the 1997 Senior
Notes).
X. Environmental Reports. Agent shall have received Phase I Environmental
Site Assessment Reports, consistent with American Society of Testing and
Materials (ASTM) Standard E 1527-94, and applicable state requirements, on all
of the Real Estate, dated no more than 6 months prior to the Closing Date,
prepared by environmental engineers satisfactory to Agent, all in form and
substance satisfactory to Agent, in its sole discretion; and Agent shall have
further received such environmental review and audit reports, including Phase II
reports, with respect to the Real Estate of any Credit Party as Agent shall have
requested, and Agent shall be satisfied, in its sole discretion, with the
contents of all such environmental reports. Agent shall have received letters
executed by the environmental firms preparing such environmental reports, in
form and substance satisfactory to Agent, authorizing Agent and Lenders to rely
on such reports.
Y. Appraisals. Agent shall have received appraisals of the Credit Parties'
Intellectual Property, which shall be in form and substance satisfactory to
Agent.
Z. Audited Financials; Financial Condition. Agent shall have received
Parent's Financial Statements for its Fiscal Year ended March 31, 1996 audited
by Deloitte & Touche LLP. Parent shall have provided Agent with its current
operating statements, a consolidated and consolidating balance sheet and
statement of cash flows, the Projections, and (to be provided by Borrower) a
Borrowing Base Certificate with respect to the Credit Parties certified by
Borrower's Chief Financial Officer, in each case in form and substance
satisfactory to Agent, and Agent shall be satisfied, in its sole discretion,
with all of the foregoing. Agent shall have further received a certificate of
the Chief Financial Officer of Borrower, based on such current balance sheet and
Projections, to the effect that (a) each
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Credit Party will be Solvent upon the consummation of the transactions
contemplated herein and (b) the Projections are based upon estimates and
assumptions stated therein, all of which Borrower believes to be reasonable and
fair in light of current conditions and current facts known to Borrower and, as
of the Closing Date, reflect Borrower's good faith and reasonable estimates of
the Credit Parties' future financial performance and of the other information
projected therein for the period set forth therein.
AA. Supplier Waivers and Assignments. Duly executed originals of a
Supplier Waiver and Assignment by each Affiliate supplier of Houbigant (1995)
Limited and MEM Company (Canada) Limited.
BB. Canadian Hypothecs. Duly executed originals of each Canadian Hypothec.
CC. Tax Sharing Agreement. Duly executed original of the Tax Sharing
Agreement, which shall be in a form and substance satisfactory to Agent.
DD. Other Documents. Such other certificates, documents and agreements
respecting any Credit Party as Agent may, in its sole discretion, request.
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ANNEX E (Section 4.1(a))
to
CREDIT AGREEMENT
FINANCIAL STATEMENTS AND PROJECTIONS -- REPORTING
Borrower shall deliver or cause to be delivered to Agent or to Agent
and Lenders, as indicated, the following:
(a) Monthly Financial Information. To Agent and Lenders, within
thirty (30) days after the end of each Fiscal Month, internally prepared
financial reports in generally the form of Exhibit E-1, as amended from time to
time by Parent, with the prior consent of Agent not to be unreasonably withheld.
(b) Quarterly Financials. To Agent and Lenders, within forty-five
(45) days after the end of each Fiscal Quarter, unaudited consolidated and
consolidating financial information regarding Parent and its Subsidiaries,
certified by the Chief Financial Officer of Parent, including (i) unaudited
balance sheets as of the close of such Fiscal Quarter and the related statements
of income and cash flow for that portion of the Fiscal Year ending as of the
close of such Fiscal Quarter, (ii) unaudited statements of income and cash flows
for such Fiscal Quarter, in each case setting forth in comparative form the
figures for the corresponding period in the prior year, all prepared in
accordance with GAAP (subject to normal year-end adjustments), and (iii) a
summary of the outstanding balance of all Intercompany Notes. Such financial
information shall be accompanied by (A) a statement in reasonable detail (each,
a "Compliance Certificate") showing the calculations used in determining
compliance with each of the financial covenants set forth on Annex G which is
tested on a quarterly basis and (B) the certification of the Chief Financial
Officer of Parent that (i) such financial information presents fairly in
accordance with GAAP (subject to normal year-end adjustments) the financial
position, results of operations and statements of cash flows of Parent and its
Subsidiaries, on both a consolidated and consolidating basis, as at the end of
such Fiscal Quarter and for the period then ended, (ii) any other information
presented is true, correct and complete in all material respects and that there
was no Default or Event of Default in existence as of such time or, if a Default
or Event of Default shall have occurred and be continuing, describing the nature
thereof and all efforts undertaken to cure such Default or Event of Default. In
addition, Parent shall deliver to Agent and Lenders, within forty-five (45) days
after the end of each Fiscal Quarter, a management discussion and analysis which
includes a comparison to budget for that Fiscal Quarter and a comparison of
performance for that Fiscal Quarter to the corresponding period in the prior
year.
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(c) Operating Plan. To Agent and Lenders, as soon as available, but
not later than thirty (30) days after the beginning of each Fiscal Year, an
annual operating plan for the Credit Parties, approved by the Boards of
Directors of the Credit Parties, for the current year, which will include a
statement of all of the material assumptions on which such plan is based, will
include monthly balance sheets and a monthly budget for the current year and
will integrate sales, gross profits, operating expenses, operating profit, cash
flow projections and Borrowing Availability projections all prepared on the same
basis and in similar detail as that on which operating results are reported (and
in the case of cash flow projections, representing management's good faith
estimates of future financial performance based on historical performance), and
including plans for personnel, Capital Expenditures and facilities.
(d) Annual Audited Financials. To Agent and Lenders, within ninety
(90) days after the end of each Fiscal Year, audited Financial Statements for
Parent and its Subsidiaries on a consolidated and consolidating basis (except
that such consolidating Financial Statements shall be unaudited) consisting of
balance sheets and statements of income and retained earnings and cash flows,
setting forth in comparative form in each case the figures for the previous
Fiscal Year, which Financial Statements shall be prepared in accordance with
GAAP, certified, as to such consolidated Financial Statements, without
qualification, by an independent certified public accounting firm of national
standing or otherwise acceptable to Agent. Such Financial Statements shall be
accompanied by (i) a statement prepared in reasonable detail showing the
calculations used in determining compliance with each of the financial covenants
set forth on Annex G, (ii) a report from such accounting firm to the effect
that, in connection with their audit examination, nothing has come to their
attention to cause them to believe that a Default or Event of Default has
occurred (or specifying those Defaults and Events of Default that they became
aware of), it being understood that such audit examination extended only to
accounting matters and that no special investigation was made with respect to
the existence of Defaults or Events of Default, (iii) a letter addressed to
Agent, on behalf of itself and Lenders, in form and substance reasonably
satisfactory to Agent and subject to standard qualifications taken by nationally
recognized accounting firms, signed by such accounting firm acknowledging that
Agent and Lenders are entitled to rely upon such accounting firm's certification
of such audited Financial Statements, (iv) the annual letters to such
accountants in connection with their audit examination detailing contingent
liabilities and material litigation matters, and (v) the certification of the
Chief Financial Officer of Parent that all such Financial Statements present
fairly in accordance with GAAP the financial position, results of operations and
statements of cash flows of Parent and its Subsidiaries on a consolidated and
consolidating basis, as at the end of such year and for the period then ended,
and that there was no Default or Event of Default in existence as of such time
or, if a Default or Event of Default shall have occurred and be continuing,
describing the nature thereof and all efforts undertaken to cure such Default or
Event of Default.
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(e) Management Letters. To Agent and Lenders, within five (5)
Business Days after receipt thereof by any Credit Party, copies of all
management letters, exception reports or similar letters or reports received by
such Credit Party from its independent certified public accountants.
(f) Default Notices. To Agent and Lenders, as soon as practicable,
and in any event within five (5) Business Days after an executive officer of
Borrower has actual knowledge of the existence of any Default, Event of Default,
default under any of the leases listed on Disclosure Schedule (3.6) or other
event which has had a Material Adverse Effect, telephonic or telecopied notice
specifying the nature of such Default or Event of Default or other event,
including the anticipated effect thereof, which notice, if given telephonically,
shall be promptly confirmed in writing on the next Business Day.
(g) SEC Filings and Press Releases. To Agent and Lenders, promptly
upon their becoming available, copies of: (i) all Financial Statements, reports,
notices and proxy statements made publicly available by any Credit Party to its
security holders; (ii) all regular and periodic reports and all registration
statements and prospectuses, if any, filed by any Credit Party with any
securities exchange or with the Securities and Exchange Commission or any
governmental or private regulatory authority; and (iii) all press releases and
other statements made available by any Credit Party to the public concerning
material changes or developments in the business of any such Person.
(h) Parent Debt and Equity Notices. To Agent, as soon as
practicable, copies of all material written notices given or received by any
Credit Party with respect to any Parent Debt or Stock of such Person, and,
within two (2) Business Days after any Credit Party obtains knowledge of any
matured or unmatured event of default with respect to any Parent Debt, notice of
such event of default.
(i) Supplemental Schedules. To Agent, supplemental disclosures, if
any, required by Section 5.6 of the Agreement.
(j) Litigation. To Agent in writing, promptly upon learning thereof,
notice of any Litigation commenced or threatened against any Credit Party that
(i) seeks damages in excess of $250,000, (ii) seeks injunctive relief, (iii) is
asserted or instituted against any Plan, its fiduciaries or its assets or
against any Credit Party or ERISA Affiliate in connection with any Plan, (iv)
alleges criminal misconduct by any Credit Party, or (v) alleges the violation of
any law regarding, or seeks remedies in connection with, any Environmental
Liabilities which could result in damages in excess of $250,000.
(k) Insurance Notices. To Agent, disclosure of losses or casualties
required by Section 5.4 of the Agreement.
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(l) To Agent, copies of (i) any and all default notices received
under or with respect to any leased location or public warehouse where
Collateral is located, and (ii) such other notices or documents as Agent may
request in its reasonable discretion.
(m) Other Documents. To Agent and Lenders, such other financial and
other information respecting any Credit Party's business or financial condition
as Agent or any Lender shall, from time to time, request.
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ANNEX F (Section 4.1(b))
to
CREDIT AGREEMENT
COLLATERAL REPORTS
Borrower shall deliver or cause to be delivered the following:
(a) To Agent, upon its request, and in no event less frequently than
ten (10) Business Days after the end of each Fiscal Month (together with a copy
of all or any part of such delivery requested by any Lender in writing after the
Closing Date), each of the following:
(i) a Borrowing Base Certificate with respect to the Credit Parties,
accompanied by such supporting detail and documentation as shall be
requested by Agent in its reasonable discretion;
(ii) with respect to the Credit Parties, a summary of Inventory by
location and type with a supporting perpetual Inventory report, in each
case accompanied by such supporting detail and documentation as shall be
requested by Agent in its reasonable discretion;
(iii) with respect to the Credit Parties, a monthly trial balance
showing Accounts outstanding aged from invoice due date as follows:
future, current, 1 to 30 days, 31 to 60 days, 61 to 90 days and 91 days or
more, accompanied by a summary aging of Accounts for each Credit Party for
the current month and the comparable month of the prior Fiscal Year, in
each case accompanied by such supporting detail and documentation as shall
be requested by Agent in its reasonable discretion; and
(iv) with respect to the Credit Parties, collateral reports,
including all additions and reductions (cash and non-cash) with respect to
Accounts of the Credit Parties, in each case accompanied by such
supporting detail and documentation as shall be requested by Agent in its
reasonable discretion.
(b) To Agent, at the time of delivery of each of the monthly
financial information delivered pursuant to Annex E, a reconciliation of the
Accounts trial balance and month-end Inventory reports of the Credit Parties to
the Credit Parties' general ledger and monthly financial information delivered
pursuant to such Annex E, in each case accompanied by such supporting detail and
documentation as shall be requested by Agent in its reasonable discretion.
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(c) To Agent, at the time of delivery of each of the Quarterly
Financial Statements delivered pursuant to Annex E, a list of any applications
for the registration of any Patent, Trademark or Copyright with the United
States Patent and Trademark Office, the United States Copyright Office, Canadian
Patent Office, Canadian Trade-marks Office, Canadian Copyright Office, or any
similar office or agency which any Credit Party thereof has filed in the prior
Fiscal Quarter.
(d) Borrower, at its own expense, shall deliver to Agent the results
of each physical verification, if any, which the Credit Parties may in their
discretion have made, or caused any other Person to have made on their behalf,
of all or any portion of their Inventory (and, if a Default or an Event of
Default shall have occurred and be continuing, the Credit Parties shall, upon
the request of Agent, conduct, and deliver the results of, such physical
verifications as Agent may require).
(e) Borrower, at its own expense, shall deliver to Agent such
appraisals of the Credit Parties' assets as Agent may request at any time after
the occurrence and during the continuance of a Default or an Event of Default,
such appraisals to be conducted by an appraiser, and in form and substance,
satisfactory to Agent.
(f) Such other reports, statements and reconciliations with respect
to the Borrowing Base or Collateral of any or all Credit Parties as Agent shall
from time to time request in its reasonable discretion.
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ANNEX G (Section 6.10)
to
CREDIT AGREEMENT
FINANCIAL COVENANTS
Borrower shall not breach or fail to comply with any of the
following financial covenants, each of which shall be calculated in accordance
with GAAP consistently applied:
(a) Maximum Capital Expenditures. The Parent on a consolidated basis shall
not make Capital Expenditures during the following periods that exceed in the
aggregate the amounts set forth opposite each of such periods:
Maximum Capital
Period Expenditures per Period
For the Fiscal Year ending March 31, 1997 $9,500,000
For the Fiscal Year ending March 31, 1998 12,000,000
For the Fiscal Year ending March 31, 1999 10,000,000
and each Fiscal Year ending thereafter
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(b) Minimum EBITDA. The Parent on a consolidated basis shall have, at the
end of each Fiscal Quarter set forth below, EBITDA for the respective periods
set forth below of not less than the following:
12-month
Period Ended EBITDA
------------ ------
March 31, 1997 $20,000,000
June 30, 1997 20,000,000
September 30, 1997 22,000,000
December 31, 1997 26,000,000
March 31, 1998 32,500,000
June 30, 1998 33,000,000
September 30, 1998 35,500,000
December 31, 1998 38,000,000
March 31, 1999 41,000,000
June 30, 1999 41,500,000
September 30, 1999 44,500,000
December 31, 1999 47,500,000
March 31, 2000 51,500,000
and each Fiscal Quarter end thereafter
(c) Maximum Leverage Ratio. The Parent on a consolidated basis shall have,
at the end of each Fiscal Quarter from and after the Fiscal Quarter ending March
31, 1997, a Leverage Ratio not in excess of 3.75 to 1.0.
(d) Minimum Interest Coverage Ratio. The Parent on a consolidated basis
shall have at the end of each Fiscal Quarter set forth below, an Interest
Coverage Ratio for the 12-month period then ended of not less than the
following:
1.10 for the Fiscal Quarter ending March 31, 1997;
1.10 for the Fiscal Quarter ending June 30, 1997;
1.20 for the Fiscal Quarter ending September 30, 1997;
1.35 for the Fiscal Quarter ending December 31, 1997;
1.50 for the Fiscal Quarter ending March 31, 1998;
1.50 for the Fiscal Quarter ending June 30, 1998;
1.60 for the Fiscal Quarter ending September 30, 1998;
1.70 for the Fiscal Quarter ending December 31, 1998;
1.75 for the Fiscal Quarter ending March 31, 1999;
1.75 for the Fiscal Quarter ending June 30, 1999;
1.75 for the Fiscal Quarter ending September 30, 1999;
1.75 for the Fiscal Quarter ending December 31, 1999;
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1.75 for the Fiscal Quarter ending March 31, 2000;
1.75 for the Fiscal Quarter ending June 30, 2000;
1.80 for the Fiscal Quarter ending September 30, 2000;
1.90 for the Fiscal Quarter ending December 31, 2000; and
2.00 for the Fiscal Quarter ending March 31, 2001
and each Fiscal Quarter end thereafter.
Unless otherwise specifically provided herein, any accounting term
used in the Agreement shall have the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be computed
in accordance with GAAP consistently applied. That certain items or computations
are explicitly modified by the phrase "in accordance with GAAP" shall in no way
be construed to limit the foregoing. If any "Accounting Changes" (as defined
below) occur and such changes result in a change in the calculation of the
financial covenants, standards or terms used in the Agreement or any other Loan
Document, then Borrower, Agent and Lenders agree to enter into negotiations in
order to amend such provisions of the Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for evaluating the
Credit Parties' financial condition shall be the same after such Accounting
Changes as if such Accounting Changes had not been made; provided, however, that
the agreement of Requisite Lenders to any required amendments of such provisions
shall be sufficient to bind all Lenders. "Accounting Changes" means (a) changes
in accounting principles required by the promulgation of any rule, regulation,
pronouncement or opinion by the Financial Accounting Standards Board of the
American Institute of Certified Public Accountants (or successor thereto or any
agency with similar functions), (b) changes in accounting principles concurred
in by Borrower's certified public accountants; (c) purchase accounting
adjustments under A.P.B. 16 and/or 17 and EITF 88-16, and the application of the
accounting principles set forth in FASB 109, including the establishment of
reserves pursuant thereto and any subsequent reversal (in whole or in part) of
such reserves; and (d) the reversal of any reserves established as a result of
purchase accounting adjustments. All such adjustments resulting from
expenditures made subsequent to the Closing Date (including capitalization of
costs and expenses or payment of pre-Closing Date liabilities) shall be treated
as expenses in the period the expenditures are made and deducted as part of the
calculation of EBITDA in such period. If Agent, Borrower and Requisite Lenders
agree upon the required amendments, then after appropriate amendments have been
executed and the underlying Accounting Change with respect thereto has been
implemented, any reference to GAAP contained in the Agreement or in any other
Loan Document shall, only to the extent of such Accounting Change, refer to
GAAP, consistently applied after giving effect to the implementation of such
Accounting Change. If Agent, Borrower and Requisite Lenders cannot agree upon
the required amendments within thirty (30) days following the date of
implementation of any Accounting Change, then all Financial Statements delivered
and all calculations of financial covenants and other standards and terms in
accordance with the Agreement and
G-3
<PAGE> 123
the other Loan Documents shall be prepared, delivered and made without regard to
the underlying Accounting Change.
G-4
<PAGE> 124
ANNEX H (Section 9.9(a))
to
CREDIT AGREEMENT
LENDERS' WIRE TRANSFER INFORMATION
GE Capital:
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006
Name: GE Capital CAF Depository
Number: 50-232-854
ABA #: 021-001-033
REF: CFN#2076 Dana Perfumes
H-1
<PAGE> 125
ANNEX I (Section 11.10)
to
CREDIT AGREEMENT
NOTICE ADDRESSES
(A) If to Agent or GE Capital, at
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Account Manager - Renaissance
Telecopier No.: (203) 316-7823
Telephone No.: (203) 316-7583
with copies to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Ted S. Waksman, Esq.
Telecopier No.: (212) 310-8007
Telephone No.: (212) 310-8362
and
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Corporate Counsel - Commercial Finance
Telecopier No.: (203) 316-7889
Telephone No.: (203) 316-7552
(B) If to Borrower, at
Dana Perfumes Corp.
c/o Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, New York 10022
Attention: General Counsel
Telecopier No.: (212) 371-7868
Telephone No.: (212) 751-3700
I-1
<PAGE> 126
With a copy to:
Brownstein Hyatt Farber & Strickland, P.C.
410 17th Street - 22nd Floor
Denver, Colorado 80202-4437
Attention: John L. Ruppert, Esq.
Telecopier No.: (303) 623-1956
Telephone No.: (303) 534-6335
I-2
<PAGE> 1
PLEDGE AGREEMENT
This PLEDGE AGREEMENT, dated as of March __, 1997 (together with all
amendments, if any, from time to time hereto, this "Agreement"), by the Pledgors
identified as such on the signature pages hereof (each, a "Pledgor" and
collectively, "Pledgors") in favor of GENERAL ELECTRIC CAPITAL CORPORATION in
its capacity as Agent for Lenders ("Agent").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Credit Agreement dated as of the
date hereof among Dana Perfumes Corp. ("Borrower"), the other Persons named
therein as Credit Parties, Agent and the Persons named therein as Lenders (as
from time to time amended, restated, supplemented or otherwise modified (the
"Credit Agreement"), Lenders have agreed to make Loans to Borrower;
WHEREAS, each Pledgor is the record and beneficial owner of the
shares of stock described in Part A of Schedule I hereto and issued by the
issuers named therein (each, a "Pledged Entity"), and the owner of the
promissory notes and instruments listed in Part B of Schedule I hereto;
WHEREAS, each Pledgor benefits from the credit facilities made
available to Borrower through the Credit Agreement;
WHEREAS, it is a condition to the making of Loans under the Credit
Agreement that each Pledgor shall have executed and delivered this Agreement and
granted the security interest contemplated hereby to secure the obligations of
Borrower under the Credit Agreement and the Loan Documents;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained and to induce Lenders to make Loans under the Credit
Agreement, it is agreed as follows:
1. Definitions. Unless otherwise defined herein, terms defined in
the Credit Agreement are used herein as therein defined, and the following shall
have (unless otherwise provided elsewhere in this Agreement) the following
respective meanings (such meanings being equally applicable to both the singular
and plural form of the terms defined):
<PAGE> 2
"Bankruptcy Code" means title 11, United States Code, as amended
from time to time, and any successor statute thereto.
"Pledged Collateral" has the meaning assigned to such term in
Section 2 hereof.
"Pledged Indebtedness" means those promissory notes and instruments
listed on Part B of Schedule I hereto.
"Pledged Shares" means those shares listed on Part A of Schedule I
hereto.
"Secured Obligations" has the meaning assigned to such term in
Section 3 hereof.
2. Pledge. Each Pledgor hereby pledges to and grants to Agent for
itself and the ratable benefit of Lenders, a first priority security interest in
all of the following (collectively, the "Pledged Collateral"):
(i) the Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, distributions, cash, instruments
and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Shares; and
(ii) such portion, as determined pursuant to Section 6(d)
below, of any additional shares of stock of a Pledged Entity from
time to time acquired by such Pledgor in any manner (which shares
shall be deemed to be part of the Pledged Shares), and the
certificates representing such additional shares, and all dividends,
distributions, cash, instruments and other property or proceeds from
time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such shares; and
(iii) the Pledged Indebtedness and the promissory notes or
instruments evidencing the Pledged Indebtedness, and all interest,
cash, instruments and other property and assets from time to time
received, receivable or otherwise distributed in respect of the
Pledged Indebtedness; and
2
<PAGE> 3
(iv) all additional Indebtedness arising after the date hereof
and owing to such Pledgor and evidenced by promissory notes or other
instruments, together with such promissory notes and instruments,
and all interest, cash, instruments and other property and assets
from time to time received, receivable or otherwise distributed in
respect of that Pledged Indebtedness.
3. Security for Obligations. This Agreement secures, and the Pledged
Collateral is security for, the prompt payment in full when due, whether at
stated maturity, by acceleration or otherwise, and performance of all
Obligations of any kind under or in connection with the Credit Agreement and the
other Loan Documents and all obligations of each Pledgor now or hereafter
existing under this Agreement including, without limitation, all fees, costs and
expenses whether in connection with collection actions hereunder or otherwise
(collectively, the "Secured Obligations").
4. Delivery of Pledged Collateral. All certificates representing or
evidencing the Pledged Shares and all promissory notes and instruments
evidencing Pledged Indebtedness shall be delivered to and held by or on behalf
of Agent, for itself and the ratable benefit of Lenders, pursuant hereto. All
Pledged Shares shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to Agent and all
promissory notes or other instruments evidencing the Pledged Indebtedness shall
be endorsed by each Pledgor.
5. Representations and Warranties. Each Pledgor represents and
warrants to Agent that:
(a) Such Pledgor is, and at the time of delivery of the
Pledged Shares to Agent pursuant to Section 4 hereof will be, the sole
holder of record and the sole beneficial owner of such Pledged Shares free
and clear of any Lien thereon or affecting the title thereto, except for
any Lien created by this Agreement; such Pledgor is and at the time of
delivery of the Pledged Indebtedness to Agent pursuant to Section 4 hereof
will be, the sole owner of such Pledged Indebtedness free and clear of any
Lien thereon or affecting title thereto, except for any Lien created by
this Agreement;
(b) All of the Pledged Shares have been duly authorized,
validly issued and are fully paid and non-assessable; the Pledged
Indebtedness has been duly authorized, authenticated or issued and
delivered by, and are the legal, valid and binding obligations of, the
issuers thereof who are not in default thereunder;
3
<PAGE> 4
(c) Such Pledgor has the right and requisite authority to
pledge, assign, transfer, deliver, deposit and set over the Pledged
Collateral pledged by such Pledgor to Lender as provided herein;
(d) None of the Pledged Shares or Pledged Indebtedness has
been issued or transferred in violation of the securities registration,
securities disclosure or similar laws of any jurisdiction to which such
issuance or transfer may be subject;
(e) All of the Pledged Shares are presently owned by such
Pledgor, and are presently represented by the stock certificates listed on
Part A of Schedule I hereto. As of the date hereof, there are no existing
options, warrants, calls or commitments of any character whatsoever
relating to the Pledged Shares;
(f) No consent, approval, authorization or other order of any
Person and no consent, authorization, approval, or other action by, and no
notice to or filing with, any governmental authority is required (i) for
the pledge by such Pledgor of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Agreement
by such Pledgor or (ii) for the exercise by Agent, of the voting or other
rights provided for in this Agreement or the remedies in respect of the
Pledged Collateral pursuant to this Agreement, except as may be required
in connection with such disposition by laws affecting the offering and
sale of securities generally;
(g) The pledge, assignment and delivery of the Pledged
Collateral pursuant to this Agreement, and the continuing possession of
the Pledged Collateral by the Agent will create a valid first priority
Lien on and a first priority perfected security interest in the Pledged
Collateral pledged by such Pledgor, and the proceeds thereof, securing the
payment of the Secured Obligations, subject to no other Lien or security
interest;
(h) This Agreement has been duly authorized, executed and
delivered by such Pledgor and constitutes a legal, valid and binding
obligation of such Pledgor enforceable in accordance with its terms;
(i) The Pledged Shares constitute 66% of the issued and
outstanding shares of Stock of each Pledged Entity; and
4
<PAGE> 5
(j) Except as disclosed on Part B of Schedule I, none of the
Pledged Indebtedness is subordinated in right of payment to other
Indebtedness or subject to the terms of an indenture.
The representations and warranties set forth in this Section 5 shall
survive the execution and delivery of this Agreement.
6. Covenants. Each Pledgor covenants and agrees that until the
Termination Date:
(a) Without the prior written consent of Agent, such Pledgor will
not sell, assign, transfer, pledge, or otherwise encumber any of its
rights in or to the Pledged Collateral, or any unpaid dividends, interest
or other distributions or payments with respect to the Pledged Collateral
or grant a Lien in the Pledged Collateral, unless otherwise expressly
permitted by the Credit Agreement;
(b) Such Pledgor will, at its expense, promptly execute, acknowledge
and deliver all such instruments and take all such actions as Agent from
time to time may request in order to ensure to Agent and Lenders the
benefits of the Liens in and to the Pledged Collateral intended to be
created by this Agreement, including the filing of any necessary Code
financing statements, which may be filed by Agent with or (to the extent
permitted by law) without the signature of such Pledgor, and will
cooperate with Agent, at such Pledgor's expense, in obtaining all
necessary approvals and making all necessary filings under federal or
state law in connection with such Liens or any sale or transfer of the
Pledged Collateral;
(c) Such Pledgor has and will defend the title to the Pledged
Collateral and the Liens of Agent in the Pledged Collateral against the
claim of any Person and will maintain and preserve such Liens; and
(d) Such Pledgor will, upon obtaining any additional shares of stock
of a Pledged Entity or promissory notes or instruments, which shares,
notes or instruments are not already Pledged Collateral, promptly (and in
any event within five (5) Business Days) deliver to Agent a Pledge
Amendment, duly executed by such Pledgor, in substantially the form of
Schedule II hereto (a "Pledge Amendment") in respect of any such
additional shares, notes or instruments, pursuant to which such Pledgor
shall pledge to Agent all of such additional shares, notes and
instruments; provided, however, that with respect to
5
<PAGE> 6
any Pledged Entity, the aggregate shares of Stock pledged hereunder shall
not constitute more than 66% of the issued and outstanding shares of Stock
of such Pledged Entity. Such Pledgor hereby authorizes Agent to attach
each Pledge Amendment to this Agreement and agrees that all Pledged Shares
and Pledged Indebtedness listed on any Pledge Amendment delivered to Agent
shall for all purposes hereunder be considered Pledged Collateral.
7. Pledgor's Rights. As long as no Event or Event of Default shall
have occurred and be continuing and until written notice shall be given to the
Pledgors in accordance with Section 8(a) hereof:
(a) Each Pledgor shall have the right, from time to time, to vote
and give consents with respect to the Pledged Collateral, or any part
thereof for all purposes not inconsistent with the provisions of this
Agreement, the Credit Agreement or any other Loan Document; provided,
however, that no vote shall be cast, and no consent shall be given or
action taken, which would have the effect of impairing the position or
interest of Agent in respect of the Pledged Collateral or which would
authorize or effect (unless and to the extent expressly permitted by the
Credit Agreement):
(i) the dissolution or liquidation, in whole or in part, of a
Pledged Entity;
(ii) the consolidation or merger of a Pledged Entity with any
other Person, except with a Pledgor provided that such Pledgor is
the surviving corporation;
(iii) the sale, disposition or encumbrance of all or
substantially all of the assets of a Pledged Entity, except for
Liens in favor of Agent;
(iv) any change in the authorized number of shares, the stated
capital or the authorized share capital of a Pledged Entity or the
issuance of any additional shares of its Stock; or
(v) the alteration of the voting rights with respect to the
Stock of a Pledged Entity; and
(b)(i) Each Pledgor shall be entitled, from time to time, to collect
and receive for its own use all cash dividends and interest paid in
respect of the Pledged Shares and Pledged Indebtedness to the extent not
in violation of the
6
<PAGE> 7
Credit Agreement other than any and all; (A) dividends and interest paid
or payable other than in cash in respect of any Pledged Collateral, and
instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, any Pledged Collateral; (B)
dividends and other distributions paid or payable in cash in respect of
any Pledged Shares in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus
or paid-in capital of a Pledged Entity; and (C) cash paid, payable or
otherwise distributed, in respect of principal of, or in redemption of, or
in exchange for, any Pledged Collateral; provided, however, that until
actually paid all rights to such distributions shall remain subject to the
Lien created by this Agreement; and
(ii) All dividends and interest (other than such cash dividends and
interest as are permitted to be paid to such Pledgor in accordance with
clause (i) above) and all other distributions in respect of any of the
Pledged Shares or Pledged Indebtedness, whenever paid or made, shall be
delivered to Agent to hold as Pledged Collateral and shall, if received by
any Pledgor, be received in trust for the benefit of Agent, be segregated
from the other property or funds of such Pledgor, and be forthwith
delivered to Agent as Pledged Collateral in the same form as so received
(with any necessary indorsement).
8. Defaults and Remedies.
(a) Upon the occurrence of an Event of Default (as defined in the
Credit Agreement) and during the continuation of such Event of Default,
then on or at any time after such declaration (provided that such
declaration is not rescinded by the Agent) and concurrently with written
notice to any Pledgor, Agent (personally or through an agent) is hereby
authorized and empowered to transfer and register in its name or in the
name of its nominee the whole or any part of the Pledged Collateral (which
in the case of any Pledged Entity organized under the laws of Canada or
any province thereof, may be done without regard to the occurrence of an
Event of Default), to exchange certificates or instruments representing or
evidencing Pledged Collateral for certificates or instruments of smaller
or larger denominations, to exercise the voting and all other rights as a
stockholder with respect thereto, to collect and receive all cash
dividends, interest, principal and other distributions made thereon, to
sell in one or more sales after ten (10) days' notice of the time and
place of any public sale or of the time at which a private sale is to take
place (which notice each Pledgor agrees is commercially reasonable) the
whole or any part of the Pledged Collateral and to otherwise act with
respect to the Pledged
7
<PAGE> 8
Collateral as though Agent was the outright owner thereof, each Pledgor
hereby irrevocably constituting and appointing Agent as the proxy and
attorney-in-fact of Pledgor, with full power of substitution to do so, and
which shall remain in effect until the Secured Obligations are
indefeasibly paid in full; provided, however, Agent shall not have any
duty to exercise any such right or to preserve the same and shall not be
liable for any failure to do so or for any delay in doing so. Any sale
shall be made at a public or private sale at Agent's place of business, or
at any place to be named in the notice of sale, either for cash or upon
credit or for future delivery at such price as Agent may deem fair, and
Agent may be the purchaser of the whole or any part of the Pledged
Collateral so sold and hold the same thereafter in its own right free from
any claim of any Pledgor or any right of redemption. Each sale shall be
made to the highest bidder, but Agent reserves the right to reject any and
all bids at such sale which, in its discretion, it shall deem inadequate.
Demands of performance, except as otherwise herein specifically provided
for, notices of sale, advertisements and the presence of property at sale
are hereby waived and any sale hereunder may be conducted by an auctioneer
or any officer or agent of Agent.
(b) If, at the original time or times appointed for the sale of the
whole or any part of the Pledged Collateral, the highest bid, if there be
but one sale, shall be inadequate to discharge in full all the Secured
Obligations, or if the Pledged Collateral be offered for sale in lots, if
at any of such sales, the highest bid for the lot offered for sale would
indicate to Agent, in its discretion, the unlikelihood of the proceeds of
the sales of the whole of the Pledged Collateral being sufficient to
discharge all the Secured Obligations, Agent may, on one or more occasions
and in its discretion, postpone any of said sales by public announcement
at the time of sale or the time of previous postponement of sale, and no
other notice of such postponement or postponements of sale need be given,
any other notice being hereby waived; provided, however, that any sale or
sales made after such postponement shall be after ten (10) days' notice to
such Pledgor.
(c) The proceeds of any sale, disposition or other realization upon
all or any part of the Pledged Collateral shall be distributed by Agent,
upon receipt, in the following order of priorities.
first, to Agent in an amount sufficient to pay in full the
expenses of Agent in connection with such sale, disposition or other
realization,
8
<PAGE> 9
including all expenses, liabilities and advances incurred or made by
Agent in connection therewith, including attorneys' fees and
expenses;
second, to Lenders in an amount sufficient to pay in full all
of the Secured Obligations; and
finally, upon payment in full of all of the Secured
Obligations, to Pledgors or to whomsoever may be lawfully entitled
to receive the same, or as a court of competent jurisdiction may
direct.
(d) If, at any time when Agent in its sole discretion determines,
following the occurrence and during the continuance of an Event of
Default, that, in connection with any actual or contemplated exercise of
its rights (when permitted under this Section 8) to sell the whole or any
part of the Pledged Shares hereunder, it is necessary or advisable to
effect a public registration of all or part of the Pledged Collateral
pursuant to the Securities Act of 1933, as amended (or any similar statute
then in effect) (the "Act"), each Pledgor shall, in an expeditious manner,
cause the Pledged Entities to:
(i) Prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement with respect
to the Pledged Shares and in good faith use commercially reasonable
efforts to cause such registration statement to become and remain
effective;
(ii) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions
of the Act with respect to the sale or other disposition of the
Pledged Shares covered by such registration statement whenever Agent
shall desire to sell or otherwise dispose of the Pledged Shares;
(iii) Furnish to Agent such numbers of copies of a prospectus
and a preliminary prospectus, in conformity with the requirements of
the Act, and such other documents as Agent may request in order to
facilitate the public sale or other disposition of the Pledged
Shares by Agent;
(iv) Use commercially reasonable efforts to register or
qualify the Pledged Shares covered by such registration statement
under such
9
<PAGE> 10
other securities or blue sky laws of such jurisdictions within the
United States and Puerto Rico as Agent shall request, and do such
other reasonable acts and things as may be required of it to enable
Agent to consummate the public sale or other disposition in such
jurisdictions of the Pledged Shares by Agent;
(v) Furnish, at the request of Agent, on the date that shares
of the Pledged Collateral are delivered to the underwriters for sale
pursuant to such registration or, if the security is not being sold
through underwriters, on the date that the registration statement
with respect to such Pledged Shares becomes effective, (A) an
opinion, dated such date, of the independent counsel representing
such registrant for the purposes of such registration, addressed to
the underwriters, if any, and in the event the Pledged Shares are
not being sold through underwriters, then to Agent, in customary
form and covering matters of the type customarily covered in such
legal opinions; and (B) a comfort letter, dated such date, from the
independent certified public accountants of such registrant,
addressed to the underwriters, if any, and in the event the Pledged
Shares are not being sold through underwriters, then to Agent, in a
customary form and covering matters of the type customarily covered
by such comfort letters and as the underwriters or Agent shall
reasonably request. The opinion of counsel referred to above shall
additionally cover such other legal matters with respect to the
registration in respect of which such opinion is being given as
Agent may reasonably request. The letter referred to above from the
independent certified public accountants shall additionally cover
such other financial matters (including information as to the period
ending not more than five (5) Business Days prior to the date of
such letter) with respect to the registration in respect of which
such letter is being given as Agent may reasonably request; and
(vi) Otherwise use commercially reasonable efforts to comply
with all applicable rules and regulations of the Commission, and
make available to its security holders, as soon as reasonably
practicable but not later than 18 months after the effective date of
the registration statement, an earnings statement covering the
period of at least 12 months beginning with the first full month
after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of
the Act.
10
<PAGE> 11
(e) All expenses incurred in complying with Section 8(d) hereof,
including, without limitation, all registration and filing fees (including
all expenses incident to filing with the National Association of
Securities Dealers, Inc.), printing expenses, fees and disbursements of
counsel for the registrant, the fees and expenses of counsel for Agent,
expenses of the independent certified public accountants (including any
special audits incident to or required by any such registration) and
expenses of complying with the securities or blue sky laws or any
jurisdictions, shall be paid by such Pledgor.
(f) If, at any time when Agent shall determine to exercise its right
to sell the whole or any part of the Pledged Collateral hereunder, such
Pledged Collateral or the part thereof to be sold shall not, for any
reason whatsoever, be effectively registered under the Act, Agent may, in
its discretion (subject only to applicable requirements of law), sell such
Pledged Collateral or part thereof by private sale in such manner and
under such circumstances as Agent may deem necessary or advisable, but
subject to the other requirements of this Section 8, and shall not be
required to effect such registration or to cause the same to be effected.
Without limiting the generality of the foregoing, in any such event, Agent
in its discretion (x) may, in accordance with applicable securities laws,
proceed to make such private sale notwithstanding that a registration
statement for the purpose of registering such Pledged Collateral or part
thereof could be or shall have been filed under said Act (or similar
statute), (y) may approach and negotiate with a single possible purchaser
to effect such sale, and (z) may restrict such sale to a purchaser who is
an accredited investor under the Act and who will represent and agree that
such purchaser is purchasing for its own account, for investment and not
with a view to the distribution or sale of such Pledged Collateral or any
part thereof. In addition to a private sale as provided above in this
Section 8, if any of the Pledged Collateral shall not be freely
distributable to the public without registration under the Act (or similar
statute) at the time of any proposed sale pursuant to this Section 8, then
Agent shall not be required to effect such registration or cause the same
to be effected but, in its discretion (subject only to applicable
requirements of law), may require that any sale hereunder (including a
sale at auction) be conducted subject to restrictions:
(i) as to the financial sophistication and ability of any
Person permitted to bid or purchase at any such sale;
(ii) as to the content of legends to be placed upon any
certificates representing the Pledged Collateral sold in such sale,
including restrictions on future transfer thereof;
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<PAGE> 12
(iii) as to the representations required to be made by each
Person bidding or purchasing at such sale relating to that Person's
access to financial information about Pledgor and such Person's
intentions as to the holding of the Pledged Collateral so sold for
investment for its own account and not with a view to the
distribution thereof; and
(iv) as to such other matters as Agent may, in its discretion,
deem necessary or appropriate in order that such sale
(notwithstanding any failure so to register) may be effected in
compliance with the Bankruptcy Code and other laws affecting the
enforcement of creditors' rights and the Act and all applicable
state securities laws.
(g) Each Pledgor recognizes that Agent may be unable to effect a
public sale of any or all the Pledged Collateral and may be compelled to
resort to one or more private sales thereof in accordance with clause (f)
above. Each Pledgor also acknowledges that any such private sale may
result in prices and other terms less favorable to the seller than if such
sale were a public sale and, notwithstanding such circumstances, agrees
that any such private sale shall not be deemed to have been made in a
commercially unreasonable manner solely by virtue of such sale being
private. Agent shall be under no obligation to delay a sale of any of the
Pledged Collateral for the period of time necessary to permit the Pledged
Entity to register such securities for public sale under the Act, or under
applicable state securities laws, even if such Pledgor and the Pledged
Entity would agree to do so.
(h) Each Pledgor agrees to the maximum extent permitted by
applicable law that following the occurrence and during the continuance of
an Event of Default it will not at any time plead, claim or take the
benefit of any appraisal, valuation, stay, extension or moratorium law now
or hereafter in force in order to prevent or delay the enforcement of this
Agreement, or the absolute sale of the whole or any part of the Pledged
Collateral or the possession thereof by any purchaser at any sale
hereunder, and each Pledgor waives the benefit of all such laws to the
extent it lawfully may do so. Each Pledgor agrees that it will not
interfere with any right, power and remedy of Agent provided for in this
Agreement or now or hereafter existing at law or in equity or by statute
or otherwise, or the exercise or beginning of the exercise by Agent of any
one or more of such rights, powers or remedies. No failure or delay on the
part of Agent to exercise any such right, power or remedy and no notice or
demand which may be given to or made upon any Pledgor by Agent with
respect to any such remedies shall operate as a waiver thereof, or limit
or
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<PAGE> 13
impair Agent's right to take any action or to exercise any power or remedy
hereunder, without notice or demand, or prejudice its rights as against
any Pledgor in any respect.
(i) Each Pledgor further agrees that a breach of any of the
covenants contained in this Section 8 will cause irreparable injury to
Agent, that Agent shall have no adequate remedy at law in respect of such
breach and, as a consequence, agrees that each and every covenant
contained in this Section 8 shall be specifically enforceable against such
Pledgor, and each Pledgor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants
except for a defense that the Secured Obligations are not then due and
payable in accordance with the agreements and instruments governing and
evidencing such obligations.
9. Waiver. No delay on Agent's part in exercising any power of sale,
Lien, option or other right hereunder, and no notice or demand which may be
given to or made upon any Pledgor by Agent with respect to any power of sale,
Lien, option or other right hereunder, shall constitute a waiver thereof, or
limit or impair Agent's right to take any action or to exercise any power of
sale, Lien, option, or any other right hereunder, without notice or demand, or
prejudice Agent's rights as against any Pledgor in any respect.
10. Assignment. Agent may assign, indorse or transfer any instrument
evidencing all or any part of the Secured Obligations as provided in, and in
accordance with, the Credit Agreement, and the holder of such instrument shall
be entitled to the benefits of this Agreement.
11. Termination. Immediately following the indefeasible payment in
full of all Secured Obligations and termination of the commitments under the
Credit Agreement, Agent shall deliver to each Pledgor the Pledged Collateral
pledged by such Pledgor at the time subject to this Agreement and all
instruments of assignment executed in connection therewith, free and clear of
the Liens hereof and, except as otherwise provided herein, all of such Pledgor's
obligations hereunder shall at such time terminate.
12. Lien Absolute. All rights of Agent hereunder, and all
obligations of each Pledgor hereunder, shall be absolute and unconditional
irrespective of:
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<PAGE> 14
(a) any lack of validity or enforceability of the Credit Agreement,
any other Loan Document or any other agreement or instrument governing or
evidencing any Secured Obligations;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any part of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Credit
Agreement, any other Loan Document or any other agreement or instrument
governing or evidencing any Secured Obligations;
(c) any exchange, release or non-perfection of any other Collateral,
or any release or amendment or waiver of or consent to departure from any
guaranty, for all or any of the Secured Obligations; or
(d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, Pledgor.
13. Release. Each Pledgor consents and agrees that Agent may at any
time, or from time to time, in its discretion:
(a) renew, extend or change the time of payment, and/or the manner,
place or terms of payment of all or any part of the Secured Obligations;
and
(b) exchange, release and/or surrender all or any of the Collateral
(including the Pledged Collateral), or any part thereof, by whomsoever
deposited, which is now or may hereafter be held by Agent in connection
with all or any of the Secured Obligations; all in such manner and upon
such terms as Agent may deem proper, and without notice to or further
assent from any Pledgor, it being hereby agreed that each Pledgor shall be
and remain bound upon this Agreement, irrespective of the value or
condition of any of the Collateral, and notwithstanding any such change,
exchange, settlement, compromise, surrender, release, renewal or
extension, and notwithstanding also that the Secured Obligations may, at
any time, exceed the aggregate principal amount thereof set forth in the
Credit Agreement, or any other agreement governing any Secured
Obligations. Each Pledgor hereby waives notice of acceptance of this
Agreement, and also presentment, demand, protest and notice of dishonor of
any and all of the Secured Obligations, and promptness in commencing suit
against any party hereto or liable hereon, and in giving any notice to or
of making any claim or demand hereunder upon any Pledgor. No
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<PAGE> 15
act or omission of any kind on Agent's part shall in any event affect or
impair this Agreement.
14. Reinstatement. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
any Pledgor or any Pledged Entity for liquidation or reorganization, should any
Pledgor or any Pledged Entity become insolvent or make an assignment for the
benefit of creditors or should a receiver or trustee be appointed for all or any
significant part of any Pledgor's or a Pledged Entity's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Secured Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Secured Obligations, whether as a
"voidable preference", "fraudulent conveyance", or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or any
part thereof, is rescinded, reduced, restored or returned, the Secured
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
15. Miscellaneous.
(a) Agent may execute any of its duties hereunder by or through
agents or employees and shall be entitled to advice of counsel concerning
all matters pertaining to its duties hereunder.
(b) Each Pledgor agrees to promptly reimburse Agent for actual
out-of-pocket expenses, including, without limitation, reasonable counsel
fees, incurred by Agent in connection with the administration and
enforcement of this Agreement.
(c) Neither Agent, nor any of its respective officers, directors,
employees, agents or counsel shall be liable for any action lawfully taken
or omitted to be taken by it or them hereunder or in connection herewith,
except for its or their own gross negligence or willful misconduct.
(d) THIS AGREEMENT SHALL BE BINDING UPON EACH PLEDGOR AND ITS
SUCCESSORS AND ASSIGNS, AND SHALL INURE TO THE BENEFIT OF, AND BE
ENFORCEABLE BY, AGENT AND ITS SUCCESSORS AND ASSIGNS, AND NONE OF THE
TERMS OR PROVISIONS OF THIS AGREEMENT MAY BE WAIVED, ALTERED, MODIFIED OR
AMENDED AS TO ANY PLEDGOR EXCEPT IN
15
<PAGE> 16
WRITING DULY SIGNED FOR AND ON BEHALF OF AGENT AND
SUCH PLEDGOR.
(e) EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN
DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA, AND TO THE EXTENT APPLICABLE WITH RESPECT TO THE PLEDGE OF THE
STOCK OF PERFUMES DANA S.A.I.C., THE LAWS OF ARGENTINA. EACH PLEDGOR
HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW
YORK COUNTY, CITY OF NEW YORK, NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION
TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG PLEDGORS,
AGENT OR ANY LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS,
PROVIDED, THAT AGENT AND PLEDGORS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE
COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY,
CITY OF NEW YORK, NEW YORK, AND, PROVIDED, FURTHER, THAT NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT
OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE
PLEDGED COLLATERAL OR ANY OTHER SECURITY FOR THE SECURED OBLIGATIONS, OR
TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT, FOR THE
BENEFIT OF AGENT AND LENDERS. EACH PLEDGOR EXPRESSLY SUBMITS AND CONSENTS
IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND EACH PLEDGOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH PLEDGOR
16
<PAGE> 17
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO SUCH PLEDGOR AT THE ADDRESS SET FORTH ON SCHEDULE III HERETO
AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS,
PROPER POSTAGE PREPAID.
(f) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED
AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS
TO APPLY (RATHER THAN ARBITRATION RULES), EACH PLEDGOR AND AGENT DESIRES
THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OR ARBITRATION, EACH PLEDGOR
AND AGENT WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO
OR THERETO.
16. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement. This Agreement is to be
read, construed and applied together with the Credit Agreement and the other
Loan Documents which, taken together, set forth the complete understanding and
agreement of Agent, Lenders and Pledgors with respect to the matters referred to
herein and therein.
17
<PAGE> 18
17. Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give or
serve upon any other party any communication with respect to this Agreement,
each such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and either shall be delivered in person with
receipt acknowledged or by registered or certified mail, return receipt
requested, postage prepaid, or by telecopy and confirmed by telecopy answerback
addressed as follows:
(a) If to Agent, at:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Accounts Manager - Renaissance
Telecopier Number: (203) 316-7823
with copies to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Ted S. Waksman, Esq.
Telecopier Number: (212) 310-8007
and:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Corporate Counsel - Commercial Finance
Telecopier Number: (203) 316-7889
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<PAGE> 19
(b) If to any Pledgor, at the address of such
Pledgor specified on Schedule III hereto:
with a copy to:
Brownstein Hyatt Farber & Strickland, P.C.
419 17th Street - 22nd Floor
Denver, Colorado 80202-4437
Attention: John L. Ruppert, Esq.
Telecopier Number: (303) 623-1956
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been validly served, given or delivered (i) upon the earlier of actual
receipt and three (3) Business Days after the same shall have been deposited
with the United States mail, registered or certified mail, return receipt
requested, with proper postage prepaid, (ii) upon transmission, when sent by
telecopy and confirmed by telecopy answerback, (iii) one (1) Business Day after
deposit with a reputable overnight carrier with all charges prepaid, or (iv)
when delivered, if hand-delivered by messenger. Failure or delay in delivering
copies of any notice, demand, request, consent, approval, declaration or other
communication to the persons designated above to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication.
18. Section Titles. The Section titles contained in this Agreement
are and shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreement between the parties hereto.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall, collectively and separately, constitute one
agreement.
[signature page follows]
19
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first written above.
DANA PERFUMES CORP.
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
MEM COMPANY, INC.
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
RENAISSANCE COSMETICS, INC.
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
COSMAR CORPORATION
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
GREAT AMERICAN COSMETICS, INC.
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
20
<PAGE> 21
HOUBIGANT (1995) LIMITED
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
ARISTOCRAT LEATHER PRODUCTS,
INC.
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
MARTON FRERES, INC.
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
MEM COMPANY (CANADA) LIMITED
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
ENGLISH LEATHER, INC.
By: ________________________________________
Name: ______________________________________
Title: _____________________________________
21
<PAGE> 22
Accepted and Acknowledged by:
GENERAL ELECTRIC CAPITAL CORPORATION
By:_________________________________
Name:_____________________________
Its Duly Authorized Signatory
22
<PAGE> 1
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of March __, 1997 (together with all
amendments, if any from time to time hereto, this "Security Agreement"), among
the Grantors identified as such on the signature pages hereof (each, a "Grantor"
and collectively "Grantors"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New
York corporation, in its capacity as Agent for Lenders ("Agent").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Credit Agreement dated as of the
date hereof among Dana Perfumes Corp. ("Borrower"), the other Persons named
therein as Credit Parties, Agent and the Persons named therein as Lenders
(including all annexes, exhibits or schedules thereto, as from time to time
amended, restated, supplemented or otherwise modified, the "Credit Agreement"),
Lenders have agreed to make Loans to Borrower;
WHEREAS, in order to induce Agent and Lenders to enter into the
Credit Agreement and other Loan Documents and to induce Lenders to make the
Loans as provided for in the Credit Agreement, Grantors have agreed to grant a
continuing security interest in the Collateral (as hereinafter defined) to
secure the Obligations;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DEFINED TERMS. All capitalized terms used but not otherwise
defined herein have the meanings given to them in the Credit Agreement or in
Annex A thereto. All other undefined terms contained in this Security Agreement,
unless the context indicates otherwise, have the meanings provided for by
Article 9 of the Uniform Commercial Code as in effect in the State of New York
(the "Code") to the extent the same are used or defined therein.
2. GRANT OF SECURITY INTEREST.
(a) To secure the prompt and complete payment, performance and
observance of all of the Obligations, each Grantor hereby grants, assigns,
conveys, mortgages, pledges, hypothecates and transfers to Agent, for itself and
the benefit of Lenders, a security interest in its right, title and interest in,
to and under the following,
<PAGE> 2
whether now owned by or owing to, or hereafter acquired by or arising in favor
of such Grantor (including under any trade names, styles or derivations
thereof), and whether owned or consigned by or to, or leased from or to, such
Grantor, and regardless of where located (all of which being hereinafter
collectively referred to as the "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Documents;
(v) all Equipment;
(vi) all Fixtures;
(vii) all General Intangibles;
(viii) all goods;
(ix) all Instruments;
(x) all Inventory;
(xi) all Investment Property (other than Stock of Subsidiaries
of such Grantor except as provided in the Pledge
Agreement);
(xii) all Credit Party Accounts, Disbursement Accounts, and all
other deposit and other bank accounts and all deposits
therein;
(xiii) all money, cash or cash equivalents of any Grantor; and
(xiv) to the extent not otherwise included, all Proceeds and
products of the foregoing and all accessions to,
2
<PAGE> 3
substitutions and replacements for, and rents and profits
of, each of the foregoing.
(b) In addition, to secure the prompt and complete payment,
performance and observance of the Obligations and in order to induce Agent and
Lenders as aforesaid, each Grantor hereby grants to Agent, for itself and the
ratable benefit of Lenders, a security interest in the property of such Grantor
held by Agent or any Lender, consisting of property described above in Section
2(a) now or hereafter in the possession or custody of or in transit to Agent or
any Lender, for any purpose, including safekeeping, collection or pledge, for
the account of such Grantor, or as to which such Grantor may have any right or
power.
3. AGENT'S AND LENDERS' RIGHTS; LIMITATIONS ON AGENT'S AND LENDERS'
OBLIGATIONS.
(a) It is expressly agreed by Grantors that, anything herein to the
contrary notwithstanding, each Grantor shall remain liable under each of its
Contracts and each of its Licenses to observe and perform all the conditions and
obligations to be observed and performed by it thereunder. Neither Agent nor any
Lender shall have any obligation or liability under any Contract or License by
reason of or arising out of this Security Agreement or the granting herein of a
security interest therein or the receipt by Agent or any Lender of any payment
relating to any Contract or License pursuant hereto. Neither Agent nor any
Lender shall be required or obligated in any manner to perform or fulfill any of
the obligations of any Grantor under or pursuant to any Contract or License, or
to make any payment, or to make any inquiry as to the nature or the sufficiency
of any payment received by it or the sufficiency of any performance by any party
under any Contract or License, or to present or file any claims, or to take any
action to collect or enforce any performance or the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
(b) Agent may at any time after a Default or Event of Default shall
have occurred and be continuing, without prior notice to any Grantor, notify
Account Debtors, parties to the Contracts and obligors in respect of Instruments
and Chattel Paper, that the Accounts and the right, title and interest of any
Grantor in and under such Contracts, Instruments and Chattel Paper have been
assigned to Agent, and that payments shall be made directly to Agent. Upon the
request of Agent, each Grantor shall so notify Account Debtors, parties to
Contracts and obligors in respect of Instruments and Chattel Paper.
3
<PAGE> 4
(c) Agent may at any time in Agent's own name or in the name of any
Grantor communicate with Account Debtors, parties to Contracts, obligors in
respect of Instruments and obligors in respect of Chattel Paper to verify with
such Persons, to Agent's satisfaction, the existence, amount and terms of any
such Accounts, Contracts, Instruments or Chattel Paper. If a Default or Event of
Default shall have occurred and be continuing, each Grantor, at its own expense,
shall cause the certified independent public accountants then engaged by such
Grantor to prepare and deliver to Agent and each Lender at any time and from
time to time promptly upon Agent's request the following reports with respect to
each Grantor: (i) a reconciliation of all Accounts; (ii) an aging of all
Accounts; (iii) trial balances; and (iv) a test verification of such Accounts as
Agent may request. Each Grantor, at its own expense, shall deliver to Agent the
results of each physical verification, if any, which such Grantor may in its
discretion have made, or caused any other Person to have made on its behalf, of
all or any portion of its Inventory.
4. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and
warrants that:
(a) Each Grantor is the sole owner of each item of the Collateral in
which it purports to grant a security interest hereunder, and has good and
marketable title thereto free and clear of any and all Liens other than
Permitted Encumbrances.
(b) No effective security agreement, financing statement, equivalent
security or Lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except such as
may have been filed (i) in the United States Patent and Trademark Office by any
Grantor in favor of Nomura Holding America Inc., CIBC Woody Gundy Securities
Corp., or Freemont Financial Corporation as against the Collateral so identified
on Attachments II and III to Schedule IV hereto, for which releases have been
filed but not yet recorded in the United States Patent and Trademark Office as
of the Closing Date, (ii) by any Grantor in favor of Agent pursuant to this
Security Agreement, and (iii) in connection with any other Permitted
Encumbrances.
(c) This Security Agreement is effective to create a valid and
continuing Lien on and, upon the filing of the appropriate financing statements
listed on Schedule I hereto, a perfected security interest in favor of Agent,
for itself and the ratable benefit of Lenders, in the Collateral with respect to
which a security interest may be perfected by filing pursuant to the Code. That
Lien is prior to all other Liens, except Permitted Encumbrances that would be
prior to Liens in favor of Agent for the
4
<PAGE> 5
benefit of Agent and Lenders as a matter of law, and is enforceable as such as
against any and all creditors of and purchasers from any Grantor (other than
purchasers of Inventory in the ordinary course of business). All action by any
Grantor necessary or desirable to protect and, upon the filing of the
appropriate financing statements listed on Schedule I hereto, perfect such
security interest in each item of the Collateral has been duly taken.
(d) Schedule II hereto lists all Instruments and Chattel Paper of
each Grantor. All action by any Grantor necessary or desirable to protect and
perfect the security interest of Agent in each item set forth on Schedule II
(including the delivery of all originals thereof to Agent and the legending of
all Chattel Paper as required by Section 5(b) hereof) has been duly taken. The
security interest of Agent, for the benefit of Agent and Lenders, in the
Collateral listed on Schedule II hereto is prior to all other Liens, except
Permitted Encumbrances that would be prior to the Liens in favor of Agent as a
matter of law, and is enforceable as such against any and all creditors of and
purchasers from any Grantor.
(e) Each Grantor's chief executive office, principal place of
business, corporate offices, all warehouses and premises where Collateral is
stored or located, and the locations of all of its books and records concerning
the Collateral are set forth on Schedule III hereto.
(f) With respect to the Accounts, (i) they represent bona fide sales
of Inventory or rendering of services to Account Debtors in the ordinary course
of each Grantor's business and are not evidenced by a judgment, Instrument or
Chattel Paper; (ii) the amounts shown on all invoices, statements and Collateral
Reports which may be delivered to the Agent with respect thereto are actually
and absolutely owing to such Grantor as indicated thereon and are not in any way
contingent; (iii) no payments have been or shall be made thereon except payments
immediately delivered to the applicable Credit Party Accounts or the Agent as
required pursuant to the terms of Annex C to the Credit Agreement; (iv) except
as specifically disclosed in a current Borrowing Base Certificate delivered to
Agent, there are no setoffs, claims or disputes existing or asserted with
respect thereto and no Grantor has made any agreement with any Account Debtor
for any extension of time for the payment thereof, any compromise or settlement
for less than the full amount thereof, any release of any Account Debtor from
liability therefor, or any deduction therefrom except a discount or allowance
allowed by such Grantor in the ordinary course of its business for prompt
payment and disclosed to Agent; (v) to each Grantor's knowledge, except as
specifically disclosed in a Collateral Report delivered to Agent, there are no
facts, events or occurrences which
5
<PAGE> 6
in any way impair the validity or enforceability thereof or could reasonably be
expected to reduce the amount payable thereunder as shown on any Grantor's books
and records and any invoices, statements and Collateral Reports delivered to
Agent and Lenders with respect thereto; (vi) to each Grantor's knowledge, all
Account Debtors have the capacity to contract; (vii) except as specifically
disclosed in a Collateral Report delivered to Agent, no Grantor has received any
notice of proceedings or actions which are threatened or pending against any
Account Debtor which might result in any adverse change in such Account Debtor's
financial condition; and (viii) except as specifically disclosed in a Collateral
Report delivered to Agent, no Grantor has knowledge that any Account Debtor is
unable generally to pay its debts as they become due.
(g) With respect to any Inventory scheduled or listed on any
statement, Collateral Report or other report delivered to Agent pursuant to the
terms of this Security Agreement or the Credit Agreement, (i) such Inventory is
located at one of the applicable Grantor's locations set forth on Schedule III
hereto, as applicable, (ii) no Inventory is now, or shall at any time or times
hereafter be stored at any other location without Agent's prior consent, and if
Agent gives such consent, each applicable Grantor will concurrently therewith
obtain, to the extent required by the Credit Agreement, bailee, landlord and
mortgagee agreements, (iii) the applicable Grantor has good and merchantable
title to such property and such property is not subject to any Lien or security
interest or document whatsoever except for the security interest granted to
Agent, for the benefit of Agent and Lenders, and except for Permitted
Encumbrances described in clause (f) of the definition thereof on Inventory that
is not Eligible Inventory, (iv) except as specifically disclosed in a Collateral
Report delivered to Agent, such Inventory is Eligible Inventory of good and
merchantable quality, free from any defects, (v) such property is not subject to
any licensing, patent, royalty, trademark, trade name or copyright agreements
with any third parties which would require any consent of any third party upon
sale or disposition of that Inventory or the payment of any monies to any third
party as a precondition of such sale or other disposition, except as set forth
in the Licenses listed on Attachment IV to Schedule IV hereto, pursuant to which
any Grantor has obtained rights or an option to acquire rights to use any
Intellectual Property thereunder, and (vi) the completion of manufacture, sale
or other disposition of such property by Agent following an Event of Default
shall not require the consent of any Person and shall not constitute a breach or
default under any contract or agreement to which any Grantor is a party or to
which such property is subject, except as set forth in the Licenses listed on
Attachment IV to Schedule IV hereto, pursuant to which any Grantor has obtained
rights or an option to acquire rights to use any Intellectual Property
thereunder.
6
<PAGE> 7
(h) No Grantor has any interest in, or title to, any U.S. or
Canadian Patent, Trademark, Copyright registration or application or any U.S. or
Canadian License except as set forth in Schedule IV hereto. This Security
Agreement is effective to create a valid and continuing Lien on and, upon filing
of the Copyright Security Agreement with the United States Copyright Office,
filing of the Patent Security Agreement and the Trademark Security Agreement
with the United States Patent and Trademark Office and the filing of the
appropriate financing statements listed on Schedule I hereto, perfected security
interests in favor of Agent in each Grantor's U.S. Patent, Trademark and
Copyright registrations and applications and such perfected security interests
are enforceable as such as against any and all creditors of and purchasers from
any Grantor. Upon proper and timely filing of the Copyright Security Agreement
with the United States Copyright Office, proper and timely filing of the Patent
Security Agreement and the Trademark Security Agreement with the United States
Patent and Trademark Office and the filing of the appropriate financing
statements listed on Schedule I hereto, all action necessary or desirable to
protect and perfect Agent's security interest in each Grantor's U.S. Patent,
Trademark and Copyright registrations and applications shall have been duly
taken.
5. COVENANTS. Each Grantor covenants and agrees with Agent, for the
benefit of Agent and Lenders, that from and after the date of this Security
Agreement and until the Termination Date:
(a) Further Assurances; Pledge of Instruments. At any time and from
time to time, upon the written request of Agent and at the sole expense of
Grantors, each Grantor shall promptly and duly execute and deliver any and all
such further instruments and documents and take such further actions as Agent
may deem desirable to obtain the full benefits of this Security Agreement and of
the rights and powers herein granted, including (i) using its reasonable best
efforts to secure all consents and approvals necessary or appropriate for the
assignment to or for the benefit of Agent of any License or Contract held by
such Grantor or in which such Grantor has any rights not heretofore assigned,
(ii) filing any financing or continuation statements under the Code with respect
to the Liens and security interests granted hereunder or under any other Loan
Document, (iii) transferring Collateral to Agent's possession (for the benefit
of Agent and Lenders) if such Collateral consists of Chattel Paper, Instruments
or if a security interest in such Collateral can be perfected only by
possession, or if requested by Agent, and (iv) obtaining, or using its best
efforts to obtain, waivers of Liens, if any exist, from landlords and mortgagees
to the extent required under the Credit Agreement. Each Grantor also hereby
authorizes Agent, for itself and the ratable benefit of Lenders, to file any
such financing or continuation statements without the
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<PAGE> 8
signature of such Grantor to the extent permitted by applicable law. If any
amount payable under or in connection with any of the Collateral is or shall
become evidenced by any Instrument, such Instrument, other than checks and notes
received in the ordinary course of business, shall be duly endorsed in a manner
satisfactory to Agent immediately upon such Grantor's receipt thereof.
(b) Maintenance of Records. Grantors shall keep and maintain, at
their own cost and expense, satisfactory and complete records of the Collateral,
including a record of any and all payments received and any and all credits
granted with respect to the Collateral and all other dealings with the
Collateral. Grantors shall mark their books and records pertaining to the
Collateral to evidence this Security Agreement and the security interests
granted hereby. All Chattel Paper shall be marked with the following legend:
"This writing and the obligations evidenced or secured hereby are subject to the
security interest of General Electric Capital Corporation, as Agent, for the
benefit of itself as a Lender and certain other Lenders." For Agent's further
security, Grantors agree that Agent shall have a special property right and
security interest in all of any Grantor's books and records pertaining to the
Collateral and, upon the occurrence and during the continuance of any Event of
Default, Grantors shall deliver and turn over any such books and records to
Agent or to its representatives at any time on demand of Agent. Upon notice from
Agent (except no such notice shall be required upon the occurrence or during the
continuance of a Default or Event of Default), Grantors shall permit any
representative of Agent to inspect such books and records and shall provide
photocopies thereof to Agent, for the benefit of Agent and Lenders, as more
specifically set forth in the Credit Agreement.
(c) Covenants Regarding Patent, Trademark and Copyright Collateral.
(i) Each Grantor shall notify Agent immediately if it knows or has
reason to know that any application or registration relating to any of its
Patents, Trademarks or Copyrights (now or hereafter existing) may become
abandoned or dedicated, other than in the ordinary course of its business,
or of any adverse determination or development (including the institution
of, or any such determination or development in, any proceeding in the
United States Patent and Trademark Office, the United States Copyright
Office or any court) regarding any Grantor's ownership of any Patent,
Trademark or Copyright, including its right to keep and maintain the same.
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<PAGE> 9
(ii) In no event shall any Grantor, either itself or through any
agent, employee, licensee or designee, file an application for the
registration of any Patent, Trademark or Copyright with the United States
Patent and Trademark Office, the United States Copyright Office or any
similar office or agency without giving Agent prior written notice
thereof, and, upon request of Agent, Grantor shall execute and deliver any
and all Patent Security Agreements, Copyright Security Agreements or
Trademark Security Agreements as Agent may request to evidence Agent's
security interest in such Patent, Trademark or Copyright, and the General
Intangibles of such Grantor relating thereto or represented thereby.
(iii) Grantors shall take all actions necessary or requested by
Agent to maintain and pursue each application, to obtain the relevant
registration and to maintain the registration of each of the U.S. and
Canadian Patents, Trademarks and Copyrights (now or hereafter existing),
including the filing of applications for renewal, affidavits of use,
affidavits of incontestability and opposition and interference and
cancellation proceedings, unless the applicable Grantor shall reasonably
determine that such U.S. and Canadian Patent, Trademark or Copyright is
not material to the conduct of its business.
(iv) In the event that any of the Patent, Trademark or Copyright
Collateral is infringed upon, or misappropriated or diluted by a third
party, such Grantor shall notify Agent promptly after such Grantor learns
thereof. Such Grantor shall, unless such Grantor shall reasonably
determine that such Patent, Trademark or Copyright Collateral is in no way
material to the conduct of its business or operations, take any actions as
Agent shall deem appropriate under the circumstances to protect such
Patent, Trademark or Copyright Collateral.
(d) Indemnification. In any suit, proceeding or action brought by
Agent or any Lender relating to any Account, Chattel Paper, Contract, Document,
General Intangible or Instrument for any sum owing thereunder or to enforce any
provision of any Account, Chattel Paper, Contract, Document, General Intangible
or Instrument, each Grantor will save, indemnify and keep Agent and Lenders
harmless from and against all expense (including reasonable attorneys' fees and
expenses), loss or damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction of liability whatsoever of the obligor
thereunder, arising out of a breach by any Grantor of any obligation thereunder
or arising out of any other agreement, indebtedness or liability at any time
owing to, or in favor of, such obligor or its successors from such Grantor,
except in the case of Agent or any Lender, to the extent
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<PAGE> 10
such expense, loss, or damage is attributable solely to the gross negligence or
willful misconduct of Agent or such Lender as finally determined by a court of
competent jurisdiction. All such obligations of Grantors shall be and remain
enforceable against and only against Grantors and shall not be enforceable
against Agent or any Lender.
(e) Compliance with Terms of Accounts, etc. In all material
respects, each Grantor will perform and comply with all obligations in respect
of its Accounts, Chattel Paper, Contracts and Licenses and all other agreements
to which it is a party or by which it is bound relating to the Collateral.
(f) Limitation on Liens on Collateral. No Grantor will create,
permit or suffer to exist, and each Grantor will defend the Collateral against,
and take such other action as is necessary to remove, any Lien on the Collateral
except Permitted Encumbrances, and will defend the right, title and interest of
Agent and Lenders in and to any of such Grantor's rights under the Collateral
against the claims and demands of all Persons whomsoever.
(g) Limitations on Modifications of Accounts. Grantors shall
promptly notify Agent if any Grantor grants any extension of the time of payment
of any of the Accounts, Chattel Paper or Instruments or compromises, compounds
or settles the same for less than the full amount thereof, or if any Grantor
releases, wholly or partly, any Person liable for the payment thereof, or allows
any credit or discount whatsoever thereon other than any such action taken in
the ordinary course of business of such Grantor.
(h) Limitations on Disposition. No Grantor will sell, lease,
transfer or otherwise dispose of any of the Collateral, or attempt or contract
to do so except as permitted by the Credit Agreement.
(i) Further Identification of Collateral. Grantors will, if so
requested by Agent, furnish to Agent, as often as Agent requests, statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Agent may reasonably request, all
in such detail as Agent may specify.
(j) Notices. Grantors will advise Agent promptly, in reasonable
detail, (i) of any Lien (other than Permitted Encumbrances) or claim made or
asserted against any of the Collateral, and (ii) of the occurrence of any other
event which would
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have a material adverse effect on the aggregate value of the Collateral or on
the security interests created hereunder or under any other Loan Document.
6. AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT.
On the Closing Date each Grantor shall execute and deliver to Agent
a power of attorney (the "Power of Attorney") substantially in the form attached
hereto as Exhibit A. The power of attorney granted pursuant to the Power of
Attorney is a power coupled with an interest and shall be irrevocable until the
Termination Date. The powers conferred on Agent, for the benefit of Agent and
Lenders, under the Power of Attorney are solely to protect Agent's interests
(for the benefit of Agent and Lenders) in the Collateral and shall not impose
any duty upon Agent or any Lender to exercise any such powers. Agent agrees that
(a) it shall not exercise any power or authority granted under the Power of
Attorney unless an Event of Default has occurred and is continuing, and (b)
Agent shall account for any moneys received by Agent in respect of any
foreclosure on or disposition of Collateral pursuant to the Power of Attorney
provided that none of Agent or any Lender shall have any duty as to any
Collateral, and Agent and Lenders shall be accountable only for amounts that
they actually receive as a result of the exercise of such powers. NONE OF AGENT,
LENDERS OR THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR
REPRESENTATIVES SHALL BE RESPONSIBLE TO ANY GRANTOR FOR ANY ACT OR FAILURE TO
ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES
ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS
FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE,
EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.
7. REMEDIES; RIGHTS UPON DEFAULT.
(a) In addition to all other rights and remedies granted to it under
this Security Agreement, the Credit Agreement, the other Loan Documents and
under any other instrument or agreement securing, evidencing or relating to any
of the Obligations, if any Event of Default shall have occurred and be
continuing, Agent may exercise all rights and remedies of a secured party under
the Code. Without limiting the generality of the foregoing, each Grantor
expressly agrees that in any such event Agent, without demand of performance or
other demand, advertisement or notice of any kind (except the notice specified
below of time and place of public or private sale) to or upon such Grantor or
any other Person (all and each of which demands,
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<PAGE> 12
advertisements and notices are hereby expressly waived to the maximum extent
permitted by the Code and other applicable law), may forthwith enter upon the
premises of such Grantor where any Collateral is located through self-help,
without judicial process, without first obtaining a final judgment or giving
such Grantor or any other Person notice and opportunity for a hearing on Agent's
claim or action and may collect, receive, assemble, process, appropriate and
realize upon the Collateral, or any part thereof, and may forthwith sell, lease,
assign, give an option or options to purchase, or sell or otherwise dispose of
and deliver said Collateral (or contract to do so), or any part thereof, in one
or more parcels at a public or private sale or sales, at any exchange at such
prices as it may deem acceptable, for cash or on credit or for future delivery
without assumption of any credit risk. Agent or any Lender shall have the right
upon any such public sale or sales and, to the extent permitted by law, upon any
such private sale or sales, to purchase for the benefit of Agent and Lenders,
the whole or any part of said Collateral so sold, free of any right or equity of
redemption, which equity of redemption each Grantor hereby releases. Such sales
may be adjourned and continued from time to time with or without notice. Agent
shall have the right to conduct such sales on any Grantor's premises or
elsewhere and shall have the right to use any Grantor's premises without charge
for such time or times as Agent deems necessary or advisable.
Each Grantor further agrees, at Agent's request, to assemble the
Collateral and make it available to Agent at places which Agent shall select,
whether at such Grantor's premises or elsewhere. Until Agent is able to effect a
sale, lease, or other disposition of Collateral, Agent shall have the right to
hold or use Collateral, or any part thereof, to the extent that it deems
appropriate for the purpose of preserving Collateral or its value or for any
other purpose deemed appropriate by Agent. Agent shall have no obligation to any
Grantor to maintain or preserve the rights of such Grantor as against third
parties with respect to Collateral while Collateral is in the possession of
Agent. Agent may, if it so elects, seek the appointment of a receiver or keeper
to take possession of Collateral and to enforce any of Agent's remedies (for the
benefit of Agent and Lenders), with respect to such appointment without prior
notice or hearing as to such appointment. Agent shall apply the net proceeds of
any such collection, recovery, receipt, appropriation, realization or sale to
the Obligations as provided in the Credit Agreement, and only after so paying
over such net proceeds, and after the payment by Agent of any other amount
required by any provision of law, need Agent account for the surplus, if any, to
any Grantor. To the maximum extent permitted by applicable law, each Grantor
waives all claims, damages, and demands against Agent or any Lender arising out
of the repossession, retention or sale of the Collateral except such as arise
solely out of the gross negligence or willful misconduct
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<PAGE> 13
of Agent or such Lender as finally determined by a court of competent
jurisdiction. Each Grantor agrees that ten (10) days prior notice by Agent of
the time and place of any public sale or of the time after which a private sale
may take place is reasonable notification of such matters. Grantors shall remain
liable for any deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay all Obligations, Grantors also being liable
for any attorneys' fees incurred by Agent or any Lender to collect such
deficiency.
(b) Grantors agree to pay any and all costs of Agent or any Lender,
including attorneys' fees and expenses, incurred in connection with the
enforcement of any of its rights and remedies hereunder.
(c) Except as otherwise specifically provided herein, each Grantor
hereby waives presentment, demand, protest or any notice (to the maximum extent
permitted by applicable law) of any kind in connection with this Security
Agreement or any Collateral.
8. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY COLLATERAL. For the
purpose of enabling Agent to exercise rights and remedies under Section 7 hereof
(including, without limiting the terms of Section 7 hereof, in order to take
possession of, hold, preserve, process, assemble, prepare for sale, market for
sale, sell or otherwise dispose of Collateral) at such time as Agent shall be
lawfully entitled to exercise such rights and remedies, each Grantor hereby
grants to Agent, for the benefit of Agent and Lenders, an irrevocable,
non-exclusive license (exercisable without payment of royalty or other
compensation to such Grantor) to use, license or sublicense any Intellectual
Property now owned or hereafter acquired by such Grantor, and wherever the same
may be located, and including in such license access to all media in which any
of the licensed items may be recorded or stored and to all computer software and
programs used for the compilation or printout thereof, provided that the goods
manufactured pursuant to any such license or sublicense shall be substantially
similar in quality to those previously manufactured by such Grantor and that
samples of such goods are sent to such Grantor so that such Grantor can verify
that such quality has been so maintained.
9. LIMITATION ON AGENT'S AND LENDERS' DUTY IN RESPECT OF COLLATERAL.
Agent and each Lender shall use reasonable care with respect to the Collateral
in its possession or under its control. Neither Agent nor any Lender shall have
any other duty as to any Collateral in its possession or control or in the
possession or control of any agent or nominee of Agent or such Lender, or any
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<PAGE> 14
income thereon or as to the preservation of rights against prior parties or any
other rights pertaining thereto.
10. REINSTATEMENT. This Security Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by or
against any Grantor for liquidation or reorganization, should any Grantor become
insolvent or make an assignment for the benefit of any creditor or creditors or
should a receiver or trustee be appointed for all or any significant part of any
Grantor's assets, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the Obligations, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee of the Obligations,
whether as a "voidable preference," "fraudulent conveyance," or otherwise, all
as though such payment or performance had not been made. In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
11. NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give or
serve upon any other party any communication with respect to this Security
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and either shall be delivered in person
with receipt acknowledged or by registered or certified mail, return receipt
requested, postage prepaid, or by telecopy and confirmed by telecopy answerback
addressed as follows:
(a) If to Agent, at:
General Electric Capital Corporation
201 High Ridge Road
Stamford Connecticut 06927-5100
Attention: Accounts Manager - Renaissance
Telecopier Number: (203) 316-7823
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with copies to:
Weil, Gotshal & Manges, LLP
767 Fifth Avenue
New York, New York 10153
Attention: Ted S. Waksman, Esq.
Telecopier Number: (212) 310-8007
and:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Corporate Counsel - Commercial Finance
Telecopier Number (203) 316-7889
(b) If to any Lender, at the address of such Lender specified in
the Credit Agreement.
(c) If to any Grantor, at the address of such Grantor specified on
Schedule V hereto.
with a copy to:
Brownstein Hyatt Farber & Strickland, P.C.
419 17th Street - 22nd Floor
Denver, Colorado 80202-4437
Attention: John L. Ruppert, Esq.
Telecopier Number: (303) 623-1956
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been validly served, given or delivered (i) upon the earlier of actual
receipt and three (3) Business Days after the same shall have been deposited
with the United States mail, registered or certified mail, return receipt
requested, with proper postage prepaid, (ii) upon transmission, when sent by
telecopy and confirmed by telecopy answerback, (iii) one (1) Business Day after
deposit with a reputable overnight carrier with all charges prepaid, or (i) when
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<PAGE> 16
delivered, if hand delivered by messenger. Failure or delay in delivering copies
of any notice, demand, request, consent, approval, declaration or other
communication to the persons designated above to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication.
12. SEVERABILITY. Whenever possible, each provision of this Security
Agreement shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision of this Security Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Security
Agreement. This Security Agreement is to be read, construed and applied together
with the Credit Agreement and the other Loan Documents which, taken together,
set forth the complete understanding and agreement of Agent, Lenders and
Grantors with respect to the matters referred to herein and therein.
13. NO WAIVER; CUMULATIVE REMEDIES. Neither Agent nor any Lender
shall by any act, delay, omission or otherwise be deemed to have waived any of
its rights or remedies hereunder, and no waiver shall be valid unless in
writing, signed by Agent and then only to the extent therein set forth. A waiver
by Agent of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which Agent would otherwise have had
on any future occasion. No failure to exercise nor any delay in exercising on
the part of Agent or any Lender, any right, power or privilege hereunder, shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or future exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies hereunder provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights and remedies provided by law.
None of the terms or provisions of this Security Agreement may be waived,
altered, modified or amended except by an instrument in writing, duly executed
by Agent and Grantors.
14. LIMITATION BY LAW. All rights, remedies and powers provided in
this Security Agreement may be exercised only to the extent that the exercise
thereof does not violate any applicable provision of law, and all the provisions
of this Security Agreement are intended to be subject to all applicable
mandatory provisions of law that may be controlling and to be limited to the
extent necessary so that they shall not render this Security Agreement invalid,
unenforceable, in whole or
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in part, or not entitled to be recorded, registered or filed under the
provisions of any applicable law.
15. TERMINATION OF THIS SECURITY AGREEMENT. Subject to Section 10
hereof, this Security Agreement shall terminate upon the Termination Date.
16. SUCCESSORS AND ASSIGNS. This Security Agreement and all
obligations of Grantors hereunder shall be binding upon the successors and
assigns of each Grantor (including any debtor-in-possession on behalf of such
Grantor) and shall, together with the rights and remedies of Agent, for the
benefit of Agent and Lenders, hereunder, inure to the benefit of Agent and
Lenders, all future holders of any instrument evidencing any of the Obligations
and their respective successors and assigns. No sales of participations, other
sales, assignments, transfers or other dispositions of any agreement governing
or instrument evidencing the Obligations or any portion thereof or interest
therein shall in any manner affect the security interest granted to Agent, for
the benefit of Agent and Lenders, hereunder. No Grantor may assign, sell,
hypothecate or otherwise transfer any interest in or obligation under this
Security Agreement.
17. COUNTERPARTS. This Security Agreement may be executed in any
number of separate counterparts, each of which shall collectively and separately
constitute one agreement.
18. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF
THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE OBLIGATIONS ARISING
HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
THAT STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH
GRANTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN
NEW YORK COUNTY, CITY OF NEW YORK, NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION
TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN GRANTORS, AGENT AND LENDERS
PERTAINING TO THIS SECURITY AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO
ANY MATTER ARISING OUT OF OR RELATING TO
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THIS SECURITY AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT
AGENT, LENDERS AND GRANTORS ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY
HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY, CITY OF NEW
YORK, NEW YORK, AND, PROVIDED, FURTHER, NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER
SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF AGENT. EACH GRANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH GRANTOR
HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. EACH GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO SUCH GRANTOR AT THE ADDRESS SET FORTH ON SCHEDULE V HERETO AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF ACTUAL
RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
19. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING
SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS
OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT,
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OR OTHERWISE, AMONG AGENT, LENDERS AND GRANTORS ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION WITH,
THIS SECURITY AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO.
20. Section Titles. The Section titles contained in this Security
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
21. No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Security Agreement. In the event
an ambiguity or question of intent or interpretation arises, this Security
Agreement shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Security Agreement.
22. Advice of Counsel. Each of the parties represents to each other
party hereto that it has discussed this Security Agreement and, specifically,
the provisions of Section 18 and Section 19, with its counsel.
23. Benefit of Lenders. All security interests granted or
contemplated hereby shall be for the benefit of Agent and Lenders, and all
proceeds or payments realized from Collateral in accordance herewith shall be
applied to the Obligations in accordance with the terms of the Credit Agreement.
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IN WITNESS WHEREOF, each Grantor has caused this Security Agreement
to be executed and delivered by its duly authorized officer as of the date first
set forth above.
GRANTORS:
DANA PERFUMES CORP.
By: ____________________________________
Name: __________________________________
Title: _________________________________
COSMAR CORPORATION
By: ____________________________________
Name: __________________________________
Title: _________________________________
GREAT AMERICAN COSMETICS, INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
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MEM COMPANY, INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
RENAISSANCE COSMETICS, INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
ARISTOCRAT LEATHER PRODUCTS, INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
MARTON FRERES, INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
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ENGLISH LEATHER, INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
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ACCEPTED AND ACKNOWLEDGED BY:
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent
By: ____________________________________
Name: __________________________________
Title: _________________________________
23
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EXHIBIT A
POWER OF ATTORNEY
This Power of Attorney is executed and delivered by
___________________, a _____________ corporation ("Grantor") to General Electric
Capital Corporation, a New York corporation (hereinafter referred to as
"Attorney"), as Agent for itself and the benefit of Lenders, under a Credit
Agreement and a Security Agreement, both dated as of March __, 1997 and other
documents (the "Loan Documents"). No person to whom this Power of Attorney is
presented, as authority for Attorney to take any action or actions contemplated
hereby, shall be required to inquire into or seek confirmation from Grantor as
to the authority of Attorney to take any action described below, or as to the
existence of or fulfillment of any condition to this Power of Attorney, which is
intended to grant to Attorney unconditionally the authority to take and perform
the actions contemplated herein, and Grantor irrevocable waives any right to
commence any suit or action, in law or equity, against any person or entity
which acts in reliance upon or acknowledges the authority granted under this
Power of Attorney. The power of attorney granted hereby is coupled with an
interest, and may not be revoked or canceled by Grantor without Attorney's
written consent.
Grantor hereby irrevocably constitutes and appoints Attorney (and
all officers, employees or agents designated by Attorney), with full power of
substitution, as Grantor's true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Grantor and in the
name of Grantor or in its own name, from time to time in Attorney's discretion,
to take any and all appropriate action and to execute and deliver any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of the Loan Documents and, without limiting the generality of the
foregoing, Grantor hereby grants to Attorney the power and right, on behalf of
Grantor, without notice to or assent by Grantor, and at any time, to do the
following: (a) open mail for Grantor, and ask, demand, collect, give
acquittances and receipts for, take possession of, endorse any invoices, freight
or express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, and notices in connection with any property
of Grantor; (b) effect any repairs to any asset of Grantor, or continue or
obtain any insurance and pay all or any part of the premiums therefor and costs
thereof, and make, settle and adjust all claims under such policies of
insurance, and make all determinations and decisions with respect to such
policies; (c) pay or discharge any taxes, liens, security interests, or other
encumbrances levied or placed on or threatened against Grantor or its property;
(d) defend any suit,
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action or proceeding brought against Grantor if Grantor does not defend such
suit, action or proceeding or if Attorney believes that Grantor is not pursuing
such defense in a manner that will maximize the recovery to Attorney, and
settle, compromise or adjust any suit, action, or proceeding described above
and, in connection therewith, give such discharges or releases as Attorney may
deem appropriate; (e) file or prosecute any claim, litigation, suit or
proceeding in any court of competent jurisdiction or before any arbitrator, or
take any other action otherwise deemed appropriate by Attorney for the purpose
of collecting any and all such moneys due to Grantor whenever payable and to
enforce any other right in respect of Grantor's property; (f) cause the
certified public accountants then engaged by Grantor to prepare and deliver to
Attorney at any time and from time to time, promptly upon Attorney's request,
the following reports: (1) a reconciliation of all accounts, (2) an aging of all
accounts, (3) trial balances, (4) test verifications of such accounts as
Attorney may request, and (5) the results of each physical verification of
inventory; (g) communicate in its own name with any party to any Contract with
regard to the assignment of the right, title and interest of such Grantor in and
under the Contracts and other matters relating thereto; (h) execute, in
connection with any sale provided for in any Loan Document, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral and to otherwise direct such sale or resale, all as though Attorney
were the absolute owner of the property of Grantor for all purposes, and (i)
execute the Assignment of Marks attached as Exhibit A to the Trademark Security
Agreement, as though Attorney were the absolute owner of the Trademarks
identified therein for all purposes, and do, at Attorney's option and Grantor's
expense, at any time or from time to time, all acts and other things that
Attorney reasonably deems necessary to perfect, preserve, or realize upon
Grantor's property or assets and Attorney's Liens thereon, all as fully and
effectively as Grantor might do. Grantor hereby ratifies, to the extent
permitted by law, all that said attorneys shall lawfully do or cause to be done
by virtue hereof.
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IN WITNESS WHEREOF, this Power of Attorney is executed by
Grantor pursuant to the authority of its board of directors this ___ day of
March, 1997.
___________________________________
By: ____________________________________
Name: __________________________________
Title: _________________________________
26
<PAGE> 1
GUARANTY
This GUARANTY (this "Guaranty"), dated as of March __ 1997, by the
Guarantors identified as such on the signature pages hereof (each, a "Guarantor"
and collectively, "Guarantors"), in favor of GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation, individually and as agent (in such
capacity, "Agent") for itself and the lenders signatory to the Credit Agreement
hereinafter defined ("Lenders").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Credit Agreement dated as of the
date hereof among Dana Perfumes Corp. ("Borrower"), the other Persons named
therein as Credit Parties, Agent and the Persons named therein as Lenders (as
from time to time amended, restated, supplemented or otherwise modified, the
"Credit Agreement"), Lenders have agreed to make Loans to Borrower.
WHEREAS, Guarantors have both direct and indirect parent-subsidiary
relationships with Borrower and with each other and as such will derive direct
and indirect economic benefits from the making of the Loans and other financial
accommodations provided to Borrower pursuant to the Credit Agreement; and
WHEREAS, in connection with the making of the Loans under the Credit
Agreement and as a condition precedent thereto, Lenders require that Guarantors
shall have executed and delivered this Guaranty;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, and to induce Lenders to provide the Loans and other
financial accommodations under the Credit Agreement, it is agreed as follows:
1. DEFINITIONS. Capitalized terms used herein shall have the
meanings assigned to them in the Credit Agreement, unless the context otherwise
requires or unless otherwise defined herein.
References to this "Guaranty" shall mean this Guaranty, including
all amendments, modifications and supplements and any exhibits or schedules to
any of the foregoing, and shall refer to this Guaranty as the same may be in
effect at the time such reference becomes operative.
<PAGE> 2
2. THE GUARANTY. The guaranty of Guarantors hereunder is as follows:
2.1 Guaranty of Guaranteed Obligations of Borrower. Each Guarantor
hereby jointly and severally unconditionally guarantees to Agent and Lenders,
and their respective successors, endorsees, transferees and assigns, the prompt
payment (whether at stated maturity, by acceleration or otherwise) and
performance of the Obligations of Borrower (hereinafter the "Guaranteed
Obligations"). Guarantors agree that this Guaranty is a guaranty of payment and
performance and not of collection, and that their obligations under this
Guaranty shall be primary, absolute and unconditional, irrespective of, and
unaffected by:
(a) the genuineness, validity, regularity, enforceability or
any future amendment of, or change in this Guaranty, any other Loan
Document or any other agreement, document or instrument to which any
Credit Party and/or Guarantors are or may become a party;
(b) the absence of any action to enforce this Guaranty or any
other Loan Document or the waiver or consent by Agent and/or Lenders with
respect to any of the provisions thereof;
(c) the existence, value or condition of, or failure to
perfect its Lien against, any Collateral for the Guaranteed Obligations or
any action, or the absence of any action, by Agent in respect thereof
(including, without limitation, the release of any such security); or
(d) any other action or circumstances which might otherwise
constitute a legal or equitable discharge or defense of a surety or
guarantor,
it being agreed by each Guarantor that its obligations under this Guaranty shall
not be discharged until the payment and performance, in full, of the Guaranteed
Obligations. Each Guarantor shall be regarded, and shall be in the same
position, as principal debtor with respect to the Guaranteed Obligations. Each
Guarantor expressly waives all rights it may have now or in the future under any
statute, or at common law, or at law or in equity, or otherwise, to compel Agent
or Lenders to proceed in respect of the Guaranteed Obligations against Borrower
or any other Credit Party or against any Collateral for the payment and
performance of the Guaranteed Obligations before proceeding against, or as a
condition to proceeding against, any Guarantor. Each Guarantor agrees that any
notice or directive given at any time to Agent which is
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<PAGE> 3
inconsistent with the waiver in the immediately preceding sentence shall be null
and void and may be ignored by Agent and Lenders, and, in addition, may not be
pleaded or introduced as evidence in any litigation relating to this Guaranty
for the reason that such pleading or introduction would be at variance with the
written terms of this Guaranty, unless Agent and Lenders have specifically
agreed otherwise in writing. It is agreed among each Guarantor, Agent and
Lenders that the foregoing waivers are of the essence of the transaction
contemplated by the Loan Documents and that, but for this Guaranty and such
waivers, Agent and Lenders would decline to enter into the Credit Agreement.
2.2 Demand by Agent or Lenders. In addition to the terms of the
Guaranty set forth in Section 2.1 hereof, and in no manner imposing any
limitation on such terms, it is expressly understood and agreed that, if the
then outstanding principal amount of the Guaranteed Obligations under the Credit
Agreement (including all accrued interest thereon) is declared to be immediately
due and payable, then Guarantors shall, without demand, pay to the holders of
the Guaranteed Obligations the entire outstanding Guaranteed Obligations due and
owing to such holders. Payment by Guarantors shall be made to Agent, shall be
credited and applied upon the Guaranteed Obligations, in immediately available
Federal funds to an account designated by Agent or at the address set forth
herein for the giving of notice to Agent or at any other address that may be
specified in writing from time to time by Agent.
2.3 Enforcement of Guaranty. In no event shall Agent have any
obligation (although it is entitled, at its option) to proceed against Borrower
or any other Credit Party or any real or personal property pledged to secure
Guaranteed Obligations before seeking satisfaction from Guarantors, and Agent
may proceed, prior or subsequent to, or simultaneously with, the enforcement of
Agent's rights hereunder, to exercise any right or remedy which it may have
against any property, real or personal, as a result of any Lien it may have as
security for all or any portion of the Guaranteed Obligations.
2.4 Waiver. In addition to the waivers contained in Section 2.1
hereof, Guarantors waive, and agree that they shall not at any time insist upon,
plead or in any manner whatever claim or take the benefit or advantage of, any
appraisal, valuation, stay, extension, marshaling of assets or redemption laws,
or exemption, whether now or at any time hereafter in force, which may delay,
prevent or otherwise affect the performance by Guarantors of their Guaranteed
Obligations under, or the enforcement by Agent or Lenders of, this Guaranty.
Guarantors hereby waive diligence, presentment and demand (whether for
non-payment or protest or of
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acceptance, maturity, extension of time, change in nature or form of the
Guaranteed Obligations, acceptance of further security, release of further
security, composition or agreement arrived at as to the amount of, or the terms
of, the Guaranteed Obligations, notice of adverse change in Borrower's financial
condition or any other fact which might materially increase the risk to
Guarantors) with respect to any of the Guaranteed Obligations or all other
demands whatsoever and waive the benefit of all provisions of law which are or
might be in conflict with the terms of this Guaranty. Guarantors represent,
warrant and jointly and severally agree that, as of the date of this Guaranty,
their obligations under this Guaranty are not subject to any offsets or defenses
against Agent or Lenders or any Credit Party of any kind. Guarantors further
jointly and severally agree that their obligations under this Guaranty shall not
be subject to any counterclaims, offsets or defenses against Agent or any Lender
or against any Credit Party of any kind which may arise in the future.
2.5 Benefit of Guaranty. The provisions of this Guaranty are for the
benefit of Agent and Lenders and their respective successors, transferees,
endorsees and assigns, and nothing herein contained shall impair, as between any
Credit Party and Agent or Lenders, the obligations of any Credit Party under the
Loan Documents. In the event all or any part of the Guaranteed Obligations are
transferred, indorsed or assigned by Agent or any Lender to any Person or
Persons, any reference to "Agent" or "Lender" herein shall be deemed to refer
equally to such Person or Persons.
2.6 Modification of Guaranteed Obligations, Etc. If Agent and
Lenders shall at any time or from time to time, with or without the consent of,
or notice to, Guarantors or any of them:
(a) change or extend the manner, place or terms of payment of,
or renew or alter all or any portion of, the Guaranteed Obligations;
(b) take any action under or in respect of the Loan Documents
in the exercise of any remedy, power or privilege contained therein or
available to it at law, equity or otherwise, or waive or refrain from
exercising any such remedies, powers or privileges;
(c) amend or modify, in any manner whatsoever, the Loan
Documents;
(d) extend or waive the time for any Credit Party's
performance of, or compliance with, any term, covenant or agreement on its
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<PAGE> 5
part to be performed or observed under the Loan Documents, or waive such
performance or compliance or consent to a failure of, or departure from,
such performance or compliance;
(e) take and hold Collateral for the payment of the Guaranteed
Obligations guaranteed hereby or sell, exchange, release, dispose of, or
otherwise deal with, any property pledged, mortgaged or conveyed, or in
which Agent or Lenders have been granted a Lien, to secure any Guaranteed
Obligations;
(f) release anyone who may be liable in any manner for the
payment of any amounts owed by Guarantors or any Credit Party to Agent or
any Lender;
(g) modify or terminate the terms of any intercreditor or
subordination agreement pursuant to which claims of other creditors of
Guarantors or Borrower are subordinated to the claims of Agent and
Lenders; and/or
(h) apply any sums by whomever paid or however realized to any
amounts owing by Guarantors or Borrower to Agent or any Lender in such
manner as Agent or any Lender shall determine in its discretion;
then Agent and Lenders shall not incur any liability to Guarantors as a result
thereof, and no such action shall impair or release the Guaranteed Obligations
of Guarantors or any of them under this Guaranty.
2.7 Reinstatement. This Guaranty shall remain in full force and
effect and continue to be effective should any petition be filed by or against
any Credit Party or any Guarantor for liquidation or reorganization, should any
Credit Party or any Guarantor become insolvent or make an assignment for the
benefit of creditors or should a receiver or trustee be appointed for all or any
significant part of such Credit Party's or such Guarantor's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Guaranteed Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by Agent or any Lender, whether as a "voidable preference",
"fraudulent conveyance", or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Guaranteed Obligations
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shall be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.
2.8 Deferral of Subrogation, Etc. Notwithstanding anything to the
contrary in this Guaranty, or on any other Loan Document, each Guarantor hereby:
(a) expressly and irrevocably waives, on behalf of itself and its
successors and assigns (including any surety) until the Guaranteed Obligations
have been paid in full in cash, any and all rights at law or in equity to
subrogation, to reimbursement, to exoneration, to contribution, to
indemnification, to set off or to any other rights that could accrue to a surety
against a principal, to a guarantor against a principal, to a guarantor against
a maker or obligor, to an accommodation party against the party accommodated, to
a holder or transferee against a maker, or to the holder of any claim against
any Person, and which Guarantor may have or hereafter acquire against any Credit
Party in connection with or as a result of Guarantor's execution, delivery
and/or performance of this Guaranty, or any other documents to which Guarantor
is a party or otherwise;
(b) acknowledges and agrees (i) that this waiver is intended to
benefit Agent and Lenders and shall not limit or otherwise effect each
Guarantor's liability hereunder or the enforceability of this Guaranty, and (ii)
that Agent, Lenders and their respective successors and assigns are intended
third party beneficiaries of the waivers and agreements set forth in this
Section 2.8 and their rights under this Section 2.8 shall survive payment in
full of the Guaranteed Obligations.
2.9 Election of Remedies. If Agent may, under applicable law,
proceed to realize benefits under any of the Loan Documents giving Agent and
Lenders a Lien upon any Collateral owned by any Credit Party, either by judicial
foreclosure or by non-judicial sale or enforcement, Agent may, at its sole
option, determine which of such remedies or rights it may pursue without
affecting any of such rights and remedies under this Guaranty. If, in the
exercise of any of its rights and remedies, Agent shall forfeit any of its
rights or remedies, including its right to enter a deficiency judgment against
any Credit Party, whether because of any applicable laws pertaining to "election
of remedies" or the like, Guarantors hereby consent to such action by Agent and
waive any claim based upon such action, even if such action by Agent shall
result in a full or partial loss of any rights of subrogation which Guarantors
might otherwise have had but for such action by Agent. Any election of remedies
which results in the denial or impairment of the right of Agent to seek a
deficiency judgment against any Credit Party shall not impair each Guarantor's
obligation to pay the full amount of the Guaranteed
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Obligations. In the event Agent shall bid at any foreclosure or trustee's sale
or at any private sale permitted by law or the Loan Documents, Agent may bid all
or less than the amount of the Guaranteed Obligations and the amount of such bid
need not be paid by Agent but shall be credited against the Guaranteed
Obligations. The amount of the successful bid at any such sale shall be
conclusively deemed to be the fair market value of the collateral and the
difference between such bid amount and the remaining balance of the Guaranteed
Obligations shall be conclusively deemed to be the amount of the Guaranteed
Obligations guaranteed under this Guaranty, notwithstanding that any present or
future law or court decision or ruling may have the effect of reducing the
amount of any deficiency claim to which Agent and Lenders might otherwise be
entitled but for such bidding at any such sale.
2.10 Continuing Guaranty. Guarantors agree that this Guaranty is a
continuing guaranty and shall remain in full force and effect until the payment
and performance in full of the Guaranteed Obligations.
2.11 Funds Transfers. If any Guarantor shall engage in any
transaction as a result of which Borrower is required to make a mandatory
prepayment with respect to the Loans under the terms of the Credit Agreement
(including any sale of such Guarantor's Stock or assets), such Guarantor shall
distribute to, or make a contribution to the capital of, Borrower an amount
equal to the mandatory prepayment required under the terms of the Credit
Agreement.
3. DELIVERIES. In a form satisfactory to Agent, Guarantors shall
deliver to Agent (with sufficient copies for each Lender), concurrently with the
execution of this Guaranty and the Credit Agreement, the Loan Documents and
other instruments, certificates and documents as are required to be delivered by
Guarantors to Agent under the Credit Agreement.
4. REPRESENTATIONS AND WARRANTIES. To induce Lenders to make the
Loans under the Credit Agreement, each Guarantor jointly and severally makes the
following representations and warranties to Agent and each Lender, each and all
of which shall survive the execution and delivery of this Guaranty:
4.1 Corporate Existence; Compliance with Law. Each Guarantor (i) is
a corporation duly organized, validly existing and in good standing under the
laws of the state of its organization; (ii) is duly qualified to do business and
is in good standing under the laws of each jurisdiction where its ownership or
lease of property or the conduct of its business requires such qualification
(except for jurisdictions in which
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such failure so to qualify or to be in good standing would not be expected to
have a Material Adverse Effect; (iii) has the requisite corporate power and
authority and the legal right to own, pledge, mortgage and operate its
properties, to lease the property it operates under lease, and to conduct its
business as now, heretofore and proposed to be conducted; (iv) has all material
licenses, permits, consents or approvals from or by, and has made all material
filings with, and has given all material notices to, all governmental
authorities having jurisdiction, to the extent required for such ownership,
operation and conduct; (v) is in compliance with its articles or certificate of
incorporation and by-laws; and (vi) is in compliance with all applicable
provisions of law where the failure to comply could be expected to have a
Material Adverse Effect.
4.2 Executive Offices. Each Guarantor's executive office and
principal place of business are as set forth in Schedule III to the Security
Agreement.
4.3 Corporate Power; Authorization; Enforceable Guaranteed
Obligations. The execution, delivery and performance of this Guaranty and all
other Loan Documents and all instruments and documents to be delivered by each
Guarantor hereunder and under the Credit Agreement are within such Guarantor's
corporate powers, have been duly authorized by all necessary or proper corporate
action, including the consent of stockholders where required, are not in
contravention of any provision of such Guarantor's articles or certificate of
incorporation or by-laws, will not violate any law or regulation, or any order
or decree of any court or governmental instrumentality, will not conflict with
or result in the breach of, or constitute a default under, any indenture,
mortgage, deed of trust, lease, agreement or other instrument to which any
Guarantor is a party or by which any Guarantor or any of its property is bound,
will not result in the creation or imposition of any Lien upon any of the
property of any Guarantor, other than those in favor of Agent, for itself and
the benefit of Lenders, and the same do not require the consent or approval of
any governmental body, agency, authority or any other Person except those
already obtained. At or prior to the Closing Date, this Guaranty and each of the
Loan Documents to which any Guarantor is a party shall have been duly executed
and delivered for the benefit of or on behalf of such Guarantor, and each shall
then constitute a legal, valid and binding obligation of such Guarantor,
enforceable against such Guarantor in accordance with its terms.
5. FURTHER ASSURANCES. Each Guarantor agrees, upon the written
request of Agent or any Lender, to execute and deliver to Agent or such Lender,
from time to time, any additional instruments or documents reasonably
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considered necessary by Agent or such Lender to cause this Guaranty to be,
become or remain valid and effective in accordance with its terms.
6. PAYMENTS FREE AND CLEAR OF TAXES. All payments required to be
made by each Guarantor hereunder shall be made to Agent and Lenders free and
clear of, and without deduction for, any and all present and future taxes,
withholdings, levies, duties, and other governmental charges ("Taxes"). Upon
request by Agent or any Lender, each Guarantor shall furnish to Agent or such
Lender a receipt for any Taxes paid by such Guarantor pursuant to this Section 6
or, if no Taxes are payable with respect to this Section 6, either a certificate
from each appropriate taxing authority or an opinion of counsel acceptable to
Agent or such Lender, in either case stating that such payment is exempt from or
not subject to Taxes. If Taxes are paid by Agent or any Lender, such Guarantor
will, upon demand of Agent or such Lender, and whether or not such Taxes shall
be correctly or legally asserted, indemnify Agent or such Lender for such
payments, together with any interest, penalties and expenses in connection
therewith plus interest thereon at the rate, if any, specified in the Credit
Agreement applicable to Index Rate Loans (calculated as if such payments
constituted overdue amounts of principal as of the date of the making of such
payments).
7. OTHER TERMS.
7.1 Entire Agreement; Amendments. This Guaranty, together with the
other Loan Documents, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements
relating to a guaranty of the loans and advances under the Loan Documents and/or
the Guaranteed Obligations and may not be amended or supplemented except by a
writing signed by Guarantors and Agent.
7.2 Headings. The headings in this Guaranty are for convenience of
reference only and are not part of the substance of this Guaranty.
7.3 Severability. Whenever possible, each provision of this Guaranty
shall be interpreted in such a manner to be effective and valid under applicable
law, but if any provision of this Guaranty shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Guaranty.
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7.4 Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by another, or whenever any of the parties desires to give or serve upon
another any such communication with respect to this Guaranty, each such notice,
demand, request, consent, approval, declaration or other communication shall be
in writing and either shall be delivered in person with receipt acknowledged or
by registered or certified mail, return receipt requested, postage prepaid, or
by telecopy and confirmed by telecopy answerback addressed as follows:
(a) If to Agent, at:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Accounts Manager - Renaissance
Telecopier Number: (203) 316-7823
with copies to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Ted S. Waksman, Esq.
Telecopier Number: (212) 310-8007
and:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Corporate Counsel - Commercial Finance
Telecopier Number: (203) 316-7889
(b) If to any Lender, at the address of such Lender specified in
the Credit Agreement.
(c) If to any Guarantor, at the address of such Guarantor
specified on Schedule I hereto.
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with a copy to:
Brownstein Hyatt Farber & Strickland, P.C.
419 17th Street - 22nd Floor
Denver, Colorado 80202-4437
Attention: John L. Ruppert, Esq.
Telecopier Number: (303) 623-1956
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been validly served, given or delivered (i) upon the earlier of actual
receipt and three (3) Business Days after the same shall have been deposited
with the United States mail, registered or certified mail, return receipt
requested, with proper postage prepaid, (ii) upon transmission, when sent by
telecopy and confirmed by telecopy answerback, (iii) one (1) Business Day after
deposit with a reputable overnight carrier with all charges prepaid, or (iv)
when delivered, if hand-delivered by messenger. Failure or delay in delivering
copies of any notice, demand, request, consent, approval, declaration or other
communication to the persons designated above to receive copies shall in now way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication.
7.5 Successors and Assigns. This Guaranty and all obligations of
Guarantors hereunder shall be binding upon the successors and assigns of each
Guarantor and shall, together with the rights and remedies of Agent, for itself
and for the benefit of Lenders, hereunder, inure to the benefit of Agent and
Lenders, all future holders of any instrument evidencing any of the Obligations
and their respective successors and assigns. No sales of participations, other
sales, assignments, transfers or other dispositions of any agreement governing
or instrument evidencing the Obligations or any portion thereof or interest
therein shall in any manner affect the rights of Agent and Lenders hereunder.
Guarantors may not assign, sell or otherwise transfer any interest in or
obligation under this Guaranty.
7.6 No Waiver; Cumulative Remedies. Neither Agent nor any Lender
shall by any act, delay, omission or otherwise be deemed to have waived any of
its rights or remedies hereunder, and no waiver shall be valid unless in
writing, signed by Agent and then only to the extent therein set forth. A waiver
by Agent, for itself and the ratable benefit of Lenders, of any right or remedy
hereunder on any one
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occasion shall not be construed as a bar to any right or remedy which Agent
would otherwise have had on any future occasion. No failure to exercise nor any
delay in exercising on the part of Agent or any Lender, any right, power or
privilege hereunder, shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or future exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies hereunder provided are cumulative and may be
exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law. None of the terms or provisions of this Guaranty may
be waived, altered, modified or amended except by an instrument in writing, duly
executed by Agent and Guarantors.
7.7 Termination. This Guaranty shall terminate and be of no further
force or effect at such time as the Guaranteed Obligations shall be paid and
performed in full. Upon payment and performance in full of the Guaranteed
Obligations, Agent shall deliver to Guarantors such documents as Guarantors may
reasonably request to evidence such termination.
7.8 GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE. EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS GUARANTY
AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA. EACH GUARANTOR HEREBY CONSENTS AND AGREES THAT THE
STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY, CITY OF NEW YORK, NEW YORK,
SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN OR AMONG GUARANTORS, AGENT OR ANY LENDER PERTAINING TO THIS GUARANTY OR
TO ANY MATTER ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER
LOAN DOCUMENTS, PROVIDED, THAT AGENT AND GUARANTORS ACKNOWLEDGE THAT ANY APPEALS
FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK
COUNTY, CITY OF NEW YORK, NEW YORK, AND, PROVIDED, FURTHER, THAT NOTHING IN THIS
GUARANTY SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO
12
<PAGE> 13
REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE GUARANTEED OBLIGATIONS,
OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT, FOR THE BENEFIT
OF AGENT AND LENDERS. EACH GUARANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH
GUARANTOR HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. EACH GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH GUARANTOR AT THE ADDRESS SET
FORTH ON SCHEDULE I HERETO AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
UPON THE EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN
THE U.S. MAILS, PROPER POSTAGE PREPAID.
7.9 Counterparts. This Guaranty may be executed in any number of
separate counterparts each of which shall collectively and separately constitute
one and the same agreement.
7.10 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), EACH GUARANTOR AND AGENT
DESIRES THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OR ARBITRATION, EACH GUARANTOR AND
AGENT WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING
BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED IN CONNECTION WITH THIS GUARANTY
13
<PAGE> 14
AND THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO.
7.11 Limitation on Guaranteed Obligations. Notwithstanding any
provision herein contained to the contrary, each Guarantor's liability hereunder
shall be limited to an amount not to exceed as of any date of determination the
greater of:
(A) the net amount of all Loans and other extensions of credit
advanced under the Credit Agreement and directly or indirectly re-loaned or
otherwise transferred to, or incurred for the benefit of, such Guarantor, plus
interest thereon at the rate specified in the Credit Agreement; or
(B) the amount which could be claimed by the Agent and Lenders from
such Guarantor under this Guaranty without rendering such claim voidable or
avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any
applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance
Act or similar statute of common law (taking into account such Guarantor's right
of contribution and indemnity under Section 7.12).
7.12 Contribution with Respect to Guaranteed Obligations.
(a) To the extent that any Guarantor shall make a payment under this
Guaranty of all or any of the Guaranteed Obligations (a "Guarantor Payment")
which, taking into account all other Guarantor Payments then previously or
concurrently made by the other Guarantors, exceeds the amount which such
Guarantor would otherwise have paid if each Guarantor had paid the aggregate
Guaranteed Obligations satisfied by such Guarantor Payment in the same
proportion that such Guarantor's "Allocable Amount" (as defined below) (in
effect immediately prior to such Guarantor Payment) bore to the aggregate
Allocable Amounts of all of Guarantors in effect immediately prior to the making
of such Guarantor Payment, then such Guarantor shall be entitled to receive
contribution and indemnification payments from, and be reimbursed by, each of
the other Guarantors for the amount of such excess, pro rata based upon their
respective Allocable Amounts in effect immediately prior to such Guarantor
Payment.
(b) As of any date of determination, the "Allocable Amount" of any
Guarantor shall be equal to the maximum amount of the claim which could then be
recovered from such Guarantor under this Guaranty without rendering such claim
voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or
14
<PAGE> 15
under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law.
(c) This Section 7.12 is intended only to define the relative rights
of Guarantors and nothing set forth in this Section 7.12 is intended to or shall
impair the obligations of Guarantors, jointly and severally, to pay any amounts
as and when the same shall become due and payable in accordance with the terms
of this Guaranty.
(d) The rights of the parties under this Section 7.12 shall be
exercisable upon the full and indefeasible payment of the Guaranteed Obligations
and the termination of the Credit Agreement and the other Loan Documents.
(e) The parties hereto acknowledge that the rights of contribution
and indemnification hereunder shall constitute assets of any Guarantor to which
such contribution and indemnification is owing.
7.13 SECURITY. To secure payment of each Guarantor's obligations
under this Guaranty, concurrently with the execution of this Guaranty, each
Guarantor has entered into a Security Agreement pursuant to which each Guarantor
has granted to Agent for the benefit of Lenders a security interest in
substantially all of its personal property and certain Guarantors have entered
into a Pledge Agreement pursuant to which such Guarantor has pledged all or a
portion of the Stock of certain of its Subsidiaries to Agent for the benefit of
Lenders.
15
<PAGE> 16
IN WITNESS WHEREOF, Guarantors have executed and delivered this
Guaranty as of the date first above written.
GUARANTORS:
RENAISSANCE COSMETICS, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
COSMAR CORPORATION
By:____________________________________
Name:__________________________________
Title:_________________________________
16
<PAGE> 17
GREAT AMERICAN COSMETICS, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
MEM COMPANY, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
ARISTOCRAT LEATHER PRODUCTS, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
17
<PAGE> 18
MARTON FRERES, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
ENGLISH LEATHER, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
18
<PAGE> 19
Accepted and acknowledged by:
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent
By:____________________________________
Name:__________________________________
Title:_________________________________
19
<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
April 15, 1994 Nine Months Ended
(Inception) Year Ended December 31, Year Ended Nine Months Ended
to March 31, 1995 March 31, 1996 1995 1996 March 31, 1996 December 31, 1996
----------------- --------------- ------ ------------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Pretax income ................ $(5,494) $(10,753) $(5,907) $ (9,459) $ (9,611) $ (7,296)
Interest Expense ............. 8,694 19,458 14,241 17,206 26,479 20,774
------- -------- ------- ------- -------- --------
Total earnings ............... 3,200 8,705 8,334 7,747 16,868 13,478
------- -------- ------- ------- -------- --------
Fixed Charges:
Interest Expense ............. 8,694 19,458 14,241 17,206 26,479 20,774
Preferred Dividends .......... 715 1,333 992 9,838 19,502 15,927
------- -------- ------- ------- -------- --------
9,409 20,791 15,223 27,044 45,981 36,701
Deficiency of earnings
to combined fixed
charges and preferred
dividends .................... $(6,209) $(12,086) $(6,899) $(19,297) $(29,113) $(23,223)
======= ======== ======= ======= ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
Direct Subsidiaries of the Company (Delaware)
1. Cosmar Corporation (Delaware)
2. Renaissance Guarantor, Inc. (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 Registration Statement relating to $200,000,000 11
3/4% Senior Notes due 2004 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 January
1, 1994 to August 17, 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.
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 January 1, 1994 to August 17, 1994, each listed in 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.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
March 24, 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 the Registration Statement
(Form S-4 dated March 24, 1997) and related Prospectus of Renaissance Cosmetics,
Inc. for the registration of $200,000,000 of its 11 3/4% Senior Notes Due 2004.
/s/ Ernst & Young LLP
Ernst & Young LLP
Hackensack, New Jersey
March 21, 1997
<PAGE> 1
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Renaissance Cosmetics,
Inc., relating to $200,000,000 of 11-3/4% Senior Notes due 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
March 24, 1997
<PAGE> 1
Exhibit 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Renaissance Cosmetics,
Inc., relating to $200,000,000 of 11 3/4% Senior Notes due 2004, of our report
dated July 11, 1996, on the financial statements of Great American Cosmetics,
Inc. as of and for the years ended December 31, 1995 and 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.
/s/ DEUTSCH, MARIN & COMPANY
DEUTSCH, MARIN & COMPANY
East Meadow, New York
March 24, 1997
<PAGE> 1
Exhibit 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Renaissance Cosmetics,
Inc., relating to $200,000,0000 of 11-3/4% Senior Notes due 2004, of our report
dated January 17, 1997 on the statement of direct revenues and direct expenses
of the Mass Fragrance Business of The Proctor & Gamble Company for the year
ended June 30, 1996 appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
\s\ Deloitte & Touche LLP
March 21, 1997
<PAGE> 1
LETTER OF TRANSMITTAL
RENAISSANCE COSMETICS, INC.
OFFER TO EXCHANGE ITS
11 3/4% SENIOR NOTES DUE 2004
(THE "NEW NOTES")
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
11 3/4% SENIOR NOTES DUE 2004
(THE "EXISTING NOTES")
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"). THE EXCHANGE OFFER WILL NOT
BE EXTENDED BEYOND , 1997. TENDERS MAY BE WITHDRAWN PRIOR TO
THE EXPIRATION DATE.
To: United States Trust Company of New York, Exchange Agent
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Mail or Courier:
United States Trust United States Trust United States Trust
Company of New York Company of New York Company of New York
PO Box 844 -- Cooper Station 111 Broadway -- Lower Level 770 Broadway, 13th Floor
New York, NY 10276 New York, NY 10006 New York, NY 10003
Attn: Corporate Trust Services Attn: Corporate Trust Services Attn: Corporate Trust Services
</TABLE>
For information call:
(800) 548-6565
Fax: (212) 420-6152
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.
------------------------
List below the Existing Notes to which this Letter of Transmittal relates.
If the space provided below is inadequate, the certificate numbers and principal
amount of Existing Notes should be listed on a separate signed schedule affixed
hereto.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF EXISTING NOTES (1) (2) (3)
- ------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
PRINCIPAL OF EXISTING NOTES
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE AMOUNT OF TENDERED
(PLEASE FILL IN, IF BLANK) NUMBER(S)* EXISTING NOTES (IF LESS THAN ALL)**
- ------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have tendered the full aggregate principal amount represented by
such Existing Notes.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
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 up to $200,000,000 aggregate principal amount of
its 11 3/4% Senior Notes due 2004 (the "New Notes"), for a like principal amount
of the Company's issued and outstanding 11 3/4% Senior Notes due 2004
(collectively, the "Existing Notes").
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 of Existing Notes are to
be forwarded herewith or if delivery of Existing Notes 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 Existing Notes" 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 Existing Notes are not immediately available or who cannot
deliver their Existing Notes and all other documents required hereby to the
Exchange Agent on or prior to the Expiration Date must tender their Existing
Notes according to the guaranteed delivery procedure set forth in the Prospectus
under the caption "The Exchange Offer -- Procedures for Tendering Existing
Notes." See Instruction 1.
[ ] CHECK HERE IF EXISTING NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE
TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER
FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution [ ] The Depository Trust Company
- ----------------------------------------------
Account Number
- --------------------------------------------------------------------------------
Transaction Code Number
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF EXISTING NOTES 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:
Account Number
- --------------------------------------------------------------------------------
Date of execution of Notice of Guaranteed Delivery
------------------------------------------------------------------
[ ] 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:
- --------------------------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Existing Notes 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 New Notes;
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.
<PAGE> 3
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 aggregate principal amount of
Existing Notes indicated above. Subject to, and effective upon, the acceptance
for exchange of the Existing Notes 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 Existing Notes 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 Existing Notes
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 Existing Notes tendered
hereby.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on the Company's belief, based on interpretations by the staff of the
Securities and Exchange Commission (the "SEC") to third parties in unrelated
transactions, that the New Notes issued in exchange for the Existing Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than (i) any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act of 1933, as amended (the "Securities Act") or (ii) any broker-dealer that
purchase Notes from the Company to resell pursuant to Rule 144A under the
Securities Act "Rule 144A") or any other available exemption) without compliance
with the registration and prospectus delivery provisions of the Securities Act
provided that such New Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement or understanding with any
person to participate in the distribution of such New Notes and are not
participating in, and do not intend to participate in, the distribution of such
New Notes. The undersigned acknowledges that any holder of Existing Notes using
the Exchange Offer to participate in a distribution of the New Notes (i) cannot
rely on the position of the staff of the SEC enunciated in its interpretive
letter with respect to Exxon Capital Holdings Corporation (available April 13,
1989) or similar letters and (ii) must comply with the registration and
prospectus requirements of the Securities Act in connection with a secondary
resale transaction.
The undersigned represents that (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of such holder's
business, (ii) such holder has no arrangement or understanding with any person
to participate in the distribution of such New Notes and is not participating
in, and do not intend to participate in, the distribution of such New Notes, and
(iii) such holder is not an "affiliate," as defined in Rule 405 under the
Securities Act, of the Company 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 not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Existing Notes that were acquired as a result of
market-making activities or other trading 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 New Notes; 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.
The undersigned, if a California resident, hereby further represents and
warrants that the undersigned (or the beneficial owner of the Existing Notes
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 statement of not
<PAGE> 4
less than $14,000,000, and (ii) is acquiring the New Notes for its own account
for investment purposes (or for the account of the beneficial owner of such New
Notes for investment purposes).
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 Existing Notes pursuant to
any one of the procedures described under "The Exchange Offer -- Procedures for
Tendering Existing Notes" 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
Existing Notes tendered. Existing Notes 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, please issue the New Notes (and, if applicable, substitute
certificates representing Existing Notes for any Existing Notes not exchanged)
in the name of the undersigned. Similarly, unless otherwise indicated under the
box entitled "Special Delivery Instructions" below, please deliver the New Notes
(and, if applicable, substitute certificates representing Existing Notes for any
Existing Notes not exchanged) to the undersigned at the address shown above in
the box entitled "Description of Existing Notes."
THE BOOK-ENTRY TRANSFER FACILITY, AS THE HOLDER OF RECORD OF CERTAIN
EXISTING NOTES, HAS GRANTED AUTHORITY TO BOOK-ENTRY TRANSFER FACILITY
PARTICIPANTS WHOSE NAMES APPEAR ON A SECURITY POSITION LISTING WITH RESPECT TO
SUCH EXISTING NOTES AS OF THE DATE OF TENDER OF SUCH EXISTING NOTES TO EXECUTE
AND DELIVER THE LETTER OF TRANSMITTAL AS IF THEY WERE THE HOLDERS OF RECORD.
ACCORDINGLY, FOR PURPOSES OF THIS LETTER OF TRANSMITTAL, THE TERM "HOLDER" SHALL
BE DEEMED TO INCLUDE SUCH BOOK-ENTRY TRANSFER FACILITY PARTICIPANTS.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF EXISTING
NOTES" ABOVE AND SIGNING THIS LETTER AND DELIVERING SUCH NOTES AND THIS LETTER
TO THE EXCHANGE AGENT, WILL BE DEEMED TO HAVE TENDERED THE EXISTING NOTES AS SET
FORTH IN SUCH BOX ABOVE.
<PAGE> 5
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9
DATED:--------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
X ---------------------------------------------- ----------------------------------------------
X ---------------------------------------------- ----------------------------------------------
SIGNATURE(S) OF OWNER(S)/OR AUTHORIZED SIGNATORY DATE
</TABLE>
Area Code and Telephone Number
-----------------------------------------------------
If a holder is tendering any Existing Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the
Existing Notes 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, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. 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> 6
- ------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for New Notes 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: New Notes to:
Name(s):
------------------------------------------------
(PLEASE TYPE OR PRINT)
-----------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
--------------------------------------------------
--------------------------------------------------
(ZIP CODE)
Social Security Number:
---------------------------------
(COMPLETE SUBSTITUTE FORM W-9)
- ------------------------------------------------------------
- ------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for New Notes are to be sent to
someone other than the person or 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 Existing Notes" on this Letter
above.
Mail: New Notes to:
Name(s):
------------------------------------------------
(PLEASE TYPE OR PRINT)
-----------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
--------------------------------------------------
--------------------------------------------------
(ZIP CODE)
- ------------------------------------------------------------
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS
LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATE(S) FOR EXISTING
NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF SUCH EXISTING NOTES AND ALL
OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE
EXPIRATION DATE.
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND EXISTING NOTES; GUARANTEED DELIVERY PROCEDURE.
This Letter is to be used to forward, and must accompany, all certificates
representing Existing Notes tendered pursuant to the Exchange Offer.
Certificates representing the Existing Notes in proper form for transfer (or a
confirmation of book-entry transfer of such Existing Notes into the Exchange
Agent's account at the book-entry transfer facility) 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 EXISTING NOTES AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDERS, BUT THE
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, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO PERMIT TIMELY DELIVERY.
If a holder desires to tender Existing Notes and such holder's Existing
Notes are not immediately available or time will not permit such holder's Letter
of Transmittal, Existing Notes (or a confirmation of book-entry transfer of
Existing Notes 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's tender may be effected 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 transmission (receipt confirmed by telephone
and an original delivered by guaranteed overnight courier) or letter from
such Eligible Institution setting forth the name and address of the holder
of such Existing Notes 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 Existing Notes (or a confirmation of book-entry
transfer of such Existing Notes 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 Existing Notes in proper
form for transfer (or a confirmation of book-entry transfer of such
Existing Notes 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 -- Procedures for Tendering Existing Notes" in the
Prospectus.
2. WITHDRAWALS.
Any holder who has tendered Existing Notes may withdraw the tender by
delivering written notice of withdrawal (which may be sent by telegram,
facsimile (receipt confirmed by telephone and an original delivered by
guaranteed overnight courier)) to the Exchange Agent prior to the Expiration
Date. For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at its address set forth herein. Any such notice
of withdrawal must (i) specify the name of the person having tendered the
Existing Notes to be withdrawn (the "Depositor"), (ii) identify the Existing
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Existing Notes), (iii) be timely received and signed by the
holder in the same manner as the original signature on the Letter by which such
Existing Notes 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 Trustee (as defined in the Prospectus) register
the transfer of such Existing Notes pursuant to the terms of the Indenture into
the name of the person withdrawing the tender and (iv) specify the name in which
any such Existing Notes are to be registered, if different from that of the
Depositor. If Existing Notes 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 Existing Notes or otherwise comply with the book-entry transfer
facility's procedures. See "The Exchange Offer -- Withdrawal Rights" in the
Prospectus.
<PAGE> 8
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Existing Notes
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 Existing Notes are owned of record by two or more joint
owners, all such owners must sign this Letter.
If any tendered Existing Notes 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.
The signatures on this Letter or a notice of withdrawal, as the case may
be, must be guaranteed unless the Existing Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Existing Notes
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., a clearing agency, an insured credit union, a savings association
or by a commercial bank or trust company having an office or correspondent in
the United States (collectively, "Eligible Institutions"). If Existing Notes are
registered in the name of a person other than the signer of this Letter, the
Existing Notes 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 Existing Notes should indicate in the applicable box
the name and address to which New Notes 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 New Notes will be issued in
the name of, and delivered to, the name or address of the person signing this
Letter and any Existing Notes not accepted for exchange will be returned to the
name or address of the person signing this Letter.
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 New Notes 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 Paying Agent under the Indenture governing the New Notes) 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 his or her 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 his or her 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),
<PAGE> 9
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 Existing Notes 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
Existing Notes 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 New Notes. 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 Existing Notes to it or its order pursuant to the Exchange Offer. If,
however, New Notes and/or substitute Existing Notes 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 Existing Notes tendered hereby, or if tendered
Existing Notes 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 Existing Notes 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 Existing Notes specified in this
Letter.
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 Existing Notes, by execution of this Letter,
shall waive any right to receive notice of the acceptance of their Existing
Notes 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 aggregate principal amount
of Existing Notes 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 EXISTING NOTES.
If any certificate has been lost, mutilated, destroyed or stolen, the
holder should promptly notify United States Trust Company of New York, Telephone
(800) 548-6565. The holder will then be instructed as to the steps that must be
taken to replace the certificates(s). This Letter of Transmittal and related
documents cannot be processed until the Existing Notes have been replaced.
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> 10
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
PAYER'S NAME: RENAISSANCE COSMETICS, INC.
- ----------------------------------------------------------------------------------------------------
SUBSTITUTE PART I -- Taxpayer Identification Number
FORM W-9 Enter your taxpayer identification number ------------------------------
DEPARTMENT OF THE TREASURY in the appropriate box. For most Social Security Number
INTERNAL REVENUE SERVICE individuals, this is your social secur- OR
ity number. If you do not have a number, ------------------------------
see how to obtain a "TIN" in the enclosed Employer Identification Number
Guidelines.
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 CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
TAXPAYER IDENTIFICATION (1) the number shown on this form is my correct Taxpayer Identification
NUMBER ("TIN") Number (or I am waiting for a number to be issued to me), and
AND CERTIFICATION (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 New Notes 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 NEW NOTES. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ALL OUTSTANDING
11 3/4% SENIOR NOTES DUE 2004
IN EXCHANGE FOR NEW
11 3/4% SENIOR NOTES DUE 2004
REGISTERED UNDER THE SECURITIES ACT OF 1993
OF
RENAISSANCE COSMETICS, INC.
Registered holders of outstanding 11 3/4% Senior Notes due 2004 (the
"Existing Notes") who wish to tender their Existing Notes in exchange for a like
principal amount of new 11 3/4% Senior Notes due 2004 (the "New Notes") and
whose Existing Notes are not immediately available or who cannot deliver their
Existing Notes and Letter of Transmittal (and any other documents required by
the letter of Transmittal) to United States Trust Company of New York (the
"Exchange Agent") prior to the Expiration Date, may use this Notice of
Guaranteed Delivery or one substantially equivalent hereto. This Notice of
Guaranteed Delivery may be delivered by hand or sent by facsimile transmission
(receipt confirmed by telephone and an original delivered by guaranteed
overnight courier) or letter to the Exchange Agent. See "The Exchange Offer --
Procedures for Tendering Existing Notes" in this Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Mail or Courier:
United States Trust United States Trust United States Trust
Company of New York Company of New York Company of New York
P.O. Box 844 -- Cooper 111 Broadway -- Lower Level 770 Broadway, 13th Floor
Station New York, NY 10006 New York, NY 10003
New York, NY 10276 Attn: Corporate Trust Attn: Corporate Trust
Attn: Corporate Trust Services Services
Services
</TABLE>
For Information, call:
(800) 548-6565
Fax: (212) 420-6152
Delivery of this Note of Guaranteed Delivery to an address other than as
set forth above or transmission of instructions via a facsimile transmission to
a number other than as set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution (as defined in the Prospectus), such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
Ladies and Gentleman:
The undersigned hereby tenders the principal amount of Existing Notes
indicated below, upon the terms and subject to the conditions contained in the
Prospectus dated , 1997 of Renaissance Cosmetics, Inc. (the
"Prospectus"), receipt of which is hereby acknowledged.
<PAGE> 2
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
REGISTERED HOLDER AS IT
APPEARS ON THE 11 3/4%
SENIOR NOTES DUE CERTIFICATE NUMBER(S) AGGREGATE PRINCIPAL PRINCIPAL AMOUNT
2004 ("EXISTING NOTES") OF EXISTING NOTES AMOUNT REPRESENTED BY OF EXISTING
(PLEASE PRINT) TENDERED EXISTING NOTES NOTES TENDERED
<S> <C> <C> <C>
========================================== ===================== ===================== ================
========================================== ===================== ===================== ================
- ------------------------------------------ --------------------- --------------------- ----------------
</TABLE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office, branch,
agency or correspondent in the United States, hereby guarantees to deliver to
the Exchange Agent at one of its addresses set forth above, the certificates
representing the Existing Notes, together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, and any other documents required by the Letter of
Transmittal within three New York Stock Exchange, Inc. trading days after the
date of execution of this Notice of Guaranteed Delivery.
<TABLE>
<S> <C>
NAME OF FIRM:
------------------------------------- ---------------------------------------------
(AUTHORIZED SIGNATURE)
ADDRESS:
-------------------------------------------- TITLE:
---------------------------------------------
NAME:
- --------------------------------------------- ---------------------------------------------
(ZIP CODE) (PLEASE TYPE OR PRINT)
AREA CODE AND TELEPHONE NUMBER: DATE:
---------------------------------------------
- ---------------------------------------------
</TABLE>
NOTE: DO NOT SEND EXISTING NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY.
EXISTING NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE> 1
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.
<TABLE>
<C> <S> <C>
- ---------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF--
=========================================================
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- ---------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, the
first individual on
the account(1)
3. Husband and wife (joint The actual owners
account) of the account or,
if joint funds,
either person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if
the minor is the
only contributor,
the minor(1)
6. Account in the name of guardian The ward, minor, or
or committee for a designated incompetent
ward, minor, or incompetent person(3)
person
7. a. The usual revocable savings The grantor-
trust account (grantor is trustee(1)
also trustee)
b. So-called trust account that The actual owner(1)
is not a legal or valid trust
under State law
8. Sole proprietorship account The owner(4)
- ---------------------------------------------------------
9. A valid trust, estate, or The legal entity
pension trust (Do not 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, or The organization
educational organization
account
12. Partnership account held in the The partnership
name of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered nominee The broker or
nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State
or local government, school
district, or prison) that
receives agricultural program
payments
- ---------------------------------------------------------
</TABLE>
(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 your individual name. Your may also enter your business name. You may
use either your Social Security number or your Employer Identification
number.
(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> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
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 (for
individuals), or Form SS-4, Application for Employer Identification Number (for
businesses and all other entities), at the local office of the Social Security
Administration or the Internal Revenue Service (the "IRS") 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) of the Internal Revenue
Code of 1986, as amended (the "Code"), or an individual retirement plan or a
custodial account under Section 403(b)(7) of the Code.
- 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) of the Code.
- An exempt charitable remainder trust, or a non-exempt trust described in
Section 4947(a)(1) of the Code.
- An entity registered at all times during the tax year 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:
- Payments to nonresident aliens subject to withholding under Section 1441 of
the Code.
- 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 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 $600 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 of the Code).
- Payments described in Section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under Section 1451 of the Code.
- Payments made by certain foreign organizations.
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, SIGN AND DATE THE
FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN
ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH THE PAYER A COMPLETED
INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
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 Sections 6041, 6041A(a), 6042, 6044, 6045, 6049,
and 6050A and 6050N of the Code and the regulations promulgated thereunder.
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, dividends, 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.--Willfully 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
