RENAISSANCE COSMETICS INC /DE/, S-4/A, 1997-03-26

RENAISSANCE COSMETICS INC /DE/
S-4/A, 1997-03-26
PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1997

REGISTRATION NO. 333-13171
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

RENAISSANCE COSMETICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 2844 06-1396287
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

------------------------

955 MASSACHUSETTS AVENUE
CAMBRIDGE, MASSACHUSETTS 02139
(617) 497-5584
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

JOHN R. JACKSON, ESQ.
955 MASSACHUSETTS AVENUE
CAMBRIDGE, MASSACHUSETTS 02139
(617) 497-5584
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

WITH A COPY TO:

PAUL D. GINSBERG, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 373-3000
------------------------

APPROXIMATE DATE OF COMMENCEMENT OF SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If the Securities registered on this Form are to be offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]

If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [X]
------------------------
CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C> <C> <C>
=====================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
- -----------------------------------------------------------------------------------------------------
14.0% Senior Redeemable
Preferred Stock, Series
C.......................... 123,381 shares(2) $1,000 $123,381,000 $37,388.18(3)
=====================================================================================================
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.

(2) The maximum number of shares of Series C Preferred Stock that may be issued
pursuant to this Registration Statement. This Registration Statement also
relates to an indeterminate number of shares of Series C Preferred Stock
that may be issued as dividends payable on shares of Series C Preferred
Stock pursuant to the terms thereof.

(3) The Registrant has received a credit balance of $2,266.82 from the
registration fee of $39,655 that was paid upon the original filing of the
Registration Statement on October 1, 1996 as a result of a decrease in the
registration fee from 1/29th of one per cent to 1/33rd of one percent,
effective as of October 1, 1996.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

================================================================================
<PAGE> 2

INFORMATION CONTAINED IN THIS PRELIMINARY PROSPECTUS IS SUBJECT TO
COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO
THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS
SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY OR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED MARCH , 1997

PROSPECTUS

OFFER TO EXCHANGE ALL OUTSTANDING SHARES OF
14.0% SENIOR REDEEMABLE PREFERRED STOCK, SERIES B
FOR SHARES OF
14.0% SENIOR REDEEMABLE PREFERRED STOCK, SERIES C
OF

RENAISSANCE COSMETICS, INC.
------------------------

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED
------------------------

Renaissance Cosmetics, Inc., a Delaware corporation ("RCI" or the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the "Letter
of Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange shares of its 14.0% Senior Redeemable Preferred Stock, Series C, par
value $0.01 per share (the "Series C Preferred Stock"), for any and all of the
outstanding shares of 14.0% Senior Redeemable Preferred Stock, Series B, par
value $0.01 per share (the "Series B Preferred Stock"), of the Company. The
terms of the Series C Preferred Stock are substantially identical to the terms
of the Series B Preferred Stock, except that the shares of Series C Preferred
Stock will have been registered under the Securities Act of 1933, as amended
(the "Securities Act") and will not contain terms restricting the transfer of
such shares.

The Company will accept for exchange any and all shares of Series B
Preferred Stock that are validly tendered on or prior to 5:00 p.m., New York
City time, on the date the Exchange Offer expires, which will be ,
1997, unless the Exchange Offer is extended (the "Expiration Date"). Tenders of
shares of Series B Preferred Stock may be withdrawn at any time prior to 5:00
p.m., New York City time, on the business day prior to the Expiration Date. The
Exchange Offer is not conditioned upon any minimum number of shares of Series B
Preferred Stock being tendered for exchange. However, the Exchange Offer is
subject to certain conditions which may be waived by the Company and to the
terms and provisions of the Registration Rights Agreement (as defined herein).
See "Exchange Offer." The Company has agreed to pay the expenses of the Exchange
Offer.

Holders of shares of Series B Preferred Stock whose shares of Series B
Preferred Stock are not tendered and accepted in the Exchange Offer will
continue to hold such shares of Series B Preferred Stock. Following consummation
of the Exchange Offer, the holders of shares of Series B Preferred Stock will
continue to be subject to the existing restrictions upon transfer thereof and,
except as provided herein, the Company will have no further obligation to such
holders to provide for the registration under the Securities Act of the shares
of Series B Preferred Stock held by them.

(cover continued on next page)
------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN RISKS
ASSOCIATED WITH AN INVESTMENT IN THE SERIES C PREFERRED STOCK.

The Company will not receive any proceeds from this Exchange Offer and no
underwriter is being utilized in connection with the Exchange Offer.

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------

The date of this Prospectus is March , 1997.
<PAGE> 3

115,000 shares of the Series B Preferred Stock were issued and sold on
August 15, 1996, September 16, 1996 and September 27, 1996 in transactions not
registered under the Securities Act, in reliance upon the exemption provided in
Section 4(2) of the Securities Act and 8,381 shares were issued on November 15,
1996 and February 18, 1997 as dividends in respect of the Series B Preferred
Stock. Accordingly, the Series B Preferred Stock may not be offered, resold or
otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an applicable exemption from the registration requirements
of the Securities Act is available. Shares of Series C Preferred Stock are being
offered hereby in order to satisfy the obligations of the Company under the
registration rights agreement relating to the Series B Preferred Stock (the
"Registration Rights Agreement"). See "The Exchange Offer -- Purpose of the
Exchange Offer." Based on no-action letters issued by the staff of the
Securities and Exchange Commission (the "Commission") to third parties, the
Company believes shares of Series C Preferred Stock to be issued pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
holders thereof (other than (i) a broker-dealer who purchases such shares of
Series C Preferred Stock directly from the Company to resell pursuant to Rule
144A or any other available exemption under the Securities Act or (ii) a person
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such shares of Series C
Preferred Stock are acquired in the ordinary course of such holders' business
and such holders have no arrangements with any person to participate in the
distribution of such shares of Series C Preferred Stock. Eligible holders
wishing to accept the Exchange Offer must represent to the Company that such
conditions have been met. Each broker-dealer that receives shares of Series C
Preferred Stock for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such shares of Series C Preferred Stock. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of shares of Series C
Preferred Stock received in exchange for shares of Series B Preferred Stock
where such shares of Series B Preferred Stock were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. For a period of 90 days following the consummation of the Exchange
Offer, the Company has agreed to use its best efforts to make this Prospectus
available to broker-dealers who have identified themselves as such for use in
connection with resales by such broker-dealers of shares of Series C Preferred
Stock received in exchange for shares of Series B Preferred Stock acquired by
such broker-dealers for their own accounts as a result of market-making or other
trading activities. See "Plan of Distribution."

Dividends on the Series C Preferred Stock, at the rate of 14.0% per annum,
are payable quarterly in arrears on February 15, May 15, August 15 and November
15 of each year (unless such day is not a business day, in which case the
immediately succeeding business day) (each, a "Dividend Payment Date"),
commencing on May 15, 1997 (the "First Dividend Payment Date"). Holders of
Series B Preferred Stock whose shares of Series B Preferred Stock are accepted
for exchange will be deemed to have waived the right to receive any payment in
respect of any unpaid dividends on the Series B Preferred Stock that have
accumulated or accrued to the date of the issuance of the Series C Preferred
Stock. Consequently, holders who exchange their shares of Series B Preferred
Stock for Series C Preferred Stock will receive the same dividends on the Series
C Preferred Stock that holders of the Series B Preferred Stock who do not accept
the Exchange Offer will receive on the Series B Preferred Stock. Dividends on
the Series C Preferred Stock may be paid in cash or by issuing fully paid and
nonassessable shares of Series C Preferred Stock as described herein.

THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF SERIES B PREFERRED STOCK IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE
IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.

2
<PAGE> 4

There can be no assurance that an active public or private market for the
Series C Preferred Stock will develop. Whether or not a market for the Series C
Preferred Stock should develop, the shares of Series C Preferred Stock could
trade at a discount from their aggregate liquidation preference. The Company
does not intend to list the Series C Preferred Stock on a national securities
exchange or to apply for quotation of the Series C Preferred Stock through the
National Association of Securities Dealers Automated Quotation System. To the
extent shares of Series B Preferred Stock are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
shares of Series B Preferred Stock could be adversely affected.

The Company has been advised by CIBC Wood Gundy Securities Corp. (the
"Initial Purchaser") that it intends to make a market in the Series C Preferred
Stock; however, it is under no obligation to do so and any market making
activities with respect to the Series C Preferred Stock may be discontinued at
any time.

3
<PAGE> 5

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports and other information with the Commission. Reports and
other information filed by the Company with the Commission pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Seven World Trade Center, Suite 1300, New York, New York
10048; and Northwestern Atrium Center, 500 West Madison Street (Suite 1400),
Chicago, Illinois 60661; and copies of such material may be obtained from the
Public Reference Section of the Commission, at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission also maintains
an Internet Web Site at http://www.sec.gov that contains reports and other
information.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company hereby incorporates by reference in this Prospectus all
documents and reports filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering made hereby.

Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other document subsequently filed with the Commission which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.

THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
OF ANY OR ALL OF THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN (NOT INCLUDING
THE EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS). REQUESTS FOR SUCH COPIES SHOULD BE
DIRECTED TO: JOHN R. JACKSON AT 955 MASSACHUSETTS AVENUE, CAMBRIDGE,
MASSACHUSETTS 02139, TELEPHONE NUMBER (617) 497-5584.

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

Certain statements under the captions "Prospectus Summary," "Recent
Developments," "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere in this
Prospectus and the documents incorporated herein by reference constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. 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.

4
<PAGE> 6

PROSPECTUS SUMMARY

The following summary information is qualified in its entirety by reference
to the more detailed information and financial statements (including the notes
thereto) appearing elsewhere in this Prospectus and the documents incorporated
by reference in this Prospectus. References contained in this Prospectus to
"Fiscal 1994," "Fiscal 1995" and "Fiscal 1996" mean the fiscal years ended March
31, 1995 and March 31, 1996 and the fiscal year ending March 31, 1997,
respectively. Unless otherwise indicated, (i) all industry and market share data
set forth in this Prospectus are based upon information supplied by Information
Resources, Inc., an independent market research firm ("IRI"), and reflect actual
U.S. sales data for the 52 week period ended November 3, 1996 scanned by IRI's
InfoScan service through retailers' store registers in the drug store and mass
merchandiser segments of the mass market, which, according to IRI, accounted for
approximately 87% of the entire mass market during that period; (ii) all
InfoScan data with respect to the Company include sales of GAC, MEM and the P&G
Brands (each as defined herein) for the 52 week period ended November 3, 1996;
and (iii) references to the mass market or segments thereof refer to the
domestic mass market. Unless the context otherwise requires, references in this
Prospectus to the "Company" refer to Renaissance Cosmetics, Inc. and its
subsidiaries.

THE COMPANY

The Company is a leading manufacturer and marketer of mass-market
fragrances, artificial nail care products, mid-priced lip and eye make-up, nail
polish and related products that are sold by more than 1,000 retailers in
approximately 25,000 locations in the United States and in 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.

5
<PAGE> 7

Through its wholly-owned Great American Cosmetics, Inc. subsidiary ("GAC"),
which the Company acquired on August 21, 1996 (the "GAC Acquisition"), the
Company markets a leading brand of high quality, mid-priced lip, eye and nail
products sold in the mass market under the Nat Robbins name. These color
cosmetics products include lipliner pencils, lipsticks, eyeliner pencils, eye
shadow, mascara, nail enamel, make-up brushes and assorted accessories. In
addition to the Nat Robbins brand name, which appears on all packaging, products
are marketed under the brand names Lip Lacquer, Stay Put and Color Intense 24.

On December 4, 1996, the Company acquired MEM Company, Inc. ("MEM"), which
manufactures mass-market fragrances (the "MEM Acquisition"). MEM's fragrance
brands include classic men's brands, such as English Leather and British
Sterling, and established women's brands such as Love's and Heaven Sent. A
division of MEM manufactures and markets a line of children's cosmetics and
accessories, principally under the trademark Tinkerbell.

On December 6, 1996, the Company acquired certain of the mass-market
fragrance brands (the "P&G Brands") marketed by The Procter & Gamble Company
("P&G"). As a result of this acquisition (the "P&G Acquisition"), the Company
added several well-known brands to its fragrance portfolio, including NaVy,
Insignia and NaVy for Men. Concurrent with the P&G Acquisition, the Company
entered into transition agreements with P&G under which P&G will continue the
foreign marketing of the P&G Brands through June 30, 1997. The GAC Acquisition,
MEM Acquisition and P&G Acquisition are referred to collectively herein as the
"Acquisitions."

The Company's principal executive offices are located at 955 Massachusetts
Avenue, Cambridge, Massachusetts 02139, and its telephone number is (617)
497-5584.

BUSINESS STRATEGY

The Company's management team intends to continue to capitalize on
opportunities in the mass-market segment of the fragrance and cosmetics
industry, through both internal growth and acquisitions, and to maximize sales
and EBITDA by implementing a strategy based on the following elements:

- Acquisition and Reinvigoration of Underperforming and/or Undermarketed
Brands. Subject to the limitations imposed by the New Revolving Credit
Facility (as defined herein) and the New Indenture (as defined herein),
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.

6
<PAGE> 8

related to their "parents" but are targeted toward a different consumer
segment, enabling the Company to increase shelf space allocated to, and
revenues generated by, the expanded brand family. To date, the Company
has successfully launched White Chantilly as a flanker of the classic
Chantilly brand in the fall of 1995, DREAMS BY TABU as a flanker of the
classic Tabu brand in February 1996 and Navigator from Canoe as a flanker
of the classic Canoe brand in September 1996. In addition, the Company
has identified several opportunities to launch focused flankers of its
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

THE EXCHANGE OFFER

Securities Offered............... 123,381 shares of 14.0% Senior Redeemable
Preferred Stock, Series C. The terms of the
Series C Preferred Stock are substantially
identical to the terms of the Series B
Preferred Stock except that the Series C
Preferred Stock will have been registered
under the Securities Act and will not
contain terms restricting the transfer of
such stock. See "Description of Series C
Preferred Stock."

The Exchange Offer............... Shares of Series C Preferred Stock are
being offered in exchange for any and all
of the outstanding shares of Series B
Preferred Stock (on a share for share
basis). As of February 18, 1997, the last
dividend payment date for the Series B
Preferred Stock, 123,381 shares of Series B
Preferred Stock with an aggregate
liquidation preference of $123,381,000 were
issued and outstanding (after giving effect
to the shares of Series B Preferred Stock
issued as dividends on such date). The
Company has agreed to make the Exchange
Offer in order to satisfy its obligations
under the Registration Rights Agreement.
For a description of the procedures for
tendering, see "Exchange
Offer -- Procedures for Tendering Series B
Preferred Stock."

Expiration Date; Withdrawal...... The Exchange Offer will expire at 5:00
p.m., New York City time, on ,
1997, or such later date and time to which
it may be extended in the sole discretion
of the Company (the "Expiration Date").
Shares of Series B Preferred Stock tendered
pursuant to the Exchange Offer may be
withdrawn at any time prior to the
Expiration Date. Any shares of Series B
Preferred Stock not accepted for exchange
for any reason will be returned without
expense to the tendering holders thereof as
promptly as practicable after the
expiration or termination of the Exchange
Offer. See "Exchange Offer -- Expiration
Date; Extensions; Termination; Amendments;
and Withdrawal Rights."

Conditions to Exchange Offer..... The Exchange Offer is subject to certain
conditions. See "Exchange Offer -- Certain
Conditions to the Exchange Offer." The
Exchange Offer is not conditioned upon any
minimum number of shares of Series B
Preferred Stock being tendered for
exchange.

Certain Federal Income Tax
Considerations................... The exchange of the Series B Preferred
Stock for the Series C Preferred Stock
should not be a taxable event to the holder
for federal income tax purposes, and the
holder should not recognize any taxable
gain or loss as a result of such exchange.
See "Certain Federal Income Tax
Considerations."

Untendered Series B Preferred
Stock............................ Upon consummation of the Exchange Offer,
the holders of Series B Preferred Stock, if
any, will have no further registration or
other rights under the Registration Rights
Agreement, except as provided herein.
Holders of shares of Series B Preferred
Stock who do not tender their shares of
Series B Preferred Stock in the Exchange
Offer or whose shares of Series B Preferred
Stock are not accepted for

8
<PAGE> 10

exchange will continue to hold such shares
of Series B Preferred Stock and will be
entitled to all the rights and preferences
thereof and will be subject to all the
limitations applicable thereto, except for
any such rights or limitations which, by
their terms, terminate or cease to be
effective as a result of this Exchange
Offer. All untendered and tendered but
unaccepted shares of Series B Preferred
Stock will continue to be subject to the
restrictions on transfer provided therein.
To the extent that shares of Series B
Preferred Stock are tendered and accepted
in the Exchange Offer, the trading market
for untendered and tendered but unaccepted
shares of Series B Preferred Stock could be
adversely affected.

TERMS OF THE SERIES C PREFERRED STOCK

The terms of the Series C Preferred Stock are substantially identical to the
terms of the Series B Preferred Stock.

Dividends........................ Holders of the Series C Preferred Stock are
entitled, when, as and if declared by the
Board of Directors of RCI (the "Board of
Directors") out of funds legally available
therefor, to receive dividends on each
outstanding share of Series C Preferred
Stock, at the rate of 14.0% per annum.
Dividends on the Series C Preferred Stock
issued in exchange for the Series B
Preferred Stock are payable quarterly in
arrears on February 15, May 15, August 15
and November 15 of each year (unless such
day is not a business day, in which case
the immediately succeeding business day),
commencing on the First Dividend Payment
Date to holders of record 15 days preceding
the Dividend Payment Date. Dividends on the
Series C Preferred Stock issued in exchange
for the Series B Preferred Stock will be
cumulative (whether or not earned or
declared) from the later of (a) the last
Dividend Payment Date on which dividends
were paid on the Series B Preferred Stock
surrendered in exchange therefor or (b) if
no dividends have been paid on such Series
B Preferred Stock, from the date of
issuance of the Series B Preferred Stock.
Dividends which are not declared and paid
when due will compound quarterly at the
dividend rate.

Dividends may, at the option of the
Company, be paid on any Dividend Payment
Date in cash or by issuing fully paid and
nonassessable shares of Series C Preferred
Stock with an aggregate liquidation
preference equal to the amount of such
dividends through the November 17, 1997
Dividend Payment Date, and in cash
thereafter; If the Company does not pay
cash dividends after November 17, 1997, the
per annum dividend rate will be increased
by 0.25% during each quarter ended on each
Dividend Payment Date on which such non-
cash payment occurs, unless such non-cash
payment has occurred during more than four
quarters, in which case the per annum
dividend rate will be increased by 0.5% in
each

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<PAGE> 11

additional quarter in which such non-cash
payment occurs, with a maximum rate of 17%
per annum.

Liquidation Preference........... $1,000 per share.

Board Representation............. Holders of Series C Preferred Stock (acting
together with the holders of the Series B
Preferred Stock, as a single class) will
have the right to nominate three candidates
for consideration for the Board of
Directors. The Company shall use all
reasonable commercial efforts to cause the
election of one of such nominees selected
by the Company.

Voting........................... Holders of the Series C Preferred Stock
have no general voting rights except as
provided by law.

Optional Redemption.............. The Series C Preferred Stock may be
redeemed at the option of the Company, in
whole or in part, at any time on or after
September 1, 1999, initially at 108% of the
liquidation preference, declining ratably
to 100% of the liquidation preference on or
after September 1, 2003, in each case plus
accrued and unpaid dividends thereon. In
addition, at any time prior to September 1,
1999, the Company may redeem (pursuant to
one or more redemptions) up to 35% of the
aggregate liquidation preference of the
Series C Preferred Stock (and the Series B
Preferred Stock, taken together) with net
proceeds received by the Company from one
or more public offerings of equity
securities of the Company at a redemption
price equal to 110% of the liquidation
preference thereof, plus accrued and unpaid
dividends thereon to the date of
redemption. The Company's ability to effect
an optional redemption is subject to the
legal availability at the Company of funds
therefor.

Mandatory Redemption............. The Company is required to redeem all
outstanding shares of Series C Preferred
Stock on August 31, 2006, at a redemption
price equal to the liquidation preference
of $1,000 per share, plus accrued and
unpaid dividends thereon. The Company's
obligation to redeem the Series C Preferred
Stock is subject to the legal availability
at the Company of funds therefor.

Change of Control................ Upon a Change of Control (as defined
herein), the Company shall, only if, and
only to the extent permitted by the New
Senior Notes (as defined herein) and any
other long-term indebtedness then
outstanding, offer to redeem the
outstanding shares of Series C Preferred
Stock at a redemption price equal to 101%
of the liquidation preference thereof, plus
accrued and unpaid dividends thereon;
provided that such obligation will not
result in the Series C Preferred Stock
being deemed to be disqualified stock under
any long-term indebtedness of the Company.
If the Company does not for any reason make
an offer to purchase the Series C Preferred
Stock upon a Change of Control, the
dividend rate will increase to a rate of
17.0% per annum. The Company's obligation
to redeem the Series C Preferred Stock is
subject to the legal availability of funds
therefor.

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<PAGE> 12

Ranking.......................... The Series C Preferred Stock will rank
senior to (a) all classes of Common Stock
of the Company, (b) the Cumulative
Exchangeable Preferred Stock (as defined
herein) and (c) each other class of capital
stock issued by the Company after the
Exchange Offer. The Series C Preferred
Stock will rank pari passu with the Series
B Preferred Stock.

Covenants........................ The Certificate of Designation (as defined
herein) imposes certain restrictions on the
ability of the Company to (i) declare and
pay dividends or make any other
distributions or payments with respect to
the capital stock of the Company or its
subsidiaries or purchase, redeem, acquire
or retire any capital stock of the Company
or any of its subsidiaries (other than
certain enumerated exceptions) and (ii)
exercise its option to exchange either in
whole or in part, the Cumulative
Exchangeable Preferred Stock for notes of
the Company.

11
<PAGE> 13

RISK FACTORS

Prospective investors in the Series C Preferred Stock should consider
carefully the following risk factors as well as the other information set forth
elsewhere in this Prospectus in connection with an investment in the Series C
Preferred Stock.

HIGH LEVEL OF INDEBTEDNESS AND LEVERAGE

The Company is, and will continue to be, highly leveraged due to the
substantial indebtedness it has incurred and intends to incur primarily to
finance acquisitions and expand its operations. As of 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 sale of the Company's $200.0 million
aggregate principal amount of 11 3/4% Senior Notes due 2004 (the "New Senior
Notes"), issued pursuant to the Indenture, dated February 7, 1997, among the
Company, United States Trust Company of New York, as trustee, and Renaissance
Guarantor, Inc., as guarantor (the "New Indenture"), 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% of the
lenders. 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 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 securities offered hereby including: (i) a substantial part of
the Company's cash flow from operations must be dedicated to debt service and
will not be available for other purposes (including paying cash dividends on the
Series C Preferred Stock); (ii) the Company's ability to obtain needed
additional financing in the future may be limited; (iii) the Company's leveraged
position and covenants contained in the New 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.

12
<PAGE> 14

HOLDING COMPANY STRUCTURE

The Company is a holding company and its assets consist primarily of
investments in its subsidiaries. The Company's ability to pay dividends on the
Series C Preferred Stock and redeem the Series C Preferred Stock is dependent
primarily upon the earnings of its subsidiaries, and the distribution or other
payment of such earnings to the Company. The New Revolving Credit Facility
restricts (and any replacement thereof will likely restrict) the ability of the
Company's subsidiaries to pay dividends to the Company. The Company's rights and
the rights of its stockholders and creditors, including holders of the Series C
Preferred Stock, to participate in the distribution of assets of any person in
which the Company owns an equity interest upon such person's liquidation or
reorganization will be subject to prior claims of such person's creditors,
including trade creditors, except to the extent that the Company may itself be a
creditor with recognized claims against such person (in which case the claims of
the Company would still be subject to the prior claims of any secured creditor
of such person, including the lenders under the New Revolving Credit Facility).
Accordingly, the rights of holders of the Series C Preferred Stock will be
effectively subordinated to such claims.

RESTRICTIONS ON THE COMPANY'S ABILITY TO PAY DIVIDENDS

The New Indenture and the New Revolving Credit Facility contain (and any
replacement likely will contain) covenants that restrict the Company's ability
to pay, or prevent the payment of, cash dividends on the Series C Preferred
Stock. In addition, under Delaware law, dividends on capital stock may only be
paid from "surplus" or, if there is no surplus, from the corporation's net
profits for the then current or the preceding fiscal year. The Company does not
anticipate having net profits for the foreseeable future and its ability to pay
dividends on the Series C Preferred Stock will require the availability of
adequate "surplus," which is defined as the excess, if any, of the Company's net
assets (total assets less total liabilities) over its capital (generally the par
value of its issued capital stock). There can be no assurance that adequate
surplus will be available to pay dividends on the Series C Preferred Stock.

DEPENDENCE ON SUCCESSFUL COMPLETION OF ACQUISITIONS AND INTEGRATION OF ACQUIRED
BUSINESSES

The Company's success has been, and will continue to be, dependent upon the
availability, successful completion and integration of acquisitions. There can
be no assurance that the Company will find suitable acquisitions 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. Also, the New Indenture generally requires that the
Company comply with the incurrence of indebtedness covenant described in the New
Indenture in order to incur indebtedness to complete acquisitions, including any
borrowings under the New Revolving Credit Facility. The New 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
Certain Indebtedness." If the Company is unsuccessful in implementing its
acquisition strategy, the Company's ability to compete with other manufacturers
and marketers of fragrance and cosmetics products could be adversely affected,
especially if the industry continues to move toward further consolidation.
Furthermore, other factors resulting from the completion of additional
acquisitions, such as increasing leverage and debt service requirements,
diversion of management time and attention and combining disparate company
cultures and facilities, could adversely affect the Company's operating results.

The success of any completed acquisition, including the recently completed
Acquisitions, will depend in part on the Company's ability to effectively
integrate the acquired businesses into the Company and on the Company's ability
to revitalize underperforming and/or undermarketed fragrance and cosmetics
brands. The process of integrating such acquired businesses may involve
unforeseen difficulties and may utilize a substantial portion of the Company's
financial and other resources. Also, the Company may have difficulty
revitalizing the acquired fragrance and cosmetics brands, such as the P&G
Brands, sales of which have declined significantly over the past five years. Net
sales for MEM and the P&G Brands have continued to decline since the periods
presented in the financial statements and data included herein. See "Recent

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<PAGE> 15

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.

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 New 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 New 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 will be 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 and a cross default under the New Senior Notes. In the
event of any such default and/or cross default, the lenders under the New
Revolving Credit Facility could elect to declare all outstanding amounts
borrowed thereunder, together with accrued interest, to be due and payable and
the holders of the Company's New Senior Notes could likewise accelerate payment
thereof. Acceleration of such indebtedness would have a material adverse effect
on the Company.

DEPENDENCE ON RESULTS OF OPERATIONS FOR FOURTH QUARTER OF FISCAL 1996

The Company's current business plan for the fourth quarter of Fiscal 1996
calls for several new product launches or relaunches and various promotional
programs, as well as the continuing integration of the assets and operations
acquired in recent acquisitions, which will require the Company to dedicate a
considerable amount of its resources and involve various degrees of risk. The
Company is relying on its results of operations for the fourth quarter of Fiscal
1996 in order to achieve results of operations for Fiscal 1996 that will compare
favorably to its results of operations for Fiscal 1995. As a result of the
uncertainties involved, there can be no assurance that the Company will achieve
its business plan for the fourth quarter of Fiscal 1996 or for Fiscal 1996. See
"Special Note Regarding Forward-Looking Statements."

DEPENDENCE ON KEY PERSONNEL

The success of the Company depends upon the efforts, abilities and
expertise of its executive officers and other key employees, including in
particular, Thomas V. Bonoma, Chairman, Chief Executive Officer and President of
the Company. The loss of the services of Dr. Bonoma 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 their equity interest in the Company. See
"Management -- Employment and Non-Compete Agreements." The Company currently has
key man life insurance on Dr. Bonoma. However, no assurance can be made that
such insurance will be adequate.

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<PAGE> 16

CONTROL BY KIDD KAMM

Kidd Kamm Equity Partners, L.P. ("KKEP"), an affiliate of Kidd, Kamm &
Company ("Kidd Kamm"), owns approximately 73.4% of the Company's outstanding
common stock and 39.3% of the Company's common stock on a fully diluted basis as
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 New Indenture would be triggered if, for
among other reasons, any person, other than KKEP and certain other permitted
holders, owns more than 35% of the voting power of the Company and the permitted
holders, together with officers and employees of the Company, own a lesser
percentage of the total voting power of the Company and do not have the right to
elect a majority of the board of directors of the Company, thereby requiring the
Company to offer to repurchase the New Senior Notes at a purchase price equal to
101% of the principal amount thereof, plus accrued and unpaid interest thereon.
The New Revolving Credit Facility also 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. In the event of such a change of control, the lenders
under the New Revolving Credit Facility could cause the indebtedness thereto to
be accelerated. See "Description of Certain Indebtedness."

COMPETITION

The markets for the Company's products are highly competitive and sensitive
to changes in consumer preferences and demands. These markets are characterized
by the frequent introduction of competitive products, typically accompanied by
advertising and promotional campaigns, and in the overall fragrance and
cosmetics market, by the potential entry of other manufacturers as new
competitors. The Company competes against a number of companies, some of which
have substantially greater resources than the Company and many of which sell
their products through broader distribution channels than the Company. See
"Business -- Competition."

DEPENDENCE ON LICENSE AGREEMENTS; LICENSE AND ROYALTY OBLIGATIONS

Certain of the Company's key products incorporate intellectual property
rights, such as trademarks or brand names, that are proprietary to third
parties. In each instance, the Company typically enters into a long-term
exclusive license agreement to manufacture, distribute and sell fragrance and
cosmetics products covered by the trademark, use the trademark in conjunction
with the products in all advertising and letter heads and other promotional
material and use and exploit the know-how of the licensor in the manufacture of
the products in a given territory.

The Company's license agreements typically provide for the retention of
ownership of the trade name, know-how or other intellectual property by the
licensor and the payment of a royalty to the licensor. Such royalty payments
generally are based on the net sales of the licensed product for the duration of
the license and, depending on the revenues generated from the sale of the
licensed product, may be substantial. In addition, such agreements often provide
for a minimum level of royalties that may exceed the actual royalties generated
from net sales of the licensed product. Certain licenses also provide for
minimum net sales requirements.

Most of these licenses have fixed terms and are automatically renewable for
one or several additional terms. Some of these licenses may need to be renewed
or renegotiated prior to their expirations in order for the Company to continue
to sell the licensed product. The termination or non-renewal of a key license
would materially adversely affect the Company's operating results and financial
condition. The Company intends to continue to rely on third-party licenses in
connection with the development of its new products. There can be no assurance
that the Company will be able to obtain additional licenses or renew existing
licenses for trade

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<PAGE> 17

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."

RISKS 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, including its
ability to pay cash dividends, may fluctuate during the year. In addition, lower
than expected sales during the calendar year-end holiday season would have a
material adverse effect upon the Company. Sales of the Company's cosmetics
products are relatively stable throughout the year.

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 conditions. Changes in
currency exchange rates may affect the relative prices at which the Company and

16
<PAGE> 18

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.

ADVERSE CONSEQUENCES OF FAILURE TO ADHERE TO EXCHANGE OFFER PROCEDURES

Issuance of shares of the Series C Preferred Stock in exchange for shares
of the Series B Preferred Stock pursuant to the Exchange Offer will be made only
after a timely receipt by the Company of such shares of the Series B Preferred
Stock, a properly completed and duly executed Letter of Transmittal and all
other required documents. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of shares of the Series B Preferred
Stock tendered for exchange will be determined by the Company in its sole
discretion, which determination will be final and binding on all parties.
Holders of shares of the Series B Preferred Stock desiring to tender such shares
of the Series B Preferred Stock in exchange for shares of the Series C Preferred
Stock should allow sufficient time to ensure timely delivery. The Company is
under no duty to give notification of defects or irregularities with respect to
the tenders of shares of the Series B Preferred Stock for exchange. Shares of
the Series B Preferred Stock that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof and, except as
provided herein, the Company will have no further obligations to provide for the
registration under the Securities Act of such shares of the Series B Preferred
Stock. In addition, any holder of the Series B Preferred Stock who tenders in
the Exchange Offer for the purpose of participating in a distribution of the
Series C Preferred Stock may be deemed to have received restricted securities,
and if so, will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. To the extent that shares of the Series B Preferred Stock are
tendered and accepted in the Exchange Offer the trading market for untendered
and tendered but unaccepted shares of the Series B Preferred Stock could be
adversely affected. See "Exchange Offer."

ABSENCE OF PUBLIC MARKET

The Series C Preferred Stock is a new security for which there currently is
no trading market. Although the Initial Purchaser has informed the Company that
it currently intends to make a market in the Series C Preferred Stock, it is not
obligated to do so and any such market making may be discontinued at any time
without notice. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Series C Preferred Stock. The Company does not
intend to apply for listing of the Series C Preferred Stock on any securities
exchange or for quotation through the National Association of Securities Dealers
Automated Quotation System.

17
<PAGE> 19

RECENT DEVELOPMENTS

ACQUISITION OF GREAT AMERICAN COSMETICS, INC.

On August 21, 1996, the Company, through its wholly-owned Cosmar
subsidiary, completed its acquisition of all of the issued and outstanding
capital stock of GAC pursuant to a Stock Purchase Agreement, dated June 27,
1996, with GAC and Messrs. Larry Pallini and Vincent Carbone, the sole
shareholders of GAC (the "Sellers"). GAC markets, distributes, advertises,
promotes and merchandises high quality, mid-priced lip and eye make-up, make-up
brushes, nail polish and related products sold under the Nat Robbins trademark.

The cash consideration paid for GAC was $15.3 million, approximately $14.2
million of which was paid to the Sellers at closing, approximately $41,000 of
which was retained by Cosmar to fund possible post-closing severance bonuses to
certain GAC employees and the remaining $1.0 million of which was placed 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 pursuant to a Merger Agreement dated August 6, 1996, as amended. The
aggregate cash consideration paid to the equity holders of MEM in connection
with the MEM Acquisition was $19.8 million. In addition, in connection with the
MEM Acquisition, the Company repaid all of MEM's outstanding indebtedness in an
amount equal to $18.1 million and incurred fees and expenses of approximately
$800,000.

MEM distributes a diversified line of fragrances and toiletries in the
mass-market distribution channel. MEM's products are marketed under the
nationally-advertised trademarks English Leather, British Sterling, Heaven Sent
and Love's. The principal market for MEM's products is the United States. Tom
Fields, Ltd. ("Tom Fields"), a division of MEM, manufactures and markets a line
of children's cosmetics and accessories principally under the trademark
Tinkerbell. A subsidiary, Tom Fields (U.K.) Ltd., markets this line of
children's products in the United Kingdom and elsewhere in Europe. MEM had net
sales of approximately $44.8 million and a net loss of approximately $3.0
million for the year ended December 31, 1995. MEM's net sales declined to $22.6
million during the nine months ended September 30, 1996 from $27.7 million
during the prior year's comparable period and its net loss for the period
increased to $4.6 million from $2.6 million in the prior year's comparable
period.

On 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."

18
<PAGE> 20

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 SENIOR NOTES OFFERING

On February 7, 1997, the Company completed the sale of the New Senior
Notes, 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 (i) to finance the purchase of all of the
then-outstanding $65.0 million principal amount of its 13.75% Senior Notes due
2001, Series A and B, and 13.75% Senior Notes due 2002 (collectively, the "Old
Senior Notes"), which were issued pursuant to the Indenture dated August 18,
1994, as amended (the "Old Indenture"), at a price of $1,165 for each $1,000
principal amount thereof (plus accrued interest thereon)(the "Old Senior Notes
Offer"), (ii) to repay all outstanding indebtedness under the Senior Secured
Credit Agreement, dated as of December 4, 1996, among Cosmar, as borrower, the
Company and all of the Company's material domestic and Canadian subsidiaries, as
guarantors, and the lenders named therein (the "Senior Secured Credit Facility")
and (iii) to fund an escrow account of $17.5 million, which will be used to pay
a portion of the interest expense on the New Senior Notes for two years.

Interest on the New Senior Notes is payable at the rate of 11.75% per year
in cash. The New Senior Notes mature on February 15, 2004. 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 prior to 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. See
"Description of Certain Indebtedness -- New Indenture."

In connection with the sale of the New Senior Notes, the Company
transferred $17.5 million to a newly-formed special-purpose 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 New Senior Notes will
be general unsecured obligations of the Company except to the extent they will
be collateralized by a first priority security interest in the escrow account.

In connection with the Old Senior Notes Offer, the Company also received
consents from all of the holders of the Old Senior Notes to amend 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.

19
<PAGE> 21

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.

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
Indebtedness -- New Revolving Credit Facility."

20
<PAGE> 22

USE OF PROCEEDS

No proceeds will be received by the Company from the Exchange Offer. The
aggregate net proceeds of (i) the offering on August 15, 1996, September 16,
1996 and September 27, 1996 of the Series B Preferred Stock and warrants to
purchase Common Stock of the Company (the "Series B Offering"), including
accrued dividends of $0.4 million; (ii) the sale of Common Stock and the refund
of a portion of the fee paid to CIBC WG Argosy Merchant Fund 2, L.L.C. (the
"CIBC Fund") in connection with the CIBC Fund's commitment to purchase $20.0
million of the Company's Senior Redeemable Exchangeable Preferred Stock, Series
A (which the CIBC Fund purchased during May and June 1996 (the "Interim
Preferred Facility")), which refund occurred concurrently with the Series B
Offering (such sale and refund, the "CIBC Financing"); and (iii) the sale of
Common Stock in connection with the closing of a portion of the Series B
Offering on September 27, 1996 (the "New Common Stock Sale," and together with
the Series B Offering and the CIBC Financing, the "Equity Financing") available
to the Company, after deducting expenses incurred in connection with the Equity
Financing, were approximately $119.1 million. Of such net proceeds, (i)
approximately $20.4 million was used to repay the Interim Preferred Facility,
including accrued dividends thereon; (ii) approximately $15.5 million was used
to finance the GAC Acquisition (including repayment of debt), net of a
non-refundable deposit of $0.6 million, and to pay related fees and expenses;
(iii) approximately $33.8 million was used to purchase a certificate of deposit
set aside to consummate the MEM Acquisition; (iv) approximately $7.0 million was
used to repay a portion of the indebtedness under the Company's then-existing
credit facility (the "Old Credit Facility") with Nomura Holding America, Inc.
("Nomura"); and (v) the remainder was used for general corporate purposes.

The Company received net proceeds from borrowings under the Senior Secured
Credit Facility of $113.2 million. Of such net proceeds, (i) $3.9 million was
used to complete the MEM Acquisition (after the application of the $33.8 million
certificate of deposit, plus approximately $537,000 of accrued interest
thereon); (ii) $38.6 million was used to complete the P&G Acquisition, net of
pre-closing deposits and prepayments of $2.5 million; (iii) $54.3 million was
used to repay the outstanding indebtedness under the Old Credit Facility,
including accrued interest thereon; and (iv) the remainder was used 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
New Senior Notes.

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.

21
<PAGE> 23

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 that
date. The Pro Forma Capitalization of the Company gives effect to the sale of
the New Senior Notes and the use of proceeds therefrom (including the purchase
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
--------------------------------------------------------------
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 -- -- --
New Senior 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.

22
<PAGE> 24

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 New Senior 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."

23
<PAGE> 25

SELECTED HISTORICAL FINANCIAL DATA

The selected historical financial data of Cosmar (Predecessor) and the
Company set forth below has been derived from and should be read in conjunction
with the historical financial statements of the Company 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.

24
<PAGE> 26

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 fragrance
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 issuance of the New Senior Notes and the use of proceeds therefrom,
including the repurchase of the Old Senior Notes and the repayment of the Senior
Secured Credit Facility, as if such transactions had occurred as of 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 fragrance 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.

25
<PAGE> 27

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
------------------------------------------------------------
P&G
COMPANY GAC MEM 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.

26
<PAGE> 28

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..................................................... 633
-------
Total............................................................ $ (480)
=======
</TABLE>

27
<PAGE> 29

NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS DATA

FOR THE FISCAL YEAR ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(CONTINUED)

(f) Reflects the following adjustments to amortization of intangible and other
assets(1):

<TABLE>
<S> <C>
Amortization of excess of assets acquired over liabilities assumed -- GAC... $ 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.

(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 -- New Senior Notes..................................... 23,500
Amortization of deferred financing costs -- New Senior Notes............. 833
-------
Total.......................................................... $ 5,240
=======
</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 each 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 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.

28
<PAGE> 30

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
------------------------------------------------------------
MEM P&G BRANDS
PERIOD FROM PERIOD FROM
COMPANY GAC APRIL 1, JANUARY 1,
NINE MONTHS PERIOD FROM 1996 1996
ENDED APRIL 1, 1996 TO TO PRO FORMA(A)
DECEMBER 31, TO AUGUST 20, DECEMBER 4, 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 5,141 87 305 -- 2,300(e) 7,833
assets..............................
------- ------ ------- ------- --------
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 (10,028) 1,616 (4,368) 5,649 (2,531) (9,662)
ITEMS.................................
PREFERRED STOCK DIVIDENDS............... 9,838 -- -- -- 6,089(i) 15,927
------- ------ ------- ------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS $(19,866) $ 1,616 $ (4,368) $ 5,649 $ (8,620) $(25,589)
APPLICABLE TO COMMON STOCKHOLDERS.....
======= ====== ======= ======= ========
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS $ (25.95) $(31.01)
PER COMMON SHARE......................
=======
WEIGHTED AVERAGE SHARES OUTSTANDING..... 765,569 825,086 (j)
=======
OTHER DATA:
Deficiency of earnings to combined fixed (23,223)
charges and preferred dividends.......
</TABLE>

See accompanying Notes to Unaudited Pro Forma Consolidated Statement of
Operations Data.

29
<PAGE> 31

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>

- ---------------

30
<PAGE> 32

NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS DATA

FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(CONTINUED)

(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 -- New Senior Notes....................................... 17,625
Amortization of deferred financing costs -- New Senior 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 April 1, 1996. The dividends on the Series C Preferred Stock
will be the same as the dividends on the Series B Preferred Stock.

(j) Includes 103,918 shares issued to purchasers in connection with the Equity
Financing, as if such shares were issued on April 1, 1996.

31
<PAGE> 33

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>
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) 6,262
------- ------ -------
Total Liabilities and Stockholders' Equity.... $ 367,732 $ (7,578) $ 360,154
======= ====== =======
</TABLE>

See accompanying Notes to Unaudited Condensed Consolidated Pro Forma Balance
Sheet Data.

32
<PAGE> 34

NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA

BALANCE SHEET DATA

(DOLLARS IN THOUSANDS)

(a) Reflects the following adjustments to cash and cash equivalents:

<TABLE>
<S> <C>
Gross proceeds from the New Senior 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 -- New Senior 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.

<TABLE>
<S> <C>
Deferred financing costs -- New Senior 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 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 New Senior 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 of additional accretion of interest -- Old Senior Notes...... (1,241)
Premium paid to redeem Old Senior Notes................................ (10,725)
--------
Total........................................................ $(21,877)
========
</TABLE>

33
<PAGE> 35

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................... 17,934 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%. The increase
was due principally to changes in product mix, and an increase in sales.

34
<PAGE> 36

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 to 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 efforts 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 (8.5% 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>

35
<PAGE> 37

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 New 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>

36
<PAGE> 38

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, EBITA is useful and
meaningful to an understanding of the operating performance of the Company.
However, EBITDA should not be considered as an alternative either to net income
(loss) as an indicator of the Company's operating performance or to cash flow as
a measurement of liquidity. The computation of EBITDA is set forth below
(dollars in thousands):

<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994
----------- -----------
<S> <C> <C>
Operating Income........................................ $ 8,450 $ 2,744
Plus: Amortization...................................... 5,207 2,044
Plus: Depreciation...................................... 2,844 788
------- ------
EBITDA.................................................. $16,501 $ 5,576
======= ======
EBITDA as a % of Net Sales.............................. 12.6% 9.7%
</TABLE>

37
<PAGE> 39

Interest Expense. The Company's total interest expense for Fiscal 1995 and
Fiscal 1994 was $19,458,000 and $8,694,000, respectively, while cash interest
for the periods was $15,524,000 and $6,834,000, respectively. Interest expense
consisted of the following (dollars in thousands):

<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994
----------- -----------
<S> <C> <C>
CASH INTEREST PAID OR ACCRUED:
Interest on Senior Notes.................................... $ 8,943 $ 5,577
Interest on Seller Notes (payable in 2002).................. 420 247
Interest on Old Credit Facility............................. 5,948 971
Other Interest.............................................. 213 39
----------- -----------
Total Cash Interest Expense..................... $15,524 $ 6,834
----------- -----------
NON-CASH INTEREST EXPENSE:
Accretion of Senior Notes and Seller Notes.................. $ 290 $ 154
Amortization of Deferred Financing Costs.................... 2,623 993
Accretion of Interest on Obligations for Minimum Royalty
Payment................................................... 1,021 713
----------- -----------
Total Non-Cash Interest Expense................. 3,934 1,860
----------- -----------
Total Interest Expense.......................... $19,458 $ 8,694
======== ========
</TABLE>

Income Tax Expense (Benefit). Income tax expense (benefit) for Fiscal 1995
and Fiscal 1994 was $1,304,000 and ($35,000), respectively. The effective tax
rates differ from the United States federal income tax rate of 34% due to state
and foreign income taxes and limitations on utilization of federal income tax
benefits.

LIQUIDITY AND CAPITAL RESOURCES

Net Cash Used 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 (estimated to be approximately $2.7 million)
are expected to be paid during the last quarter of Fiscal 1996 or

38
<PAGE> 40

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 end 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 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 New Senior Notes. The net proceeds from the
sale of the New Senior 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 New Senior Notes for two
years. See "Recent Developments -- New Senior Notes Offering."

Interest on the New Senior Notes is payable at the rate of 11 3/4% per year
in cash. The New Senior Notes mature on February 15, 2004. In connection with
the sale of the New Senior Notes, the Company transferred $17.5 million to an
escrow account maintained by RGI, a newly-formed single-purpose subsidiary, in
exchange for a limited guarantee by RGI of the Company's obligations under the
New Senior Notes. The New Senior 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. See "Description of Certain
Indebtedness -- New Indenture."

39
<PAGE> 41

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 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 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 New Senior 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 Company's ability to borrow under the New Revolving Credit Facility is
subject to, among other conditions, the satisfaction of certain financial
conditions.

40
<PAGE> 42

BUSINESS

GENERAL

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.

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 and fastest growing segment of the estimated $9.0 billion domestic
fragrance and cosmetics market.

41
<PAGE> 43

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

42
<PAGE> 44

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

- Acquisition and Reinvigoration of Underperforming and/or Undermarketed
Brands. Subject to the limitations imposed by the New Revolving Credit
Facility and the New 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.

- 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.

43
<PAGE> 45

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.

- 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.

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.

44
<PAGE> 46

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

45
<PAGE> 47

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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<PAGE> 48

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> 50

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> 51

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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<PAGE> 52

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 is relaunching 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
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 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

55
<PAGE> 57

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

56
<PAGE> 58

the plan and the highest employee head count over the last decade. All relevant
information to make this calculation is not readily available and the Company's
quarterly payment amount cannot be calculated at this time. The MEM and Tom
Fields combined contributions to the Union Plan were approximately $390,000 in
1995 and are expected to be approximately $250,000 in 1996 although the number
of MEM and Tom Fields employees has declined by approximately one-half from its
highest levels over the last decade. Accordingly, the annual total of the
quarterly payment amounts may be significantly higher than the contributions to
the Union Plan in recent years. In addition, under ERISA, the Company's
withdrawal liability can be recalculated if the Union Plan terminates within
three years of the withdrawal, which could significantly increase the amount of
the liability. In addition to the foregoing, the Union Plan's actuary has
informed the Company that for several years the Union Plan has not received the
minimum annual level of contributions required by ERISA and that the Union Plan
is in the process of seeking to obtain appropriate waivers under ERISA and the
Internal Revenue Code so that the participating employers will not have to pay
any penalties for the Union Plan's failure to receive such minimum levels of
contributions. If the Union Plan fails to obtain such waivers, it is possible
that the Company could incur additional liabilities on account of its
participation in the Union Plan, but the amount of such liabilities cannot
readily be determined at this time.

FACILITIES

The Company manufactures its fragrances at its 155,000 square-foot
Mountaintop, Pennsylvania facility and at its facilities in Buenos Aires,
Argentina, Sao Paolo, Brazil, Granollers, Spain and Chomedey (Laval), Canada.
Each of these facilities contains production, warehouse and office facilities.
The Company owns the facilities in Pennsylvania, Argentina, Brazil and Spain and
leases the facility in Canada. In addition, Dana leases warehouse facilities in
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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<PAGE> 59

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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<PAGE> 60

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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<PAGE> 61

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.

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<PAGE> 62

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information concerning the executive
officers, directors and certain key employees of the Company as of 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

61
<PAGE> 63

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
additional capacity of director of manufacturing during the period of ownership
by Beecham PLC. From 1979

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<PAGE> 64

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
formed 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> 65

EXECUTIVE COMPENSATION

The following table sets forth certain information with respect to the
annual and long-term compensation for services rendered in all capacities earned
by the Company's Chief Executive Officer and the four other most highly
compensated executive officers (collectively, the "Named Executive Officers")
during the fiscal period from April 15, 1994 (Inception) to March 31, 1995 and
the fiscal year ended March 31, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL SHARES
COMPENSATION UNDERLYING
FISCAL -------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION PERIOD SALARY BONUS GRANTED COMPENSATION
- ----------------------------------------- ------ -------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Thomas V. Bonoma......................... 1995 $400,000 -- -- --
Chairman, Chief Executive Officer and 1994 233,338 -- 93,182 --(1)
President
Sean E. Greene........................... 1995 250,000 -- -- --
Group Vice President, Sales 1994 145,836 $175,000 9,318 $ 62,500(2)
Albert E. DeChellis...................... 1995 225,000 -- -- --
Group Vice President and General 1994 131,250 125,000 9,318 37,500(2)
Manager
Thomas T.S. Kaung........................ 1995(3) 177,385 -- 9,318 --
Group Vice President and Chief
Financial Officer
Ronald D. Bowen.......................... 1995 166,667 -- -- --
Group Vice President, International 1994 93,333 125,000 9,318 40,000(2)
</TABLE>

- ---------------
(1) Does not include $85,000 paid to a company controlled by Dr. Bonoma during
May through July 1994 for consulting services.

(2) Represents amounts paid in respect of services rendered as a consultant
prior to the individual's employment by the Company.

(3) Mr. Kaung joined the Company during the fiscal year ended March 31, 1996.

The following table sets forth certain information with respect to grants
of stock options during the fiscal year ended March 31, 1996 to the Named
Executive Officers.

OPTION GRANTS IN FISCAL 1995

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
MARKET POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF PRICE AT ASSUMED ANNUAL RATES
SECURITIES TOTAL EXERCISE ON OF STOCK APPRECIATION FOR
UNDERLYING OPTIONS PRICE DATE OF OPTION TERM(1)
OPTIONS GRANTED TO PER GRANT EXPIRATION ----------------------------
NAME GRANTED EMPLOYEES SHARE ($/SH) DATE 0% 5% 10%
- ------------------------- ---------- ---------- -------- ------- ---------- --- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas V. Bonoma......... -0-
Sean E. Greene........... -0-
Albert E. DeChellis...... -0-
Thomas T.S. Kaung........ 9,318(2) 29.7% $37.17 $37.17 7/1/05 $0 $58,755 $148,897
Ronald D. Bowen.......... -0-
</TABLE>

- ---------------
(1) The 0%, 5% and 10% assumed annual rates of appreciation are mandated by the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future common stock price.

(2) This option is not currently exercisable.

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<PAGE> 66

DIRECTORS

Directors of the Company are elected annually and hold office until the
next annual meeting of shareholders or until their successors are duly elected
and qualified. Officers of the Company are appointed by and serve at the
discretion of the Board of Directors of the Company. Under the Company's
restated certificate of incorporation, the holders of the outstanding shares of
the Company's cumulative exchangeable preferred stock have the right to elect
one member of the Company's Board of Directors. Mr. Noonan has been elected to
the Board of Directors pursuant to this right. In addition, pursuant to Dr.
Bonoma's employment agreement with the Company, Dr. Bonoma has been elected a
director and has the right to designate one additional director. Mr. Lynch has
been elected to the Board of Directors pursuant to this right. Holders of the
Series C Preferred Stock (acting together with the holders of the Series B
Preferred Stock, as a single class) will have the right to nominate three
candidates for consideration for the Company's Board of Directors. The Company
shall use all reasonable commercial efforts to cause the election of one of such
nominees selected by the Company (the "Series C Preferred Nominee"). Mr.
Villanueva has been elected to the Board of Directors pursuant to this right.
Pursuant to the Securities Purchase Agreement, dated as of September 27, 1996,
between the Company and Bastion Capital Fund, L.P. ("Bastion"), the Company has
agreed in the event that Bastion is not entitled to designate the Series C
Preferred Nominee, the Company will include one person selected by Bastion in
its nominations for the Company's Board of Directors and to use all reasonable
commercial efforts to cause the election of such person to the Board, so long as
Bastion owns 75% (in value) of (i) the shares of common stock purchased by
Bastion in the New Common Stock Sale and (ii) the Units purchased by Bastion
pursuant to the Series B Offering (the "Minimum Share Amount"). In addition,
pursuant to a Voting Agreement, dated as of September 27, 1996, KKEP agreed
that, in the event that Bastion is not entitled to designate the Series C
Preferred Nominee, KKEP will vote its shares of common stock in favor of a
nominee designated by Bastion for election to the Company's Board of Directors
provided that Bastion has the Minimum Share Amount.

Directors of the Company are not compensated for their services as
directors. All non-employee directors of the Company are reimbursed for ordinary
and necessary expenses incurred in attending board or committee meetings.

The Board of Directors intends to create a Financial Affairs Committee of
the Board of Directors and to appoint Messrs. Kidd, Noonan and Theodore to such
committee. It is expected that the Financial Affairs Committee would consider
matters pertaining to the Company's financing and business strategies, although
the Board of Directors has not yet determined the extent of the authority to be
delegated to such committee. Other than the Compensation Committee, the Stock
Option Committee and the Audit Committee of the Board of Directors and the
contemplated Financial Affairs Committee, there are no other committees of the
Board of Directors.

STOCK OPTION PLAN

The Company's 1994 Stock Option Plan (the "Plan") was approved by the
Company's Board of Directors and stockholders in January 1995. The Company has
reserved 111,320 shares of its common stock, par value $.01 per share (the
"Common Stock"), under the Plan. Options granted under the Plan may include
those qualified as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended, and non-qualified stock options. The Plan is
administered by a Stock Option Committee of the Board of Directors (the "Stock
Option Committee") consisting of Dr. Bonoma and Mr. Kidd. The Stock Option
Committee has wide latitude in determining the recipients of options and
numerous other terms and conditions of the options. All regular employees and
all directors may be chosen by the Stock Option Committee to participate in the
Plan. Non-employees may receive only nonqualified options. Options become
exercisable in such amounts and at such intervals as the Stock Option Committee
provides for in the applicable option agreement. There are currently outstanding
options under the Plan with respect to 99,805 shares of Common Stock. These
options generally become exercisable with respect to 25% of their shares in each
of the four years 1995 through 1998, and expire in January 2005.

65
<PAGE> 67

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

66
<PAGE> 68

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.

67
<PAGE> 69

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.

<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

68
<PAGE> 70

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
New Indenture governing the Company's New 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 sale of New Senior Notes, 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 New Senior 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

69
<PAGE> 71

finder's fee of $1.0 million from the Initial Purchaser in connection with the
sale of the New Senior Notes 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.

EXCHANGE OFFER

GENERAL

The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange shares of Series C
Preferred Stock for any and all of the outstanding shares of Series B Preferred
Stock (on a share for share basis) properly tendered on or prior to the
Expiration Date and not withdrawn as permitted pursuant to the procedures
described below.

PURPOSE OF THE EXCHANGE OFFER

Pursuant to the Series B Offering which closed on August 15, 1996,
September 16, 1996 and September 27, 1996, the Company issued 115,000 shares of
the Series B Preferred Stock, and a total of 8,381 shares of the Series B
Preferred Stock were issued on November 15, 1996 and February 18, 1997 as
dividends in respect of the Series B Preferred Stock. The issuances of Series B
Preferred Stock were not registered under the Securities Act in reliance upon
the exemption provided in Section 4(2) of the Securities Act.

In connection with the issuance and sale of the Series B Preferred Stock,
the Company entered into the Registration Rights Agreement, which requires the
Company to (i) use its best efforts to cause to be filed with the Commission
within 74 days after the date of the original issuance of the Series B Preferred
Stock (August 15, 1996), a registration statement (the "Exchange Offer
Registration Statement") relating to a registered Exchange Offer for the Series
B Preferred Stock under the Securities Act and (ii) use its best efforts to have
the Exchange Offer Registration Statement declared effective under the
Securities Act within 149 days after the date of the original issuance of the
Series B Preferred Stock. As soon as practicable after the effectiveness of the
Exchange Offer Registration Statement, the Company will offer to the holders of
the Series B Preferred Stock who are not prohibited by any law or policy of the
Commission from participating in the Exchange Offer the opportunity to exchange
their Series B Preferred Stock for Series C Preferred Stock. The Company will
keep the Exchange Offer open for not less than 30 days (or longer, if required
by applicable law) after the date notice of the Exchange Offer is mailed to the
holders of the Series B Preferred Stock. In the event that applicable
interpretations of the staff of the Commission do not permit the Company to
effect the Exchange Offer or do not permit any holder of the Series B Preferred
Stock (including the Initial Purchaser) to participate in the Exchange Offers,
or if the Initial Purchaser has not sold all the securities bought subsequently
to the Expiration Date and requests it, or if the Exchange Offer is commenced
and not consummated within 209 days of issuance of the Series B Preferred Stock,
the Company will file with the Commission a shelf registration statement (the
"Shelf Registration Statement") to cover resales of the

70
<PAGE> 72

Series B Preferred Stock by such holders who satisfy certain conditions relating
to, among other things, the provision of information in connection with the
Shelf Registration Statement. In the event that (i) the Exchange Offer
Registration Statement or the Shelf Registration Statement is not filed within
74 days after the date of original issuance of the Series B Preferred Stock,
(ii) the Exchange Offer Registration Statement or the Shelf Registration
Statement is not declared effective within 149 days after the date of original
issuance of the Series B Preferred Stock or (iii) the Exchange Offer
Registration Statement ceases to be effective prior to the time that the
Exchange Offer is consummated, or the Company has not exchanged the Series C
Preferred Stock for all Series B Preferred Stock validly tendered under the
Exchange Offer or a Shelf Registration Statement is not declared or ceases to be
effective within 209 days following the date of the issuance of the Series B
Preferred Stock (each, a "Registration Default"), the annual dividend rate borne
by the Series B Preferred Stock will immediately increase by 0.5% per annum and
the dividend rate will increase by an additional 0.25% for each subsequent
90-day period during which the Registration Default remains uncured up to a
maximum additional dividend rate of 2.0% per annum. Upon the Registration
Default being cured the dividend rate borne by the Series B Preferred Stock will
be reduced to the original dividend rate. The Exchange Offer is being made by
the Company to satisfy its obligations under the Registration Rights Agreement.

Based on no action letters issued by the staff of the Commission to third
parties, the Company believes that the Series C Preferred Stock issued pursuant
to the Exchange Offer in exchange for Series B Preferred Stock may be offered
for resale, resold and otherwise transferred by holders thereof (other than (i)
a broker-dealer who purchases such Series C Preferred Stock directly from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an affiliate of the Company within
the meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery requirements of the Securities Act provided
that such shares of Series C Preferred Stock are acquired in the ordinary course
of such holders' business and such holders have no arrangement with any person
to participate in the distribution of such Series C Preferred Stock. Any holder
of Series B Preferred Stock who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Series C Preferred Stock could not rely
on such interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Thus, any shares of Series C Preferred
Stock acquired by such holders will not be freely transferable except in
compliance with the Securities Act. Each broker-dealer that receives shares of
Series C Preferred Stock for its own account in exchange for shares of Series B
Preferred Stock acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Series C Preferred Stock. See
"Plan of Distribution."

EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS

The Exchange Offer will expire at 5:00 P.M., New York City time, on
, 1997, unless the Company, in its sole discretion, has extended the
period of time (as described below) for which the Exchange Offer is open (such
date, as it may be extended, is referred to herein as the "Expiration Date").
The Expiration Date will be at least 20 business days after the commencement of
the Exchange Offer in accordance with Rule 14e-1(a) under the Exchange Act. The
Company expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and thereby
delay acceptance for exchange of any shares of Series B Preferred Stock by
giving oral notice (confirmed in writing) or written notice to the Exchange
Agent (as defined herein) and by giving written notice of such extension to the
holders thereof or by timely public announcement communicated, unless otherwise
required by applicable law or regulation, by making a release through the Dow
Jones News Service, in each case, no later than 9:00 A.M. New York City time, on
the next business day after the previously scheduled Expiration Date. Such
announcement may state that the Company is extending the Exchange Offer for a
specified period of time. During any such extension, all shares of Series B
Preferred Stock previously tendered will remain subject to the Exchange Offer.

In addition, the Company expressly reserves the right to terminate or amend
the Exchange Offer and not to accept for exchange any shares of Series B
Preferred Stock not theretofore accepted for exchange upon the

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<PAGE> 73

occurrence of any of the events specified below under "-- Certain Conditions to
the Exchange Offer." If any such termination or amendment occurs, the Company
will notify the Exchange Agent and will either issue a press release or give
oral or written notice to the holders of the Series B Preferred Stock as
promptly as practicable.

For purposes of the Exchange Offer, a "business day" means any day other
than Saturday, Sunday or a federal holiday, and consists of the time period from
12:01 A.M. through 12:00 midnight, New York City time.

PROCEDURES FOR TENDERING SERIES B PREFERRED STOCK

The tender to the Company of shares of Series B Preferred Stock by a holder
thereof as set forth below and the acceptance thereof by the Company will
constitute a binding agreement between the tendering holder and the Company upon
the terms and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal.

A holder of shares of Series B Preferred Stock may tender the same by (i)
properly completing and signing the Letter of Transmittal or a facsimile thereof
(all references in this Prospectus to the Letter of Transmittal shall be deemed
to include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the shares of Series B Preferred Stock
being tendered and any required signature guarantees, to the Exchange Agent at
its address set forth below on or prior to 5:00 p.m., New York City time, on the
Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.

THE METHOD OF DELIVERY OF SHARES OF SERIES B PREFERRED STOCK, LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, OR AN OVERNIGHT OR HAND
DELIVERY SERVICE, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
INSURE TIMELY DELIVERY. NO SHARES OF SERIES B PREFERRED STOCK OR LETTER OF
TRANSMITTAL SHOULD BE SENT TO THE COMPANY.

Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the shares of Series B Preferred Stock
surrendered for exchange pursuant thereto are tendered (i) by a registered
holder of the shares of Series B Preferred Stock who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal or (ii) for the account of an Eligible Institution (as
defined herein). In the event that signatures on a Letter of Transmittal or a
notice of withdrawal, as the case may be, are required to be guaranteed, such
guarantees must be by a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office or
correspondent in the United States (each an "Eligible Institution"). If shares
of Series B Preferred Stock are registered in the name of a person other than a
signer of the Letter of Transmittal, the shares of Series B Preferred Stock
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered holder with the signature thereon guaranteed by an Eligible
Institution.

The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Series B Preferred Stock at
the book-entry transfer facility, The Depository Trust Company, for the purpose
of facilitating the Exchange Offer, and subject to the establishment thereof,
any financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of shares of Series B Preferred
Stock by causing such book-entry transfer facility to transfer such shares of
Series B Preferred Stock into the Exchange Agent's account with respect to the
shares of Series B Preferred Stock in accordance with the book-entry transfer
facility's procedures for such transfer. Although delivery of shares of Series B
Preferred Stock may be effected through book-entry transfer in the Exchange
Agent's account at the book-entry transfer facility, an appropriate Letter of
Transmittal with any required signature guarantee and other required documents
must in each case be transmitted to and received or confirmed by the Exchange
Agent at its address set forth below on or prior to the Expiration Date, or, if
the guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures.

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<PAGE> 74

If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or shares of Series B Preferred Stock to reach the
Exchange Agent before the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if the
Exchange Agent has received at its address or facsimile number set forth below
on or prior to the Expiration Date a letter, telegram or facsimile from an
Eligible Institution setting forth the name and address of the tendering holder,
the name in which the shares of Series B Preferred Stock are registered and, if
possible, the certificate number or numbers of the certificate or certificates
representing the shares of Series B Preferred Stock to be tendered, and stating
that the tender is being made thereby and guaranteeing that within three
business days after the Expiration Date the shares of Series B Preferred Stock
in proper form for transfer (or a confirmation of book-entry transfer of such
shares of Series B Preferred Stock into the Exchange Agent's account at the
book-entry transfer facility), will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless shares of Series B Preferred Stock being
tendered by the above-described method are deposited with the Exchange Agent
within the time period set forth above (accompanied or preceded by a properly
completed Letter of Transmittal and any other required documents), the Company
may, at its option, reject the tender. Copies of a Notice of Guaranteed Delivery
which may be used by an Eligible Institution for the purposes described in this
paragraph are available from the Exchange Agent.

A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the shares of Series B Preferred Stock (or a confirmation of
book-entry transfer of such shares of Series B Preferred Stock into the Exchange
Agent's account at the book-entry transfer facility) is received by the Exchange
Agent, or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile
to similar effect (as provided above) from an Eligible Institution is received
by the Exchange Agent. Issuances of shares of Series C Preferred Stock in
exchange for shares of Series B Preferred Stock tendered pursuant to a Notice of
Guaranteed Delivery or letter, telegram or facsimile to similar effect (as
provided above) by an Eligible Institution will be made only against deposit of
the Letter of Transmittal (and any other required documents) and the tendered
shares of Series B Preferred Stock.

All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of shares of Series B Preferred Stock tendered for
exchange will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
right to reject any and all tenders of any particular shares of Series B
Preferred Stock not properly tendered or reject any particular shares of Series
B Preferred Stock the acceptance of which might, in the judgment of the Company
or its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or condition of the Exchange Offer as to any
particular shares of Series B Preferred Stock either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender shares of Series B Preferred Stock in the Exchange Offer).
The interpretation of the terms and conditions of the Exchange Offer (including
the Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of shares of Series B Preferred Stock for exchange
must be cured within such time as the Company shall determine. Neither the
Company nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of shares of Series B
Preferred Stock for exchange, nor shall any of them incur any liability for
failure to give such notification.

If the Letter of Transmittal or any shares of Series B Preferred Stock or
powers of attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.

By tendering, each holder that is not a broker-dealer or is a broker-dealer
but is not receiving shares of Series C Preferred Stock for its own account will
represent to the Company that, among other things, the shares of Series C
Preferred Stock acquired pursuant to the Exchange Offer are being obtained in
the ordinary course of such holder's business, that such holder has no
arrangement or understanding with any person to participate in the distribution
of such shares of Series C Preferred Stock and that such holder is not an
"affiliate" of the Company as defined in Rule 405 under the Securities Act or,
if it is an affiliate, such holder

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<PAGE> 75

will comply with the registration and prospectus delivery requirements of the
Securities Act, to the extent applicable. Each broker-dealer that is receiving
shares of Series C Preferred Stock for its own account in exchange for shares of
Series B Preferred Stock that were acquired as a result of market-making or
other trading activities will represent to the Company that it will deliver a
prospectus in connection with any resale of such shares of Series C Preferred
Stock.

In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any shares of Series B Preferred Stock that remain
outstanding subsequent to Expiration Date, or, as set forth under "-- Certain
Conditions to the Exchange Offer," to terminate the Exchange Offer and (b) to
the extent permitted by applicable law, purchase shares of Series B Preferred
Stock in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers may differ from the terms of the Exchange
Offer.

WITHDRAWAL RIGHTS

Tenders of shares of Series B Preferred Stock may be withdrawn at any time
prior to the Expiration Date. For a withdrawal to be effective, a written notice
of withdrawal sent by letter, telegram or facsimile must be received by the
Exchange Agent prior to the Expiration Date at its address or facsimile number
set forth below. Any such notice of withdrawal must (i) specify the name of the
person having tendered the shares of Series B Preferred Stock to be withdrawn
(the "Depositor"), (ii) identify the shares of Series B Preferred Stock to be
withdrawn (including the certificate number or numbers of the certificate or
certificates representing such shares of Series B Preferred Stock and number of
shares of such Series B Preferred Stock), (iii) be signed by the holder in the
same manner as the original signature on the Letter of Transmittal by which such
shares of Series B Preferred Stock were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
permit the Transfer Agent with respect to the shares of Series B Preferred Stock
to register the transfer of such shares of Series B Preferred Stock into the
name of the person withdrawing the tender and (iv) specify the name in which any
such shares of Series B Preferred Stock are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such withdrawal notices will be determined by the
Company in its sole discretion, which determination will be final and binding on
all parties. Any shares of Series B Preferred Stock so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange Offer and no
shares of Series C Preferred Stock will be issued with respect thereto unless
the shares of Series B Preferred Stock so withdrawn are validly retendered. Any
shares of Series B Preferred Stock which have been tendered but which are
withdrawn will be returned to the holder thereof without cost to such holder as
soon as practicable after such withdrawal. Properly withdrawn shares of Series B
Preferred Stock may be retendered by following one of the procedures described
above under "-- Procedures for Tendering Series B Preferred Stock" at any time
prior to the Expiration Date.

ACCEPTANCE OF SERIES B PREFERRED STOCK FOR EXCHANGE; DELIVERY OF SERIES C
PREFERRED STOCK

Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all shares of
Series B Preferred Stock properly tendered and will issue the shares of Series C
Preferred Stock promptly after acceptance of the Exchange Offer. See "-- Certain
Conditions to the Exchange Offer" below. For purposes of the Exchange Offer, the
Company will be deemed to have accepted properly tendered shares of Series B
Preferred Stock for exchange when the Company has given oral or written notice
thereof to the Exchange Agent.

In all cases, issuance of the shares of Series C Preferred Stock in
exchange for shares of Series B Preferred Stock pursuant to the Exchange Offer
will be made only after timely receipt by the Company of such shares of Series B
Preferred Stock, a properly completed and duly executed Letter of Transmittal
and all other required documents. If any tendered shares of Series B Preferred
Stock are not accepted for exchange for any reason set forth in the terms and
conditions of the Exchange Offer, such unaccepted shares of Series B Preferred
Stock will be returned without expense to the tendering holder thereof as
promptly as practicable after the rejection of such tender or the expiration or
termination of the Exchange Offer.

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<PAGE> 76

UNTENDERED SERIES B PREFERRED STOCK

Holders of shares of Series B Preferred Stock whose shares of Series B
Preferred Stock are not tendered or are tendered but not accepted in the
Exchange Offer will continue to hold such shares of Series B Preferred Stock and
will be entitled to all the rights and preferences and subject to the
limitations applicable thereto. Following consummation of the Exchange Offer,
the holders of shares of Series B Preferred Stock will continue to be subject to
the existing restrictions upon transfer thereof and, except as provided herein,
the Company will have no further obligation to such holders to provide for the
registration under the Securities Act of the shares of Series B Preferred Stock
held by them. To the extent that shares of Series B Preferred Stock are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted shares of Series B Preferred Stock could be adversely
affected.

CERTAIN CONDITIONS TO THE EXCHANGE OFFER

Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or issue shares of Series C Preferred Stock
in exchange for, any shares of Series B Preferred Stock, and may terminate or
amend the Exchange Offer, if at any time before the acceptance of such shares of
Series B Preferred Stock for exchange, any of the following events shall occur:

(A) an injunction, order or decree shall have been issued by any court
or governmental agency that would prohibit, prevent or otherwise materially
impair the ability of the Company to proceed with the Exchange Offer; or

(B) there shall occur a change in the current interpretation of the
staff of the Commission which current interpretation permits the shares of
Series C Preferred Stock issued pursuant to the Exchange Offer in exchange
for the shares of Series B Preferred Stock to be offered for resale, resold
and otherwise transferred by holders thereof (other than (i) a
broker-dealer who purchases such Series C Preferred Stock directly from the
Company to resell pursuant to Rule 144A or any other available exemption
under the Securities Act or (ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such shares of Series C Preferred Stock are
acquired in the ordinary course of such holders' business and such holders
have no arrangement with any person to participate in the distribution of
shares of Series C Preferred Stock.

The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.

If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any shares of Series B
Preferred Stock and return any shares of Series B Preferred Stock that have been
tendered to the holders thereof, (ii) extend the Exchange Offer and retain all
shares of Series B Preferred Stock tendered prior to the Expiration Date,
subject to the rights of such holders of tendered shares of Series B Preferred
Stock to withdraw their tendered shares of Series B Preferred Stock, or (iii)
waive such termination event with respect to the Exchange Offer and accept all
properly tendered shares of Series B Preferred Stock that have not been
withdrawn. If such waiver constitutes a material change in the Exchange Offer,
the Company will disclose such change by means of a supplement to this
Prospectus that will be distributed to each registered holder of shares of
Series B Preferred Stock, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
waiver and the manner of disclosure to the registered holders of the shares of
Series B Preferred Stock, if the Exchange Offer would otherwise expire during
such period.

In addition, the Company will not accept for exchange any Series B
Preferred Stock tendered, and no Series C Preferred Stock will be issued in
exchange for any such Series B Preferred Stock, if at any time any stop order
shall be threatened by the Commission or in effect with respect to the
Registration Statement.

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The Exchange Offer is not conditioned on any minimum number of shares of
Series B Preferred Stock being tendered for exchange.

EXCHANGE AGENT

The Firstar Trust Company ("Firstar") has been appointed as Exchange Agent
for the Exchange Offer. Questions regarding Exchange Offer procedures and
requests for additional copies of this Prospectus or the Letter of Transmittal
should be directed to the Exchange Agent addressed as follows:

<TABLE>
<S> <C>
By Mail: By Hand or Overnight Delivery:
Firstar Trust Company Firstar Trust Company
Corporate Trust Services Corporate Trust Services
Milwaukee, WI 53201-2077 615 E. Michigan Street, 4th Floor
Attention: Suzanne P. Norman Milwaukee, WI 53201-2077
Barnes Attention: Suzanne P. Norman Barnes
</TABLE>

By Facsimile:
(414) 276-4226
Confirm by Telephone:
(414) 287-3971

Firstar is also the Transfer Agent for the Series B Preferred Stock and the
Series C Preferred Stock.

SOLICITATION OF TENDERS; FEES AND EXPENSES

The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The cash expenses to be incurred by the Company in
connection with the Exchange Offer will be paid by the Company.

No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of shares of Series B Preferred Stock in
any jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction.

TRANSFER TAXES

The Company will pay all transfer taxes, if any, applicable to the exchange
of shares of Series B Preferred Stock pursuant to the Exchange Offer. If,
however, certificates representing shares of Series C Preferred Stock or shares
of Series B Preferred Stock not tendered or accepted for exchange are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the shares of Series B Preferred Stock tendered,
or if tendered shares of Series B Preferred Stock are registered in the name of
any person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of shares of
Series B Preferred Stock pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.

ACCOUNTING TREATMENT

No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. Expenses incurred in connection
with the issuance of the Series C Preferred Stock will be amortized by the
Company over the term of the Series C Preferred Stock under generally accepted
accounting principles.

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PLAN OF DISTRIBUTION

Each broker-dealer that receives shares of Series C Preferred Stock for its
own account in exchange for shares of Series B Preferred Stock acquired as a
result of market-making or other trading activities must acknowledge that it
will deliver a prospectus in connection with any resale of such shares of Series
C Preferred Stock. For a period of 90 days after the Expiration Date, this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of such shares of Series C
Preferred Stock. During such 90-day period, the Company will use its best
efforts to make this Prospectus available to any broker-dealer for use in
connection with such resale, provided that such broker-dealer indicates in the
Letter of Transmittal that it is a broker-dealer.

The Company will not receive any proceeds from any sale of shares of Series
C Preferred Stock by broker-dealers. Shares of Series C Preferred Stock received
by broker-dealers for their own account pursuant to the Exchange Offer may be
sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the shares
of Series C Preferred Stock or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through broker-dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such shares of Series C Preferred
Stock. Any broker-dealer that resells shares of Series C Preferred Stock that
were received by it for its own account pursuant to the Exchange Offer and any
person that participates in the distribution of such shares of Series C
Preferred Stock may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of shares of Series C Preferred
Stock and any commissions or concessions received by any such broker-dealers may
be deemed to be underwriting compensation under the Securities Act. The Letter
of Transmittal states that a broker-dealer, by acknowledging that it will
deliver and by delivering a prospectus, will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.

The Company will indemnify the holders of the Series C Preferred Stock
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.

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DESCRIPTION OF SERIES C PREFERRED STOCK

The Series C Preferred Stock will be issued pursuant to a certificate of
designation (the "Certificate of Designation"). The summary contained herein of
certain provisions of the Series C Preferred Stock does not purport to be
complete and is qualified in its entirety by reference to the provisions of the
Certificate of Designation.

GENERAL

Subject to limitations imposed by law or the Company's Certificate of
Incorporation, the Board of Directors is empowered to determine with respect to
the Company's preferred stock (a) the designation of such series, the number of
shares to constitute such series; (b) whether the shares of such series shall
have voting rights, in addition to any voting rights provided by law, and, if
so, the terms of such voting rights; (c) the annual rate or amount of dividends,
if any, payable on the shares of such series, the conditions and dates upon
which such dividends shall be payable, and whether such dividends shall be
cumulative or non-cumulative; (d) whether the shares of such series shall be
subject to redemption by the Company, and, if made subject to redemption, the
times, prices and other terms and conditions of such redemption; (e) the amount
or amounts payable upon shares of such series, and rights of the holders of
shares of such series upon the voluntary or involuntary liquidation, dissolution
or winding up, of the Company; (f) whether or not the shares of such series
shall be convertible into, or exchangeable for, shares of stock of any other
class or classes, or of any other series of the same class, and if so
convertible or exchangeable, the terms and conditions thereof, including the
date or dates of conversion or exchange and the method, if any, of adjusting the
same; (g) the conditions or restrictions, if any, upon the creation or
indebtedness of the Company or upon the issuance of any additional stock
including additional shares of such series or of any other series or of any
other class; and (h) any other designations, preferences and relative,
participating, optional and other special rights or qualifications, limitations
or restrictions thereof. The Series C Preferred Stock when issued in exchange
for the Series B Preferred Stock in accordance with the terms of the Exchange
Offer will be fully paid and non-assessable, and the holders thereof will have
no subscription or preemptive rights related thereto.

The Board of Directors has adopted resolutions (i) authorizing the issuance
of up to 350,000 shares of the Series C Preferred Stock, which consist of up to
115,000 shares of Series C Preferred Stock to be issued in the Exchange Offer
plus additional shares of Series C Preferred Stock which may be used to pay
dividends on the Series C Preferred Stock if the Company elects to pay dividends
in additional shares of the Series C Preferred Stock, and (ii) authorizing the
Company to file the Certificate of Designation and the Certificate of Increase
with respect to the Series C Preferred Stock with the Secretary of State of the
State of Delaware as required by Delaware law. The Certificate of Increase was
filed on September 27, 1996, with the consent of holders of a majority of the
outstanding shares of the Series B Preferred Stock and the Series C Preferred
Stock, treated as a single series and class, to increase the number of
authorized shares of Series C Preferred Stock from 325,000 shares to 350,000
shares.

Ranking

The Series C Preferred Stock, with respect to dividends and distributions
upon the liquidation, winding-up and dissolution of the Company, ranks senior to
(a) all classes of Common Stock of the Company, (b) the Cumulative Exchangeable
Preferred Stock and (c) each other class of capital stock issued by the Company
after the Exchange Offer. The Series C Preferred Stock will rank pari passu with
the Series B Preferred Stock.

Dividends

Holders of Series C Preferred Stock are entitled, when, as and if declared
by the Board of Directors out of funds legally available therefor, to receive
dividends on each outstanding share of Series C Preferred Stock, at the rate of
14.0% per annum. Dividends on the Series C Preferred Stock issued in exchange
for the Series B Preferred Stock are payable quarterly in arrears on February
15, May 15, August 15 and November 15 of each year (unless such day is not a
business day, in which case the immediately succeeding business day),

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<PAGE> 80

commencing on the first Dividend Payment Date to holders of record 15 days
preceding the Dividend Payment Date. Dividends on the Series C Preferred Stock
issued in exchange for the Series B Preferred Stock will be cumulative (whether
or not declared) from the later of (a) the last Dividend Payment Date on which
dividends were paid on such Series B Preferred Stock surrendered in exchange
therefor, or (b) if no dividends have been paid on such Series B Preferred
Stock, from the date of issuance of the Series B Preferred Stock. Dividends on
the Series C Preferred Stock issued as dividends in respect of the Series C
Preferred Stock will be cumulative (whether or not earned or declared) from the
date of issuance of the Series C Preferred Stock. Dividends which are not
declared and paid when due will compound quarterly on each Dividend Payment Date
at the dividend rate until payment is made.

Dividends may, at the option of the Company, be paid on any Dividend
Payment Date either in cash or by issuing fully paid and nonassessable shares of
Series C Preferred Stock with an aggregate liquidation preference equal to the
amount of such dividends through the November 17, 1997 Dividend Payment Date,
and in cash on all Dividend Payment Dates thereafter. If the Company does not
pay cash dividends after November 17, 1997, the per annum dividend rate will be
increased by 0.25% during each quarter ended on each Dividend Payment Date on
which non-cash payment occurs, unless such non-cash payment has occurred during
more than four quarters, in which case the per annum dividend rate will be
increased by 0.5% in each additional quarter in which such non-cash payment
occurs, with a maximum rate of 17.0% per annum. If the dividend rate has been
increased as a result of a non-cash payment, the rate will not revert to the
original rate even when the Company begins to pay cash dividends.

Optional Redemption

The Series C Preferred Stock will be redeemable, at the Company's option,
in whole or in part, at any time and from time to time on or after September 1,
1999, subject to the legal availability of funds therefor, upon not less than 30
days nor more than 60 days prior notice mailed by first-class mail to each
holder's registered address, at the following redemption prices (expressed in
percentages of liquidation preference), plus accrued and unpaid dividends, if
any, to the redemption date, if redeemed during the 12-month period set forth
below:

<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
------------------------------------------------------------------- ----------------
<S> <C>
September 1, 1999 to and including August 31, 2000................. 108%
September 1, 2000 to and including August 31, 2001................. 106%
September 1, 2001 to and including August 31, 2002................. 104%
September 1, 2002 to and including August 31, 2003................. 102%
September 1, 2003 and thereafter................................... 100%
</TABLE>

In addition, at any time prior to September 1, 1999 the Company may redeem
(pursuant to one or more redemptions) up to 35% of the aggregate liquidation
preference of the Series C Preferred Stock (and the Series B Preferred Stock,
taken together) with net proceeds received from one or more public offerings of
equity securities of the Company at a redemption price equal to 110% of the
liquidation preference thereof, plus accrued and unpaid dividends thereon to the
date of redemption. Any such redemption will be required to occur on or prior to
120 days after the receipt of such net proceeds.

Mandatory Redemption

The Company is obligated to redeem all shares of the Series C Preferred
Stock outstanding on August 31, 2006 (the "Mandatory Redemption Date"), at a
redemption price equal to the liquidation preference of the Series C Preferred
Stock, payable in cash, plus accrued and unpaid dividends, which shall also be
payable in cash (whether or not otherwise payable in cash), to the date of
redemption. The Company's obligation to redeem the Series C Preferred Stock is
subject to the legal availability at the Company of funds therefor.

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Change of Control

Upon a Change of Control of the Company, the Company shall, only if and
only to the extent permitted by the New Senior Notes, and any other long term
indebtedness outstanding at such time, make an offer to purchase the outstanding
shares of the Series C Preferred Stock at a purchase price equal to 101% of the
liquidation preference of the Series C Preferred Stock, plus accrued and unpaid
dividends, if any, to the purchase date; provided, that, such obligation will
not result in the Series C Preferred Stock being deemed to be disqualified stock
under any long-term indebtedness of the Company. If the Company does not make an
offer to purchase the Series C Preferred Stock upon a Change of Control, the
dividend rate will be increased to an annual rate of 17% per annum. The
Company's obligation to redeem the Series C Preferred Stock will be subject to
the legal availability of funds therefor. A "Change of Control" of the Company
will be deemed to have occurred at such time as (i) any person other than KKEP,
Dr. Bonoma, the heirs, executors, administrators testamentary, trustees,
legatees or beneficiaries of KKEP or Dr. Bonoma, a trust the beneficiaries of
which include only persons described above and their respective spouses and
lineal descendants, the general partner and each limited partner of KKEP and any
subsidiary of either KKEP or Dr. Bonoma or both of them jointly (collectively,
the "Permitted Holders"), becomes the beneficial owner of 50% or more of the
total voting power of the Company's Common Stock; (ii) prior to a public equity
offering of Common Stock, Permitted Holders collectively dispose of more than
50% of the shares of the Common Stock owned by the Permitted Holders in the
aggregate as of the date hereof (excluding dispositions made to any other
Permitted Holders); (iii) any person other than a Permitted Holder becomes the
beneficial owner of more than 35% of the total voting power of the Company's
Common Stock and the Permitted Holders together with officers and employees of
the Company beneficially own, in the aggregate, a lesser percentage of the total
voting power of the Common Stock of the Company than such other person and do
not have the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of the Company; (iv)
there shall be consummated any consolidation or merger of the Company in which
the Company is not the continuing or surviving corporation or pursuant to which
the Common Stock of the Company would be converted into cash, securities or
other property, other than a merger or consolidation of the Company in which the
holders of the Common Stock of the Company outstanding immediately prior to the
consolidation or merger hold, directly or indirectly, at least a majority of the
Common Stock of the surviving corporation immediately after such consolidation
or merger; or (v) subsequent to a public equity offering of Common Stock during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of the Company (together with any new
directors whose election by the stockholders of the Company has been approved by
66 2/3% of the directors then still in office who either were directors at the
beginning of such period or whose election or recommendation or election was
previously so approved) cease to constitute a majority of the Board of Directors
of the Company.

Procedure for Redemption

On and after a redemption date, unless the Company defaults in the payment
of the applicable redemption price, dividends will cease to accrue on shares of
the Series C Preferred Stock called for redemption and all rights of holders of
such shares will terminate except for the right to receive the redemption price,
without interest. The Company will send a written notice of redemption by first
class mail, postage prepaid, to each holder of record of shares of the Series C
Preferred Stock, not fewer than 30 days nor more than 60 days prior to the date
fixed for such redemption. Shares of the Series C Preferred Stock issued and
reacquired will, upon compliance with the applicable requirements of Delaware
law, have the status of authorized but unissued shares of preferred stock of the
Company undesignated as to series and may with any and all other authorized but
unissued shares of preferred stock of the Company be designated or redesignated
and issued or reissued, as the case may be, as part of any series of preferred
stock of the Company, except that any issuance or reissuance of shares of the
Series C Preferred Stock must be in compliance with the Certificate of
Designation.

In the event of partial redemptions of the Series C Preferred Stock, the
shares to be redeemed will be determined pro rata or by lot, as determined by
the Company, except that the Company may redeem such

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shares held by any holder of fewer than 100 shares (or shares held by holders
who would hold less than 100 shares as a result of such redemption), as may be
determined by the Company.

Liquidation Preference

In the event of any liquidation, dissolution or winding-up of the Company,
holders of the Series C Preferred Stock will be entitled to receive a
preferential amount equal to $1,000 per share, plus all accrued and unpaid
dividends thereon to the date fixed for liquidation, dissolution or winding-up
of the Company (including an amount equal to a prorated dividend from the last
Dividend Payment Date to the date fixed for liquidation, dissolution or
winding-up), before any distribution is made on any capital stock, including,
without limitation, on any Common Stock other than the Series B Preferred Stock.
If upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, the amounts payable with respect to the Series C Preferred Stock
are not paid in full, the holders of the Series C Preferred Stock and the Series
B Preferred Stock will share equally and ratably in any distribution of assets
of the Company in proportion to the full liquidation preference to which each is
entitled. After payment of the full amount of the liquidation preferences to
which they are entitled, the holders of shares of the Series C Preferred Stock
will not be entitled to any further participation in any distribution of assets
of the Company. However, neither the sale, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Company nor the consolidation
or merger of the Company with one or more corporations shall be deemed to be a
liquidation, dissolution or winding-up of the Company.

The Certificate of Designation for the Series C Preferred Stock does not
contain any provision requiring funds to be set aside to protect the liquidation
preference of the Series C Preferred Stock, although such liquidation preference
will be substantially in excess of the par value of such shares of Series C
Preferred Stock. In addition, the Company is not aware of any provision of
Delaware law or any controlling decision of the courts of the State of Delaware
(the state of incorporation of the Company) that requires a restriction upon the
surplus of the Company solely because the liquidation preference of the Series C
Preferred Stock will exceed its par value. Consequently, there will be no
restriction upon any surplus of the Company solely because the liquidation
preference of the Series C Preferred Stock will exceed the par value and there
will be no remedies available to holders of the Series C Preferred Stock before
or after the payment of any dividend, other than in connection with the
liquidation preference of the Company, solely by reason of the fact that such
dividend would reduce the surplus of the Company to an amount less than the
difference between the liquidation preference of the Series C Preferred Stock
and its par value.

Voting Rights

Holders of the Series C Preferred Stock (acting together with the holders
of the Series B Preferred Stock, as a single class) will have the right to
nominate three candidates for directors on the Company's Board of Directors. The
Company shall use all reasonably commercial efforts to cause the election of one
of such nominees selected by the Company. Holders of the Series C Preferred
Stock otherwise have no general voting rights except as provided by law.

Under Delaware law, holders of Series C Preferred Stock will be entitled to
vote as a class upon a proposed amendment to the certificate of incorporation,
whether or not entitled to vote thereon by the certificate of incorporation, if
the amendment would increase or decrease the par value of the shares of such
class, or alter or change the powers, preferences or special rights of the
shares of such class so as to affect them adversely.

Covenants

The Certificate of Designation generally imposes certain restrictions on
the ability of the Company to declare dividends or make distributions with
respect to, or purchase, or redeem or exchange any capital stock of the Company
other than the Series C Preferred Stock and the Series B Preferred Stock, except
in or for capital stock (other than capital stock which matures or is
mandatorily redeemable prior to the latest maturity date of the Old Senior Notes
or the Series C Preferred Stock ("Disqualified Capital Stock")), unless

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<PAGE> 83

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 payment of management or advisory
fees to KKEP or to its affiliates in an amount that, when taken with all such
previous amounts paid since April 15, 1994, does not exceed an average annual
amount of $675,000.

The Certificate of Designation prohibits the Company from exercising its
option to exchange, either in whole or in part, the Cumulative Exchangeable
Preferred Stock for notes without the prior consent of the holders of the
majority in aggregate liquidation of the Series C Preferred Stock and the Series
B Preferred Stock, voting as a single class.

Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or Section 15(d) of the Exchange Act, the Company
will be obligated to provide to the holders of the Series C Preferred Stock all
annual and quarterly reports and other documents which the Company would have
been required to file with the Commission pursuant to such Sections 13(a) and
15(d) had it been so subject and provide to all holders of Series C Preferred
Stock, without costs to such holders, copies of such reports and documents.

Transfer Agent and Registrar

Firstar Trust Company is the transfer agent and registrar for the Series C
Preferred Stock.

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<PAGE> 84

DESCRIPTION OF CERTAIN INDEBTEDNESS

The following summary of the material terms of the agreements governing
certain of the Company's indebtedness does not purport to be complete and is
qualified in its entirety by reference to the provisions of such agreements,
copies of which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.

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 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 New Senior 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 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.

NEW INDENTURE

On February 7, 1997, the Company issued $200.0 million of 11.75% Senior
Notes due 2004 (the "New Senior Notes") under the Indenture, dated as of
February 7, 1997 (the "New Indenture"), among the Company, United States Trust
Company of New York, as trustee (the "Trustee"), and RGI, as guarantor.
Capitalized terms used in this section and not otherwise defined herein shall
have the meaning set forth in the New Indenture.

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<PAGE> 85

The New Senior Notes are general unsecured obligations of the Company
except to the extent they will be collateralized by a first priority security
interest in the Escrow Account granted by RGI. Interest on the New Senior Notes
is payable semiannually in arrears on each February 15 and August 15, commencing
on August 15, 1997.

The Company transferred $17.5 million of the net proceeds from the sale of
the New Senior Notes to RGI, a single-purpose corporation, which is a
wholly-owned subsidiary of the Company, in exchange for a limited guarantee by
RGI of the Company's obligations under the New Senior Notes to the extent of the
value of the property owned by RGI (the "Subsidiary Guarantee"). RGI placed such
amount into the Escrow Account for the benefit of the holders of the New Senior
Notes to provide security for a portion of the Company's obligations under the
New Senior Notes until February 15, 1999.

The New Senior Notes are not entitled to any mandatory redemption or
sinking fund payments and are not redeemable at the Company's option prior to
February 15, 2002. Thereafter, the New Senior Notes will be redeemable in whole
or in part at the option of the Company, at redemption prices set forth in the
New Indenture plus accrued and unpaid interest thereon, if any, to the
applicable date of redemption. Notwithstanding the foregoing, on or prior to
February 15, 2000, the Company may redeem up to 35% of the original principal
amount of the New Senior 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 New Senior 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, the Company will be required to offer to
repurchase the New Senior Notes at a purchase price equal to 101% of the
aggregate principal amount of the New Senior Notes plus accrued and unpaid
interest thereon to the date of repurchase. For purposes of the New Indenture, a
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 (i.e. KKEP, Dr. Bonoma, and certain related persons), 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.

The New Indenture contains numerous affirmative and negative covenants that
restrict the activities of the Company in many respects. Among other things, the
Indenture provides that, subject to certain exceptions, (i) the Company may not
and may not permit any of its subsidiaries to, directly or indirectly incur any
Indebtedness and the Company may not permit any of its Subsidiaries to issue any
Preferred Stock, unless no Default or Event of Default shall have occurred and
be continuing at the time or as a consequence thereof

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and certain Indebtedness to EBITDA ratio requirements are met; and (ii) the
Company may not use 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 certain Indebtedness to EBITDA
ratio requirements or certain EBITDA targets are met.

The New Indenture provides that the Company may not, and may not permit any
of its Subsidiaries to, directly or indirectly, make any Restricted Payment,
unless no Default or Event of Default shall have occurred and be continuing at
the time or as a consequence thereof, and immediately after giving pro forma
effect to such Restricted Payment, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) and such payments, together
with the aggregate of all such payments made after the date of the New
Indenture, does not exceed certain limits set forth in the New Indenture.

In addition, the New Indenture provides that the Company may not, and may
not permit any of its Subsidiaries to, (i) make any investment other than
certain permitted investments and investments that are made as Restricted
Payments in compliance with the Restricted Payment covenant; (ii) 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 Subsidiary
of the Company or any shares of stock or debt of any such Subsidiary which owns
property, now owned or hereafter acquired, unless the New Senior Notes are
secured on at least an equal and ratable basis with the obligations so secured
and (iii) 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 or holder of 10% or
more of the Company's common stock unless the terms of such transaction are fair
and reasonable and at least as favorable as the terms which could be obtained in
an arm's-length transaction.

The New Indenture also limits (i) the creation of subsidiaries; (ii)
certain asset sales; and (iii) the sale, pledge, conveyance or issuance of any
capital stock of subsidiaries.

Events of Default under the New Indenture include, among other things, (i)
default in payment of any principal of, or premium, if any on the New Senior
Notes; (ii) default for 30 days in payment of any interest on the New Senior
Notes; (iii) default by the Company in the observance or performance of any
other covenant in the New Senior Notes, the New 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 New Senior Notes then
outstanding; (iv) 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 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 New Indenture;
(v) 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; (vi) certain events involving bankruptcy,
insolvency or reorganization of the Company or any of its Significant
Subsidiaries; (vii) repudiation by the Company of its obligations under the
Escrow Agreement for any reason; and (viii) repudiation by RGI of its
obligations under, or the unenforceability of, the Subsidiary Guarantee. Upon
the occurrence of an Event of Default described in (vi), the unpaid principal of
and any accrued interest on the New Senior Notes will become immediately due and
payable. Upon the occurrence of any of the other Events of Default, the Trustee
or the holders of at least 25% in principal of the outstanding New Senior Notes
may declare the unpaid principal of and accrued interest on the New Senior Notes
to be due and payable.

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DESCRIPTION OF OUTSTANDING CAPITAL STOCK

The following summary of the outstanding capital stock of the Company does
not purport to be complete and is qualified in its entirety by reference to the
detailed provisions of the following documents: (i) the Company's Restated
Certificate of Incorporation (the "Certificate of Incorporation"), including the
Certificates of Designation referred to herein and (ii) the Company's by-laws.

GENERAL

Under the Company's Certificate of Incorporation, the Company is authorized
to issue 4,000,000 shares of capital stock, of which 3,000,000 shares are common
stock, par value $.01 per share (the "Common Stock"), and 1,000,000 shares are
preferred stock, par value $.01 per share (the "Serial Preferred Stock"). As of
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 $0.01 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."

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<PAGE> 88

Dividends on shares of Cumulative Exchangeable Preferred Stock are
cumulative from the date of issue and are payable quarterly in arrears on
February 15, May 15, August 15 and November 15 of each year. The initial
dividend rate on the Cumulative Exchangeable Preferred Stock was 10% per annum.
Dividends are payable in (i) cash, (ii) additional shares of Cumulative
Exchangeable Preferred Stock or (iii) any combination thereof, at the option of
the Company, up to and including the August 15, 1997 dividend, and in cash
thereafter. Commencing on August 16, 1999, the dividend rate per share will be
15% per annum.

At any time after August 15, 1997, and prior to August 16, 1999, if (i) the
Cumulative Exchangeable Preferred Stock is not exchangeable into Senior Notes
because the Fixed Charge Coverage Ratio (as described in the Indenture) for the
Company's most recently ended four full fiscal quarters for which internal
financial information is available is less than 2.0:1, or (ii) in the event that
a cash dividend is not declared and paid when due and the Cumulative
Exchangeable Preferred Stock is not then exchangeable into Senior Notes for any
reason, then, in each case, the dividend rate thereafter shall be 12.5% per
annum for the period from August 16, 1997 until August 15, 1998 and 13.75% per
annum for the period from August 16, 1998 to August 15, 1999.

The Company may at any time exchange all, but not less than all, of the
then outstanding Cumulative Exchangeable Preferred Stock for senior notes to be
issued under the 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 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.

Series B Preferred Stock

350,000 shares have been designated in the Certificate of Incorporation as
Series B Preferred Stock. The Company issued an aggregate of 115,000 shares of
Series B Preferred Stock with a par value of $.01 per share on August 15, 1996,
September 16, 1996 and September 27, 1996 and 8,381 shares were issued on
November 15, 1996 and February 18, 1997 as dividends in respect of the Series B
Preferred Stock. 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.

WARRANTS

Initial Warrants

The Company issued warrants to purchase shares of Common Stock of the
Company (the "Initial Warrants") under a Warrant Agreement, dated as of August
18, 1994, between the Company and American Bank National Association as warrant
agent (the "Initial Warrant Agreement"), as part of the issuance of the Senior
Notes and Cumulative Exchangeable Preferred Stock and has reserved 180,000
shares of Common Stock for issuance pursuant to the Initial Warrants. Each
Initial Warrant, when exercised, will entitle the holder thereof to receive the
number of shares of the Company's Common Stock set forth in such Initial Warrant
at $.01 per share. The number of shares of Common Stock into which an Initial
Warrant is

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<PAGE> 89

convertible (the "Warrant Shares") may be subject to adjustment in certain cases
referred to below and detailed in the Initial Warrant Agreement. The Initial
Warrants are exercisable at any time on or after their date of issuance and
unless exercised, will automatically expire at 5:00 p.m. Eastern Standard Time
on August 15, 2001. The Initial Warrants and the Warrant Shares have not been
registered under the Securities Act and are subject to certain transfer
restrictions.

The holders of the Initial Warrants have no right to vote on matters
submitted to the shareholders of the Company and have no right to receive
dividends. The holders of the Initial Warrants are not entitled to share in the
assets of the Company in the event of liquidation, dissolution or the winding up
of the affairs of the Company.

If the Company (i) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock or other shares of its capital stock, (ii)
subdivides its outstanding shares of Common Stock into a greater number of
shares, (iii) combines its outstanding shares of Common Stock into a smaller
number of shares, or (iv) issues by reclassification of its Common Stock any
shares of its capital stock, then the number of shares of Common Stock issuable
upon exercise of each Initial Warrant immediately prior to such action shall be
proportionately adjusted so that the holder of any Initial Warrant thereafter
exercised may receive the aggregate number and kind of shares of capital stock
of the Company that such holder would have owned immediately following such
action if such Initial Warrant had been exercised immediately prior to such
action.

If the Company distributes to all holders of its Common Stock any of its
assets (including but not limited to cash), securities (other than capital
stock), or any rights or warrants to purchase securities (including but not
limited to Common Stock) of the Company, the Company will make the same
distribution to holders of the Initial Warrants as though, immediately prior to
the record date with respect to such distribution, each such holder owned the
number of shares of Common Stock such holder could have purchased upon the
exercise of the Initial Warrants held by such holder.

Subject to certain exceptions set forth in the Initial Warrant Agreement,
if the Company issues (i) shares of Common Stock for a consideration per share
less than the Current Market Price per share (as defined in the Initial Warrant
Agreement), or (ii) any securities convertible into or exchangeable for Common
Stock for a consideration per share of Common Stock initially deliverable upon
conversion or exchange of such securities that is less than the Current Market
Price per share on the date of issuance of such securities, the Company shall
offer to sell to each holder of Initial Warrants, at the same price and on the
same terms offered to all other prospective buyers (provided that the holders of
Initial Warrants shall not be required to buy any other security in order to buy
such Common Stock or convertible securities), a portion of such Common Stock or
convertible securities that is equal to such holder's portion of the Common
Stock then outstanding if immediately prior thereto all the Initial Warrants had
been exercised. Each such holder may elect to buy all or any portion of the
Common Stock or convertible securities offered or may decline to purchase any.

Notwithstanding the foregoing, no adjustment or action need be made for (i)
a change solely in the par value or no par value of the Common Stock, provided
that the Company shall not increase the par value to exceed the exercise price
of the Initial Warrants, (ii) the conversion or exchange (other than pursuant to
a reclassification), in any case on a share-for-share basis, of Common Stock for
non-voting common stock that has rights (other than voting rights) identical to
the Common Stock, or of such non-voting stock for Common 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.

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<PAGE> 90

Except under certain circumstances including, without limitation, an
underwriter's market cut-back and registration of shares to be offered pursuant
to an employee benefit plan, an exchange offer or certain merger transactions,
whenever the Company proposes to register any shares of its Common Stock under
the Securities Act, the Company will notify each holder of the Initial Warrants
or Warrant Shares of the proposed filing and if so requested by such holders,
the Company will use its best efforts to register Warrant Shares under the
Securities Act.

The holders of Initial Warrants and Warrant Shares are entitled, with
certain limitations, to demand registration rights with respect to the Warrant
Shares at any time after 90 days following an initial public offering of the
Common Stock, provided that the managing underwriter may require such period to
be extended to up to 180 days following such initial public offering.

Series B Warrants

The Company issued warrants to purchase shares of Common Stock (the "Series
B Warrants") under a Warrant Agreement, dated as of August 15, 1996, between the
Company and Firstar Trust Company as warrant agent, as amended (the "Series B
Warrant Agreement"), as part of the issuance of the Series B Preferred Stock and
has reserved 341,550 shares of Common Stock for issuance pursuant to the Series
B Warrants. Each Series B Warrant, when exercised, will entitle the holder
thereof to purchase 2.970 shares of Common Stock of the Company (each such
share, a "Series B Warrant Share") at an exercise price equal to $.01 per share
(the "Exercise Price"). The number of Series B Warrant Shares may be adjusted
from time to time upon the occurrence of certain events as provided in the
Series B Warrant Agreement. The Series B Warrants are exercisable at any time on
or after the date of issuance and, unless exercised, will automatically expire
on August 31, 2006. The Series B Warrants are detachable from the Series B
Preferred Stock and separately transferable, subject to compliance with
applicable federal and state securities laws. The Series B Warrants and the
Series B Warrant Shares have not been registered under the Securities Act and
are subject to certain transfer restrictions.

The holders of Series B Warrants have no right to vote on matters submitted
to the shareholders of the Company and have no right to receive dividends. The
holders of the Series B Warrants will not be entitled to share in the assets of
the Company in the event of dissolution, liquidation or the winding up of the
affairs of the Company.

The number of shares of Common Stock issuable upon the exercise of each
Series B Warrant (the "Series B Exercise Rate") will be subject to adjustment
from time to time in certain events including: (i) the payment or distribution
of a dividend on the Common Stock in shares of the Common Stock or other capital
stock of the Company; (ii) subdivisions, combination or reclassification of the
outstanding shares of Common Stock; (iii) the issuance of shares of Common Stock
or distribution of any right, options or warrants to any person entitling them
to purchase shares of Common Stock, or securities convertible into or
exchangeable for Common Stock, at a price per share less than the current market
value; (iv) the distribution to all holders of its Common Stock of any evidences
of indebtedness of the Company or of its subsidiaries; (v) distribution of any
assets of the Company or any of its subsidiaries (other than cash dividends or
other cash distributions or distributions from current or retained earnings and
earned surplus); or (vi) distribution of any rights, options or warrants to
acquire any of the foregoing referred to in clauses (iv) and (v).

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

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<PAGE> 91

to sell shares of Common Stock and/or Common Stock equivalents representing more
than 50% of the shares of Common Stock outstanding and the shares of Common
Stock into or for which rights, options, warrants or other securities
outstanding are exercisable or convertible (other than the Series B Warrants)
(collectively, the "Fully Diluted Shares"), the holders of a majority of such
shares shall have the right to require holders of the Series B Warrants
(including any Series B Warrant Shares) to sell their shares on a pro rata basis
on the same terms.

If, at any time, prior to the earlier of the Drag-Along Termination Date or
August 31, 2002, any holder of Series B Warrants and/or Series B Warrant Shares
transfer more than 5% of the Fully Diluted Shares, the holders of the Series B
Warrants shall be entitled to sell the Series B Warrants and/or the Series B
Warrant Shares on a pro rata basis and on the same terms.

Five years following the date of issuance of the Series B Warrants, the
holders of 25% of the Series B Warrants and/or Series B Warrant Shares will have
the right, subject to the Company's right to purchase such shares at their fair
market value, to demand registration of not less than 25% of the Series B
Warrant Shares, such offering to be consummated by a nationally recognized
investment banking firm selected by the Company and reasonably acceptable to the
holders of the Series B Warrants. The holders of the Series B Warrants also
shall be entitled to piggyback registration rights if at any time after the
Company's initial public offering of Common Stock, the Company proposes to file
a registration statement under the Securities Act with respect to an offering by
the Company (other than certain enumerated exceptions) subject to cutback by
underwriters.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following discussion of certain of the anticipated federal income tax
consequences of an exchange of the Series B Preferred Stock for Series C
Preferred Stock and of the purchase, ownership, and disposition of the Series C
Preferred Stock and Warrants is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the final, temporary, and
proposed regulations promulgated thereunder, and administrative rulings and
judicial decisions now in effect, all of which are subject to change (possibly
with retroactive effect) or different interpretations. This summary does not
purport to deal with all aspects of federal income taxation that may be relevant
to a particular investor, nor any tax consequences arising under the laws of any
state, locality, or foreign jurisdiction, and it is not intended to be
applicable to all categories of investors, some of which, such as dealers in
securities, banks, insurance companies, tax-exempt organizations, foreign
persons, persons that hold Series C Preferred Stock or Warrants as part of a
straddle or conversion transaction, or holders subject to the alternative
minimum tax, may be subject to special rules. In addition, the summary is
limited to persons that will hold the Series C Preferred Stock and Warrants as
"capital assets" (generally, property held for investment) within the meaning of
Section 1221 of the Code. ALL INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISERS REGARDING THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF
THE EXCHANGE AND THE OWNERSHIP AND DISPOSITION OF SERIES C PREFERRED STOCK AND
WARRANTS.

TAXATION OF HOLDERS ON EXCHANGE

Although the matter is not free from doubt, an exchange of shares of Series
B Preferred Stock for shares of Series C Preferred Stock should not be a taxable
event to holders of Series B Preferred Stock, and holders should not recognize
any taxable gain or loss as a result of such an exchange. Accordingly, a holder
would have the same adjusted basis and holding period in the Series C Preferred
Stock as it had in the Series B Preferred Stock immediately before the exchange.
Further, the tax consequences of ownership and disposition of any shares of
Series C Preferred Stock should be the same as the tax consequences of ownership
and disposition of shares of the Series B Preferred Stock.

ALLOCATION OF PURCHASE PRICE

The purchase of the Series B Preferred Stock with the Warrants was treated
as the purchase of an investment unit for Federal income tax purposes. In order
to determine the issue price for each security, the

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aggregate issue price of the Series B Preferred Stock and Warrants was allocated
between each of the securities based on their relative fair market values on the
date of issuance. The issue price of the Series C Preferred Stock should be the
same as the issue price of the Series B Preferred Stock (adjusted to take into
account any constructive distributions on the Series B Preferred Stock under
Section 305 of the Code, as described below) immediately before the exchange.

DISTRIBUTIONS ON SERIES C PREFERRED STOCK AND EXCESS REDEMPTION PRICE

The amount of any distribution with respect to the Series C Preferred Stock
will be equal to the amount of cash or the fair market value of the shares of
Series C Preferred Stock distributed. A stockholder's initial tax basis in any
additional shares of Series C Preferred Stock distributed by the Company will be
equal to the fair market value of such additional shares of Series C Preferred
Stock on the date of distribution. A stockholder's holding period for such
additional shares of Series C Preferred Stock will commence on the day following
the date of distribution and will not include such stockholder's holding period
for the shares of Series C Preferred Stock with respect to which the additional
shares of Series C Preferred Stock were distributed. The amount of any
distribution with respect to the Series C Preferred Stock, whether paid in cash
or in additional shares of Series C Preferred Stock, will be a dividend, taxable
as ordinary income to the recipient thereof, to the extent of the Company's
current or accumulated earnings and profits ("earnings and profits") as
determined under U.S. federal income tax principles. To the extent that the
amount of such a distribution exceeds the current and accumulated earnings and
profits of the Company, such excess will be treated as a nontaxable recovery of
the holder's basis in the stock in respect of which the distribution is made (to
the extent thereof), with any remaining excess treated as a gain from the sale
or exchange of such stock.

In addition, under Section 305 of the Code and the Treasury Regulations
authorized thereunder, if the redemption price of preferred stock exceeds its
issue price by more than a de minimis amount, such excess may under certain
circumstances, be taxable as a constructive distribution to the holder (treated
as a dividend to the extent of the Company's current and accumulated earnings
and profits and otherwise subject to the treatment described above for
distributions in excess of current and accumulated earnings and profits). A
holder of such preferred stock is required to treat such excess as a
constructive distribution received by the holder over the life of the preferred
stock under a constant interest (economic yield) method that takes into account
the compounding of yield. The excess of the liquidation preference over the
issue price of the Series C Preferred Stock will be treated as a constructive
distribution, as described above, by a holder on a constant yield basis over its
term. In the case of the Series C Preferred Stock initially issued to the
purchaser, the issue price will be determined as described above under
"-- Allocation of Purchase Price." In the case of any additional shares of
Preferred Stock distributed by the Company in lieu of a cash payment, the issue
price generally will equal the fair market value of such shares of Series C
Preferred Stock on the date of distribution, with the result that the amount of
any redemption premium, and the tax consequences thereof, may need to be
separately determined for each such distribution. Holders should consult their
own tax advisers regarding the application of the redemption premium rules to
their particular situation.

DIVIDENDS TO CORPORATE SHAREHOLDERS

In general, an actual or constructive distribution that is treated as a
dividend for federal income tax purposes and that is made to a corporate
shareholder with respect to the Series C Preferred Stock will qualify for the
70% dividends-received deduction. Holders should note, however, that the Company
does not currently have any accumulated earnings and profits and that there can
be no assurance regarding the amount of current or accumulated earnings and
profits of the Company in the future. As a result, there can be no assurance
that the dividends-received deduction will apply to distributions on the Series
C Preferred Stock.

In addition, there are many exceptions and restrictions relating to the
availability of such dividends-received deduction such as restrictions relating
to (i) the holding period of stock the dividends on which are sought to be
deducted, (ii) debt-financed portfolio stock, (iii) dividends treated as
"extraordinary dividends" for purposes of Section 1059 of the Code, and (iv)
taxpayers that pay alternative minimum tax. Corporate shareholders should
consult their own tax advisers regarding the extent, if any, to which such
exceptions and restrictions may apply to their particular factual situation.
Additionally, recently proposed legislation would

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reduce the applicable dividends-received deduction from 70% to 50% and could
also affect the availability of such deduction to corporate shareholders that do
not meet applicable holding period requirements. It is uncertain whether or in
what form such legislation will be enacted into law. Corporate shareholders
should consult their own tax advisers regarding the extent, if any, to which any
such legislation may apply to their particular factual situation.

REDEMPTION, SALE, OR EXCHANGE OF PREFERRED STOCK

Upon a sale or other disposition (other than a redemption) of the shares of
Series C Preferred Stock, a holder will generally recognize capital gain or loss
equal to the difference between the sum of the amount of cash and the fair
market of any property received by the holder and such holder's adjusted tax
basis in such shares. Such gain or loss will be long-term if the holding period
for such shares is more than one year.

A holder's initial tax basis in the Series C Preferred Stock will equal its
tax basis in the Series B Preferred Stock, as described above under "Taxation of
Holders on Exchange." Thereafter, such initial tax basis will be (i) increased
by the amount (if any) of any constructive distributions the holder is treated
as having received pursuant to the rules described above under "Distributions on
Series C Preferred Stock and Excess Redemption Price" and (ii) decreased by the
portion of any (actual or constructive) distribution that is treated as a
tax-free recovery of basis as described above under "Distributions on Series C
Preferred Stock and Excess Redemption Price."

Upon a redemption of the shares of Series C Preferred Stock in a situation
where the holder has no other interest in the Company, actually or
constructively, following such redemption, the holder will generally recognize
capital gain or loss (except to the extent of cash payments received on the
exchange that are attributable to declared dividends which will be treated in
the same manner as distributions described above). If the holder does continue
to own an interest in the Company, actually or constructively, the redemption
payment could be treated as a dividend subject to the rules described above.

BACKUP WITHHOLDING

In general, a noncorporate holder of Series C Preferred Stock or Warrant
will be subject to backup withholding at the rate of 31% with respect to
reportable payments of dividends accrued with respect to, or the proceeds of a
sale, exchange, or redemption of, Series C Preferred Stock or Warrants, if the
holder fails to provide a taxpayer identification number or certification of
foreign or other exempt status or fails to report in full dividend and interest
income. Amounts paid as backup withholding do not constitute an additional tax
and will be credited against the holder's federal income tax liabilities.

THE UNITED STATES FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY OR MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISERS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE EXCHANGE OF SERIES B PREFERRED
STOCK FOR SERIES C PREFERRED STOCK AND OF THE OWNERSHIP AND DISPOSITION OF THE
SERIES C PREFERRED STOCK AND THE WARRANTS, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
FEDERAL OR OTHER TAX LAWS.

LEGAL OPINION

Certain legal matters in connection with the exchange of the Series B
Preferred Stock for the Series C Preferred Stock will be passed upon for the
Company by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York.

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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 in the Registration Statement, and has been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.

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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
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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> 97

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> 98

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
============ ============
</TABLE>

F-4
<PAGE> 99

<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31
1996 1995
----------- -----------
- -
<S> <C> <C>
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-5
<PAGE> 100

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-6
<PAGE> 101

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.

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-7
<PAGE> 102

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-8
<PAGE> 103

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.

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-9
<PAGE> 104

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-10
<PAGE> 105

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-11
<PAGE> 106

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-12
<PAGE> 107

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-13
<PAGE> 108

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-14
<PAGE> 109

RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY

The consolidated financial statements of Renaissance Cosmetics, Inc. (the
"Company") include the accounts of the Company for the period from April 15,
1994 (date of Inception), and its wholly-owned subsidiaries from their
respective dates of acquisition, Cosmar Corporation from August 18, 1994,
Parfums Parquet Incorporated ("Parfums Parquet") from July 1, 1994, Houbigant
Ltee from December 13, 1994, Dana Perfumes Corporation ("Dana") from December
23, 1994 and Perfums Dana Do Brasil ("Dana Brazil") from December 31, 1995. All
significant intercompany activity has been eliminated.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business -- The Company manufactures and sells its fragrance and
nail care products principally through the mass-market or self-select
distribution channel which includes drug stores, mass merchandisers, discount
stores, supermarkets and combination supermarket/drug stores, throughout the
United States.

Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and the reported amounts of revenues and expenses during the
reporting period. The preparation of financial statements in conformity with
generally accepted accounting principles also requires management to make
estimates and assumptions that affect the disclosures of contingent assets and
liabilities at the date of the financial statements. Actual results could differ
from those estimates.

Cash Equivalents -- Cash equivalents consist of highly liquid investments
with an original maturity of three months or less.

Marketable Securities -- The Company classifies its investments in debt and
equity securities as available for sale, and accordingly, reflects unrealized
holding gains and losses as a separate component of stockholders' equity.

Inventories -- Inventories are stated at the lower of cost (on the
first-in, first-out (FIFO) and last-in, first-out (LIFO) methods) or market.

Property, Plant and Equipment -- Property, plant and equipment additions
are stated at cost and depreciation is computed using the straight-line and the
declining-balance methods over the estimated useful lives of the assets, ranging
from three to forty years. Amortization of leasehold improvements is computed
using the straight-line and the declining-balance methods over the lesser of the
estimated useful lives of the assets or the remaining life of the lease.

Deferred Financing Costs -- Deferred financing costs represent direct costs
relating to closing on the long-term debt and notes payable. These costs are
being amortized over the life of the related debt.

Foreign Currency Translation -- For the Company's international operations,
assets and liabilities are translated at year-end exchange rates and income
statement amounts are translated at average exchange rates prevailing during the
year. Gains and losses resulting from translating foreign currency financial
statements are recorded as a separate component of stockholders' equity.
Transaction gains and losses are included in results of operations and were not
material for any period presented.

Intangible Assets -- Costs of acquisitions of net tangible assets acquired
are stated at cost less accumulated amortization and include trademarks and
goodwill. These costs are being amortized using the straight-line method over
the periods benefited, ranging from 25 to 40 years. The Company assesses the
recoverability of these costs on a regular basis by evaluating the carrying
value of the intangible assets based upon projected net income and undiscounted
future cash flows.

F-15
<PAGE> 110

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revenue Recognition -- Sales are recognized when goods are shipped. An
accrual for customer returns is recorded based upon historical experience.

Income Taxes -- The Company uses an asset and liability approach to the
computation of income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the estimated future tax consequences
of temporary differences between the financial reporting and tax bases of assets
and liabilities based upon enacted tax rates in effect when such amounts are
expected to be realized or settled. The effects of changes in tax laws or rates
on deferred tax assets and liabilities are recognized in the period that
includes the enactment date.

Loss Per Common Share -- Loss per common share is based on the weighted
average number of common shares outstanding during the year. The dilutive effect
of stock options and warrants were not considered since the effect would be
antidilutive.

Fair Value of Financial Instruments -- The carrying values of cash and cash
equivalents, marketable securities, accounts receivable, accounts payable and
accrued expenses approximate fair value because of the short-term maturities of
those instruments. The fair values of the Company's long-term debt, notes
payable and preferred stock are disclosed in the notes.

Accounting Pronouncements -- In March 1995, the Financial Accounting
Standards Board issued SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. This statement is effective
for fiscal years beginning after December 15, 1995. The Company does not expect
that the adoption of this statement will have a material affect on its
consolidated financial condition or results of operations.

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation. This statement is effective for
fiscal years beginning after December 15, 1995. The new standard defines a "fair
value" method of accounting for stock options and other equity instruments.
Under the fair value method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized over the service period,
which is usually the vesting period.

Pursuant to this Standard, companies are encouraged, but not required, to
adopt the fair value method of accounting for employee stock-based transactions.
The new standard also requires increased footnote disclosures, regardless of the
method chosen to measure and recognize compensation, for employee stock-based
arrangements. The Company has not yet determined if it will elect to change to
the fair value method, nor has it determined the effect the new Standard will
have on net loss and loss per share should it elect to make such a change.

Reclassifications -- Certain reclassifications were made to the 1995
financial statements to conform to the current year's presentation.

3. ACQUISITIONS

The Company, Houbigant, Inc. ("Houbigant") and other parties entered into
license and sublicense agreements (the "Agreements"), the first of which became
effective as of July 1, 1994, whereby the Company has obtained certain exclusive
rights to manufacture and sell on a worldwide basis (excluding Canada -- see
below) certain fragrance products owned and licensed by Houbigant (the
"Houbigant Fragrances"), for initial periods of five and seven years. The
Company agreed to pay royalties generally at the rate of seven percent of net
sales, with annual minimums aggregating $2,730,000 during the initial terms of
the Agreements. Total minimum payments under the terms of the Agreements are
$15,360,000, including the $5,000,000 prepayment. The Company has the option to
renew the Agreements generally for up to seven successive five-year periods.
During each renewal period, annual minimum royalties are adjusted based on
increases in the Consumer Price Index.

F-16
<PAGE> 111

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Additionally, under the terms of the Agreements, the Company also agreed to
pay $6,000,000 in installments, for the existing inventory, certain trade
receivables and all product returns received subsequent to the closing date of
the Agreements. As of March 31, 1996, $3,300,000 has been paid.

On August 18, 1994, the Company purchased certain assets and assumed
certain liabilities of Cosmar Corporation and its Affiliate, Precision Molded
Plastics, Inc. ("Cosmar") for $64,827,978. Consideration consisted of
$61,327,978 in cash and sellers notes with a face value of $5,000,000 and an
estimated market value of $3,500,000 based on an effective interest rate of
14.48%. Because the acquisition qualifies as a highly-leveraged transaction and
certain shareholders of Cosmar have or had a continuing interest as shareholders
of the Company, application of leveraged buyout accounting resulted in a
predecessor basis adjustment to common stockholders' equity of $1,483,609.

On December 13, 1994, the Company acquired substantially all of the assets
of Houbigant Ltee for an aggregate purchase price of $5,800,000. Houbigant Ltee
includes three companies engaged in the manufacture and sales of Houbigant
Fragrances in Canada. There are no minimum royalties required to be paid in
connection with these license rights.

On December 23, 1994, Dana purchased the assets and business of a group of
companies that manufactured and marketed internationally the Dana line of
fragrance products, for an aggregate cash purchase price of $21,900,000. Such
transaction was financed through term loan borrowings from a financial
institution, with an aggregate value of $30,000,000.

On December 31,1995, Dana exercised its option to purchase the assets and
liabilities of Dana Brazil for $100,000.

The above acquisitions were all accounted for by the purchase method of
accounting for business combinations.

The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisitions had occurred at the beginning of each
period and do not purport to be indicative of what would have occurred had the
acquisitions been made as of that date or of results which may occur in the
future.

<TABLE>
<CAPTION>
PRO FORMA
----------------------------
PERIOD FROM
APRIL 15, 1994
YEAR ENDED (INCEPTION)
MARCH 31, TO MARCH 31,
1996 1995
----------- --------------
<S> <C> <C>
Net sales................................................. $140,741,000 $ 109,912,000
===========
Net loss.................................................. $(12,645,000) $ (17,313,000)
===========
Net loss per common share................................. $ (17.58) $ (23.83)
===========
</TABLE>

4. MARKETABLE SECURITIES

Marketable securities consist of the following:

<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Mutual funds.............................................. $ 173,604 $ 772,554
Bonds..................................................... -- 42,000
-----------
$ 173,604 $ 814,554
===========
</TABLE>

At March 31, 1996 and 1995, fair value of marketable securities
approximated cost.

F-17
<PAGE> 112

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. INVENTORIES

The components of inventories are as follows:

<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Raw materials and advertising supplies.................... $16,956,874 $11,859,958
Work in process........................................... 2,860,139 1,423,799
Finished goods............................................ 10,419,726 8,622,569
---------- ----------
$30,236,739 $21,906,326
========== ==========
</TABLE>

The above components are shown net of excess and obsolete inventory
reserves of approximately $1,540,000 and $3,449,000 at March 31, 1996 and 1995,
respectively. At March 31, 1996 and 1995, 60.7% and 27.5%, respectively, of the
Company's inventories are stated at the lower of LIFO cost or market. The excess
of current replacement cost over the stated LIFO value was $-0- at March 31,
1996 and 1995.

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
MARCH 31,
------------------------
1996 1995
----------- ----------
<S> <C> <C>
Land....................................................... $ 476,691 $ 182,297
Buildings.................................................. 4,896,008 5,570,042
Machinery and equipment.................................... 7,451,977 3,145,677
Computer equipment......................................... 4,880,815 --
Leasehold improvement...................................... 461,140 397,840
---------- ---------
18,166,631 9,295,856
Accumulated depreciation................................... 3,631,268 787,733
---------- ---------
$14,535,363 $8,508,123
========== =========
</TABLE>

7. INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Trademarks................................................ $42,144,000 $42,144,000
Goodwill.................................................. 39,819,924 42,214,926
----------- -----------
81,963,924 84,358,926
Accumulated amortization.................................. 5,068,630 1,860,310
----------- -----------
$76,895,294 $82,498,616
=========== ===========
</TABLE>

Trademarks relate principally to Cosmar and Dana and are being amortized,
on a straight-line basis, over their estimated useful lives, 25 and 40 years,
respectively. Goodwill represents the excess of the cost of purchased businesses
over the fair value of their net assets at date of acquisition and is being
amortized by the straight-line method over a 25-year period. Upon completion of
all the required valuations associated with the acquisitions, goodwill increased
during the period from April 15, 1994 (Inception) to March 31, 1995 by
approximately $5,000,000 from the Company's original estimate. Negative goodwill
of approximately

F-18
<PAGE> 113

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$2.3 million which was generated as a result of the acquisition of Dana Brazil,
and is being amortized over a life of 5 years, is also included in goodwill
above.

8. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Current portion of minimum royalty obligation............. $3,597,884 $ 966,000
Accrued interest payable.................................. 2,380,384 1,675,176
Acquired plant consolidation and restructuring costs...... 244,000 1,842,000
Accrued marketing and advertising expenses................ 2,492,720 1,424,952
Accrued financing and acquisition costs................... -- 1,955,000
Other..................................................... 6,442,139 5,145,854
----------- -----------
$15,157,127 $13,008,982
=========== ===========
</TABLE>

9. LONG-TERM DEBT

Long-term debt consist of the following:

<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Senior Notes............................................ $63,623,473 $63,465,317
Subordinated seller notes............................... 3,699,471 3,567,151
----------- -----------
$67,322,944 $67,032,468
=========== ===========
</TABLE>

The Senior notes are senior unsecured obligations of the Company with a
principal amount of $65,000,000 at a stated interest rate of 13.75% with
interest payable semi-annually beginning February 15, 1995 and due August 15,
2001. The notes were issued in units with warrants to purchase 130,000 shares of
common stock. The notes were issued with an original discount of $711,100 and
were further discounted as a result of an allocation of $910,000 to the common
stock warrants. The effective interest rate on the Senior notes is 14.33%.

The Senior notes and warrants were detached in December 1994 prior to the
filing of the Company's registration statement with respect to the Senior notes.
The warrants are exercisable at any time and expire on August 15, 2001. The
exercise price of the warrants is $.01 per share.

The Senior notes are fully and unconditionally guaranteed, on a
subordinated basis, as to principal and interest, jointly and severally by all
present and future subsidiaries of the Company.

The Seller notes are subordinated promissory notes of the Company amounting
to $5,000,000 and accruing interest at 8% initially and escalating to 11% over
an eight-year period with a balloon payment of principal and accrued interest on
August 15, 2002. Based on an estimate of their fair market value, these notes
were recorded at a discount of $1,500,000, yielding an effective interest rate
of 14.48%.

The fair value of the Senior notes at March 31, 1996 and 1995 were
$65,000,000 and $61,750,000, respectively. The fair value of the warrants at
March 31, 1996 and 1995 were $2,925,000 and $1,950,000, respectively. Such fair
value are estimated based on quoted market prices for such notes and warrants.

F-19
<PAGE> 114

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The fair value of the Subordinated seller notes is estimated based on rates
currently available to the Company for debt with similar terms and remaining
maturities. Such fair value was approximately $4,617,000 and $3,721,000 at March
31, 1996 and 1995, respectively.

10. NOTES PAYABLE

On December 22, 1994, as amended, the Company and a financial institution
entered into a note purchase agreement (the "Current Credit Facility"), which
provides for revolving credit in an aggregate principal amount of $30,000,000,
and term loans in an aggregate principal amount of $30,000,000. Such loans bear
interest at the bank base rate (8.25% at March 31, 1996) plus 3% until June 30,
1995, 3.5% thereafter until December 31, 1995, 4% thereafter until June 30, 1996
and 4.5% thereafter. The weighted average interest rates on the notes payable
were 12.19% and 11.66% for the year ended March 31, 1996 and for the period from
December 23, 1994 to March 31, 1995, respectively. The Company paid a commitment
fee of $500,000, a structuring fee of $500,000 and a funding fee of $600,000
which was equal to 2% of the aggregate unpaid principal of the term notes in
excess of fees already paid. During fiscal 1996 the Company paid funding fees on
the available portion of the original revolving credit of $20,000,000,
aggregating $400,000. On September 8, 1995, the Company paid an additional
commitment fee of $400,000. The Company paid a continuation fee of $100,000 on
each of July 1, 1995 and January 2, 1996 and will be required to pay an
additional continuation fee of $100,000 on July 1, 1996 unless the loans have
been terminated.

Borrowings under the revolving credit portion are subject to a borrowing
base availability consisting of eligible inventory and receivables. As of March
31, 1996, $3,000,000 of the revolving credit portion of the Current Credit
Facility was available to the Company for additional borrowings.

The Current Credit Facility includes numerous affirmative and negative
covenants applicable to the Company, including restrictions on indebtedness and
payment of dividends, liens and capital expenditures, and compliance with net
worth, operating earnings and various other financial ratios and covenants.

Based on rates currently available to the Company for debt with similar
terms and remaining maturities, fair value of the notes payable is estimated to
be $29,638,000 at March 31, 1995. At March 31, 1996, carrying value of the notes
payable approximated fair value.

The Current Credit Facility matures in December 1996 and is collateralized
by substantially all of the assets of the Company. The Company is currently
pursuing several financing alternatives, including both equity and debt
financing to replace the Current Credit Facility and to provide funds for new
acquisitions. The Company is currently in discussions with several financial
institutions and believes that it will be able to obtain such financing.
However, the Company has no binding commitment from any financial institution,
and accordingly, there can be no assurance that such additional financing
alternatives will be available to the Company. If the Company is unable to
obtain the financing, it may be required to postpone and/or change significant
elements of its business strategy.

11. INCOME TAXES

The Company records deferred tax liabilities and assets for estimated
future tax consequences attributable to temporary differences. Such temporary
differences exist when the tax basis differs from the financial reporting amount
of assets or liabilities. A valuation allowance is recorded to reduce deferred
tax assets to amounts which, in management's judgment, are more likely than not
to be realized.

The income tax expense is comprised of state tax in the amount of $311,467
and foreign taxes of $1,270,993, and a federal income tax benefit of $278,789
resulting from a carryback of a net operating loss. There is no Federal tax
liability as a result of Federal tax operating losses in the amount of
approximately

F-20
<PAGE> 115

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$13,677,000. Such losses expire in accordance with provisions of applicable tax
law and expire beginning in 2010 as follows:

<TABLE>
<CAPTION>
EXPIRATION DATE AMOUNT
-------------------------------------------------------- ----------
<S> <C>
2010.................................................... $3,646,000
2011.................................................... 10,031,000
</TABLE>

The income tax expense (benefit) is composed of the following:

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 15, 1994
YEAR ENDED (INCEPTION)
MARCH 31, TO MARCH 31,
1996 1995
---------- --------------
<S> <C> <C>
Current:
Federal.................................................. $ (278,789) $ (200,000)
State.................................................... 411,467 251,605
Foreign.................................................. 1,111,025 10,241
---------- ----------
1,243,703 61,846
---------- ----------
Deferred:
Federal.................................................. -- (175,000)
State.................................................... (100,000) 78,073
Foreign.................................................. 159,968 --
---------- ----------
59,968 (96,927)
---------- ----------
Total income tax expense (benefit)......................... $1,303,671 $ (35,081)
========== ==========
</TABLE>

The following reconciles the income tax expense (benefit) computed at the
Federal statutory income tax rate to the benefit recorded in the statements of
operations:

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 15,
1994
(INCEPTION)
YEAR ENDED TO
MARCH 31, MARCH 31,
1996 1995
----------- -----------
<S> <C> <C>
Federal benefit at statutory rate......................... $(3,656,074) $(1,923,028)
Limitation of utilization of tax benefits................. 5,164,532 1,528,300
Benefit of carryback not previously recorded.............. (278,790) --
State income taxes........................................ 311,467 329,678
Foreign income............................................ (1,508,457) --
Foreign income taxes...................................... 1,270,993 10,241
Other..................................................... -- 19,728
------------
$ 1,303,671 $ (35,081)
============
</TABLE>

F-21
<PAGE> 116

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The significant components of the Company's deferred tax liabilities and
assets are as follows:

<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1996 1995
--------- ---------
<S> <C> <C>
Current deferred income tax assets (liabilities):
Allowance for sales returns............................. $2,195,425 $1,297,280
Inventory reserves...................................... 697,305 (207,500)
Other non-deductible reserves........................... 1,997,260 539,500
Royalties............................................... 866,485 --
Other, net.............................................. 46,630 --
------------ ------------
5,803,105 1,629,280
Less valuation allowance................................ (5,803,105) (1,629,280)
------------ ------------
$ -- $ --
============ ============
Non-current deferred income tax assets (liabilities):
Depreciation............................................ (1,091,625) (1,522,220)
Amortization of intangible assets....................... (1,058,915) (654,455)
Federal net operating loss carryforwards................ 4,650,170 1,647,590
State net operating loss carryforwards.................. 1,276,565 --
Foreign tax credit carryforwards........................ 790,065 --
Other -- net............................................ -- 749,075
------------ ------------
4,566,260 219,990
Less valuation allowance................................ (4,566,260) (219,990)
------------ ------------
$ -- $ --
============ ============
Deferred state tax liability.............................. $ -- $ 100,000
============ ============
Deferred foreign tax liability............................ $ 140,619 $ --
============ ============
</TABLE>

Foreign pretax income (loss) was $4,446,593 and $(551,200) for the year
ended March 31, 1996 and for the period from April 15, 1994 (Inception) to March
31, 1995.

12. CAPITAL STOCK

a. Serial Preferred Stock--The Board of Directors has the authority to
issue up to 1,000,000 shares of Preferred Stock in one or more series of which
40,000 shares have been designated as redeemable preferred stock.

b. Stock Option Plan--The Company's stock option plan provides for
nonqualified stock options for employees. All options have been granted at
exercise prices at or above fair market value at the date of grant and vest over
periods of up to ten years. At March 31, 1996, 4,762 shares were available for
future grants under the plan.

F-22
<PAGE> 117

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the activity of options in the stock option
plan:

<TABLE>
<CAPTION>
SHARES PRICE
------- ------
<S> <C> <C>
Options granted................................................... 75,181 $37.17
Options canceled.................................................. (9,318) 37.17
------- ------
Total options outstanding at March 31,1995........................ 65,863 37.17
Options granted................................................... 31,377 37.17
Options canceled.................................................. (13,512) 37.17
------- ------
Total options outstanding at March 31, 1996....................... 83,728 37.17
======= ======
Total exercisable options at March 31, 1996....................... 14,832 $37.17
======= ======
</TABLE>

No compensation expense was recognized in 1996 or 1995 relating to such
options.

13. REDEEMABLE PREFERRED STOCK

The Company issued for $10,000,000, 10,000 shares of cumulative
exchangeable preferred stock with a par value of $.01 per share. Such preferred
stock has an initial dividend of 10% per annum. Commencing August 16, 1999 the
dividend rate changes to 15% per annum. The preferred stock was issued in units
with warrants to purchase 50,000 shares of common stock. Dividends are payable
in cash, additional shares of redeemable preferred stock or any combination
thereof, at the option of the Company, up to and including the August 15, 1997
dividend, and in cash thereafter. The proceeds from issuance of the preferred
stock were reduced by an allocation of $350,000 to the common stock warrants.
Such warrants are exercisable at any time and expire on August 15, 2001. These
warrants have an exercise price of $.01 per share. The effective dividend rate
on the preferred stock is approximately 12.01%.

The redeemable preferred stock must be redeemed on August 15, 2002 for
$10,000,000, plus all accumulated and unpaid dividends. The redeemable preferred
stock is exchangeable for senior notes by the Company at any time and under
certain circumstances by the holders of the preferred stock on or after August
15, 1997.

Based on rates currently available to the Company for debt with similar
terms, the fair value of the redeemable preferred stock is estimated to be
$10,907,000 and $8,673,000 at March 31, 1996 and 1995, respectively. Based on
quoted market prices at March 31, 1996 and 1995 of the warrants, the fair value
is estimated to be $1,125,000 and $750,000, respectively.

14. COMMITMENTS AND CONTINGENCIES

a. Leases -- The Company leases certain warehouses, office facilities, and
automobiles, under operating lease agreements, certain of which are subject to
escalation, expiring at various dates through 2001.

Future minimum lease payments under noncancellable operating leases as of
March 31, 1996 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING MARCH 31, AMOUNT
------------------------------------------------------- ---------
<S> <C>
1997................................................... $1,914,119
1998................................................... 1,486,949
1999................................................... 1,155,570
2000................................................... 748,700
2001................................................... 471,677
----------
$5,777,015
==========
</TABLE>

F-23
<PAGE> 118

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Rent expense associated with operating leases for the year ended March 31,
1996 and the period from April 15, 1994 (Inception) to March 31, 1995 was
$1,998,893 and $336,945, respectively.

b. Royalties -- Future minimum royalty payments at March 31, 1996, which
resulted from acquisitions of companies, together with the present value of
minimum royalty payments, are as follows:

<TABLE>
<CAPTION>
YEAR ENDING MARCH 31, AMOUNT
----------------------------------------------------------------------- ---------
<S> <C>
1997................................................................... $3,597,884
1998................................................................... 3,017,500
1999................................................................... 550,000
2000................................................................... 462,500
2001................................................................... 2,572,500
Thereafter............................................................. 562,500
----------
10,762,884
Amounts representing interest.......................................... 2,478,961
----------
Present value of minimum royalty payments.............................. 8,283,923
Current portion........................................................ 3,597,884
----------
Long-term portion...................................................... $4,686,039
==========
</TABLE>

Royalty expense totaled $1,930,785 and $1,489,465 for the year ended March
31, 1996 and the period from April 15, 1994 (Inception) to March 31, 1995,
respectively.

c. Other Employee Stock Options -- Dr. Thomas V. Bonoma has been granted
stock options whereby he has the right to acquire a total of 93,182 shares of
Common Stock of the Company. The earliest date on which these options can become
exercisable generally is August 18, 1997, based on the value of the Company's
equity reaching certain thresholds; however, the valuation date is accelerated
prior to that date (and if the thresholds are reached the options become
exercisable) upon a sale or merger of the Company or public offering of the
Company's Common Stock. Notwithstanding whether the earnings of the Company meet
any of the tests enunciated in the stock option agreement, Dr. Bonoma will be
entitled to exercise these options commencing on August 18, 2000. The exercise
price for each purchasable share under this stock option is $37.17237.

The above stock options have been authorized by the Board of Directors and
granted outside of the Company's stock option plan. No options have been
exercised as of March 31, 1996.

15. LEGAL PROCEEDINGS

a. In April 1995 the Company and Houbigant Inc. commenced an action against
the ACB Companies (the former holders of Houbigant's Canadian licenses) and
their agents (the "Resellers"), alleging that the ACB companies manufactured and
sold Houbigant trademarked products in the US through the Resellers. This
violated both Houbigant's and the Company's rights pursuant to the Agreements,
as well as certain US federal laws. The claims against the Resellers were
settled. The ACB Companies filed counterclaims, most of which were subsequently
dismissed.

Additionally, in May 1995, Houbigant Ltee filed an action against the ACB
companies for approximately $8,000,000 (Canadian) for breach of contract and
fraud. The ACB companies have not as yet asserted any counter claims. The
parties to both of the above cases have agreed in principle to a settlement
whereby the ACB companies will dismiss its remaining asserted and unasserted
counterclaims, and will pay $850,000 to the Company in settlement of all the
remaining claims.

The Company does not believe that this litigation will have a material
adverse effect on its financial condition or its results of operations.

F-24
<PAGE> 119

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

b. The Company is a defendant in a lawsuit where the plaintiff alleges
defamation and interference with business relationships, and is seeking
$7,000,000 in damages. The Company intends to vigorously defend this lawsuit and
believes it has substantial and meritorious defenses. Management believes that
the outcome of this litigation will not have a material effect on the results of
operations or financial condition of the Company.

c. The Company is subject to legal proceedings and claims which arise in
the normal course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position or results of operations of the Company.

16. RETIREMENT PROGRAMS

In June 1995, the Company established a 401(k) Pension Plan (the "Company
Plan") for all U.S. employees, with the exception of Dana union members for
which the Company maintains a separate 401(k) plan. The prior plan covering Dana
non-union members was merged into the Company Plan. Plans are available to all
employees who have been employed continuously for at least one year. The
participants contribution ceiling is 20% of their annual compensation, as
defined, and a matching contribution is provided by the Company at 50% of the
first 6% of the participants' salary for the non-union members and 12 1/2% of
the first 6% of the participants' salary for the union plan. The participants
become fully vested after four years of service. The contributions made by the
Company during the year ended March 31, 1996 and the three months ended March
31, 1995 (for the Dana Plans) were $166,290 and $11,705, respectively. Certain
of the administrative expenses are paid by the Company, the Plans' sponsor.

17. CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and trade accounts
receivable. The Company places its cash with high quality financial
institutions.

Credit risk with respect to trade accounts receivable is generally
diversified due to the large number of entities comprising the Company's
customer base and their dispersion throughout the United States. The Company
generally does not require collateral, and the majority of its trade receivables
are unsecured. The Company does, however, perform ongoing credit evaluations of
its customers' financial condition.

The Company sells a significant portion of its products through third-party
drug store and discount retailers and as a result, maintains individually
significant accounts receivable balances with major retailers. If the financial
condition and operation of these retailers deteriorate below critical levels,
the Company's operating results could be adversely affected. An allowance for
doubtful accounts and sales returns is maintained at a level which management
believes is sufficient to cover potential credit losses. The ten largest
accounts receivable balances collectively represented 54% and 50% of total
accounts receivable at March 31, 1996 and 1995, respectively. Sales to ten
customers represented 50% and 46% of gross revenues during the year ended March
31, 1996 and the period April 15, 1994 (Inception) to March 31, 1995. No single
customer accounted for greater than 10% of the Company's revenues for the year
ended March 31, 1996 or for the period April 15, 1994 (Inception) to March 31,
1995.

18. RELATED PARTIES

Pursuant to a management agreement, the Company pays management fees to
Kidd, Kamm & Company ("KK & Co."), a related party, subject to certain operating
and financial ratios being met. During the year ended March 31, 1996 and the
period April 15, 1994 (Inception) to March 31, 1995, the Company paid $-0-and
$225,000, respectively, in management fees to KK & Co. Deferred financing costs
include approximately $675,000 of financing fees paid to KK & Co.

In December 1995, the holders of the Sellers Notes sold such notes to a
third party who is a holder of a substantial portion of the Company's redeemable
preferred stock (the "Holder"). In a related transaction, the

F-25
<PAGE> 120

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company signed an agreement with the Holder, whereby in exchange for $225,000,
the Company agreed not to pursue any claims against the Holder relating to the
acquisition of Cosmar. All other terms and provisions of the sellers' note
remained the same.

19. INFORMATION CONCERNING FINANCIAL REPORTING FOR SEGMENTS AND OPERATIONS IN
GEOGRAPHIC AREAS

The Company is engaged in two main businesses, the manufacturing and
marketing of fragrances and associated products and the manufacturing and
marketing of artificial fingernail care products.

<TABLE>
<CAPTION>
FRAGRANCES NAIL CARE CORPORATE CONSOLIDATED
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended March 31, 1996:
Net sales (A)....................... $83,152,748 $48,132,876 $ -- $131,285,624
============= ============= ============= =============
Operating income (loss)............. $7,607,931 $9,159,638 $(8,317,951) $ 8,449,618
Interest expense -- net............. 3,738,863 12,169,302 3,294,613 19,202,778
Income tax provision (benefit)...... 1,328,163 3,593 (28,085) 1,303,671
------------- ------------- ------------- -------------
Net income (loss)................... $2,540,905 $(3,013,257) $(11,584,479) $(12,056,831)
============= ============= ============= =============
Identifiable assets................. $90,709,215 $83,074,198 $10,835,505 $184,618,918
============= ============= ============= =============
Depreciation and amortization....... $4,534,781 $3,304,496 $ 211,304 $ 8,050,581
============= ============= ============= =============
Capital expenditures................ $4,338,514 $1,942,510 $ 1,884,675 $ 8,165,699
============= ============= ============= =============
Period April 15, 1994 (Inception) to
March 31, 1995:
Net sales (A)....................... $33,602,772 $24,111,637 $ -- $57,714,409
============= ============= ============= =============
Operating income (loss)............. $2,889,464 $4,387,301 $(4,532,739) $ 2,744,026
Interest expense -- net............. 665,192 924,145 6,649,054 8,238,391
Income tax provision (benefit)...... -- -- (35,081) (35,081)
------------- ------------- ------------- -------------
Net income (loss)................... $2,224,272 $3,463,156 $(11,146,712) $(5,459,284)
============= ============= ============= =============
Identifiable assets................. $71,092,482 $74,730,544 $16,430,074 $162,253,100
============= ============= ============= =============
Depreciation and amortization....... $ 878,383 $1,953,310 $ -- $ 2,831,693
============= ============= ============= =============
Capital expenditures................ $ 33,243 $ 478,197 $ 117,622 $ 629,062
============= ============= ============= =============
</TABLE>

- ---------------

(A) There were no material intersegment sales during the year ended March 31,
1996 and the period from April 15, 1994 (Inception) to March 31, 1995.

F-26
<PAGE> 121

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-27
<PAGE> 122

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-28
<PAGE> 123

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-29
<PAGE> 124

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-30
<PAGE> 125

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:

F-31
<PAGE> 126

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-32
<PAGE> 127

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-33
<PAGE> 128

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-34
<PAGE> 129

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-35
<PAGE> 130

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-36

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-37
<PAGE> 131

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-38
<PAGE> 132

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-39
<PAGE> 133

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-40
<PAGE> 134

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-41
<PAGE> 135

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-42
<PAGE> 136

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-43
<PAGE> 137

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-44
<PAGE> 138

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-45
<PAGE> 139

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.

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> 140

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> 141

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:

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> 142

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-49
<PAGE> 143

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-50
<PAGE> 144

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-51
<PAGE> 145

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-52
<PAGE> 146

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.

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-53
<PAGE> 147

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-54
<PAGE> 148

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-55
<PAGE> 149

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-56
<PAGE> 150

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-57
<PAGE> 151

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> 152

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> 153

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> 154

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> 155

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> 156

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> 157

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
SEPTEMBER 30,
YEAR ENDED 1996
JUNE 30, 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-64
<PAGE> 158

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 Fragrance
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-65
<PAGE> 159

======================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 4
Prospectus Summary.................... 5
Risk Factors.......................... 12
Recent Developments................... 18
Use of Proceeds....................... 21
Capitalization........................ 22
Selected Historical Financial Data.... 24
Unaudited Pro Forma Consolidated
Financial Data...................... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 34
Business.............................. 41
Management............................ 61
Security Ownership of Certain
Beneficial Owners and Management.... 68
Certain Relationships and Related
Transactions........................ 69
Exchange Offer........................ 70
Plan of Distribution.................. 77
Description of Series C Preferred
Stock............................... 78
Description of Certain Indebtedness... 83
Description of Outstanding Capital
Stock............................... 86
Certain Federal Income Tax
Considerations...................... 90
Legal Opinion......................... 92
Experts............................... 93
Index to Financial Statements......... F-1
</TABLE>

======================================================
======================================================

RENAISSANCE COSMETICS, INC.

OFFER TO EXCHANGE ALL

OUTSTANDING SHARES OF

14.0% SENIOR REDEEMABLE

PREFERRED STOCK, SERIES B

FOR SHARES OF 14.0% SENIOR REDEEMABLE

PREFERRED STOCK, SERIES C
------------------------
PROSPECTUS
------------------------
, 1997

======================================================
<PAGE> 160

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law (the "DGCL") grants a
Delaware corporation the power to indemnify any director, officer, employee or
agent against reasonable expenses (including attorneys' fees) incurred by him in
connection with any proceeding brought by or on behalf of the corporation and
against judgments, fines, settlements and reasonable expenses (including
attorneys' fees) incurred by him in connection with any other proceeding, if (a)
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and (b) in the case of any
criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful. Except as ordered by a court, however, no indemnification is to be
made in connection with any proceeding brought by or in the right of the
corporation where the person involved is adjudged to be liable to the
corporation.

Article VII of the registrant's restated certificate of incorporation
provides that the registrant shall, to the fullest extent permitted by section
145 of the DGCL, indemnify any and all persons whom it shall have the power to
indemnify under that section 145 from and against any and all of the expenses,
liabilities or other matters referred to in or covered by that section.

Section 102 of the DGCL permits the limitation of directors' personal
liability to the corporation or its stockholders for monetary damages for breach
of fiduciary duties as a director except for (i) any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of the law, (iii) breaches under section 174 of the DGCL, which relate to
unlawful payments of dividends or unlawful stock repurchase or redemptions, and
(iv) any transaction from which the director derived an improper personal
benefit.

Article VIII of the registrant's restated certificate of incorporation
limits the personal liability of directors of the registrant to the fullest
extent permitted by paragraph (7) of subsection (b) of section 102 of the DGCL.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, the registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.

Pursuant to section 11.9 of the New Indenture, the holders of the New
Senior 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 New Senior Notes or the New Indenture.

Pursuant to section 7 of the registration rights agreement relating to the
New Senior Notes, section 7 of the registration rights agreement relating to the
Series B Preferred Stock, section 5 of the common stock registration rights
agreement relating to the Series B Warrant Shares, section 5 of the common stock
registration rights agreement relating to the shares of Common Stock purchased
by CIBC Fund, and section 5 of the common stock registration rights agreement
relating to the shares of Common Stock purchased by Bastion under the New Common
Stock Sale, the holders of such securities have agreed to indemnify the
directors, officers and controlling persons of the registrant against certain
liabilities, costs and expenses that may be incurred in connection with the
registration of such securities, to the extent that such liabilities, costs and
expenses that may be incurred in connection with the registration of such
securities, to the extent that such liabilities, costs and expenses arise from
an omission or untrue statement contained in information provided to the
registrant by the holders of such securities.

The Company's Directors' and Officers' Liability and Reimbursement
Insurance Policies are designed to reimburse the Company for any payments made
by it pursuant to the foregoing indemnification. Such policies have aggregate
coverage of $5.0 million. The Securities Purchase Agreements, dated as of May
29, 1996 and

II-1
<PAGE> 161

August 8, 1996 respectively, between the Company, the CIBC Fund and the Initial
Purchaser (collectively, the "Buyers"), contain provisions by which the Buyers
agree to indemnify the Company and its affiliates (including its officers,
directors, employees, agents and controlling persons) against certain
liabilities.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS:

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -------------------------------------------------------------------------------
<S> <C>
2.1 (6) Stock Purchase Agreement among Cosmar Corporation, a Delaware corporation
("Cosmar Corporation"), Larry Pallini, Vincent Carbone and Great American
Cosmetics, Inc., a New York corporation ("GAC"), entered into on June 27, 1996,
providing for the acquisition by Cosmar Corporation of all of the capital stock
of GAC.
2.2 (6) Agreement and Plan of Merger, among Renaissance Cosmetics, Inc., a Delaware
corporation (the "Company"), Renaissance Acquisition, Inc., a New York
corporation ("RAI") and MEM Company, Inc. a New York corporation ("MEM"), dated
as of August 6, 1996.
2.3 (13) Asset Sale and Purchase by and among the Procter & Gamble Company (as Seller)
and Dana Perfumes Corp. (as Buyer) and solely for purposes of Sections 4.6, 6.6
and 6.12 hereof Renaissance Cosmetics, Inc. and Cosmar Corporation dated as of
October 25, 1996.
2.4 (13) Form of Asset Sale and Purchase Agreement among P&G foreign affiliate sellers
and Dana Perfumes Corp., dated as of October 29, 1996.
3.1 (1) Restated certificate of incorporation of the Company filed with the Secretary
of State of the State of Delaware on August 17, 1994.
3.1.2 (8) Certificate of Designation of Preferences and Rights of Senior Exchangeable
Redeemable Preferred Stock, Series A, of the Company, filed with the Secretary
of State of the State of Delaware on May 29, 1996.
3.1.3 (7) Certificate of Designation of Preferences and Rights of Senior Redeemable
Preferred Stock, Series B, of the Company, filed with the Secretary of State of
the State of Delaware on August 15, 1996.
3.1.4 (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.
3.2 (1) By-laws of the Company.
4.1 (7) Certificate of Designation of Preferences and Rights of Senior Redeemable
Preferred Stock, Series C, par value $.01 per share, of the Company filed with
the Secretary of State of the State of Delaware on August 15, 1996.
4.2 (14) Certificate of Increase of Certificate of Designation of Preferences and Rights
of Senior Redeemable Preferred Stock, Series C filed with the Secretary of
State of the State of Delaware on September 27, 1996.
4.3 (14) Specimen certificate of share of Series C Preferred Stock.
5.1 (14) 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.
</TABLE>

II-2
<PAGE> 162

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -------------------------------------------------------------------------------
<S> <C>
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.
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.
</TABLE>

II-3
<PAGE> 163

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -------------------------------------------------------------------------------
<S> <C>
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.
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.
</TABLE>

II-4
<PAGE> 164

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -------------------------------------------------------------------------------
<S> <C>
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.
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.
</TABLE>

II-5
<PAGE> 165

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -------------------------------------------------------------------------------
<S> <C>
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.
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.
</TABLE>

II-6
<PAGE> 166

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -------------------------------------------------------------------------------
<S> <C>
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.
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.
</TABLE>

II-7
<PAGE> 167

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -------------------------------------------------------------------------------
<S> <C>
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.
10.115.2 (16) 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.
</TABLE>

II-8
<PAGE> 168

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -------------------------------------------------------------------------------
<S> <C>
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.
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.
</TABLE>

II-9
<PAGE> 169

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -------------------------------------------------------------------------------
<S> <C>
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 Intentionally Omitted.
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.
10.154 (12) Form of Stay Bonus Agreement with selected employees of MEM.
</TABLE>

II-10
<PAGE> 170

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -------------------------------------------------------------------------------
<S> <C>
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 (16) 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 (15) Indenture, dated February 7, 1997, among Renaissance Cosmetics, Inc., as
issuer, Renaissance Guarantor, Inc., as guarantor, and United States Trust
Company of New York, as trustee.
10.159 (15) Escrow and Disbursement Agreement, dated February 7, 1997, among Renaissance
Cosmetics, Inc., as issuer, Renaissance Guarantor, Inc., as guarantor, United
States Trust Company of New York, as trustee, and United States Trust Company
of New York, as escrow agent.
10.160 (15) Notes Registration Rights Agreement, dated February 7, 1997, between
Renaissance Cosmetics, Inc., as issuer, and CIBC Wood Gundy Securities Corp.,
as initial purchaser.
10.161 (16) 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 (16) 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 (16) 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 (16) 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 (16) 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 (16) List of subsidiaries.
23.1 (14) Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5.1).
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 (10) Power of Attorney (included on signature page).
99.1 (14) Form of Letter of Transmittal.
99.2 (14) Form of Notice of Guaranteed Delivery.
99.3 (14) Form of Exchange Agency Agreement between the Exchange Agent and Renaissance
Cosmetics, Inc.
</TABLE>

- ---------------

(1) Filed with the Company's Registration Statement on Form S-4 filed with the
Securities and Exchange Commission ("SEC") on December 12, 1994,
Registration No. 33-87280, and incorporated herein by reference thereto.

II-11
<PAGE> 171

(2) Filed with Amendment No. 1 to the Company'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 the Company'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 the Company's Quarterly Report on Form 10-Q filed with the SEC
on March 27, 1995, and incorporated herein by reference thereto.

(5) Filed with the Company's Annual Report on Form 10-K filed with the SEC on
June 29, 1995, and incorporated herein by reference thereto.

(6) Filed with the Company's Quarterly Report on Form 10-Q filed with the SEC
on August 14, 1996, and incorporated herein by reference thereto.

(7) Filed with the Company's Form 8-K filed with the SEC on August 8, 1996, and
incorporated herein by reference thereto.

(8) Filed with the Company's Annual Report on Form 10-K filed with the SEC for
the fiscal year ended March 31, 1996, and incorporated herein by reference
thereto.

(9) Filed with the Company's Quarterly Report on Form 10-Q filed with the SEC
on February 14, 1996, and incorporated herein by reference thereto.

(10) Previously filed as an exhibit to this Registration Statement.

(11) Filed with the Company's Quarterly Report on Form 10-Q filed with the SEC
on November 14, 1996, and incorporated herein by reference thereto.

(12) Filed with the Company's Form 8-K filed with the SEC on December 19, 1996
and incorporated herein by reference thereto.

(13) Filed with the Company's Form 8-K filed with the SEC on December 20, 1996
and incorporated herein by reference thereto.

(14) Previously filed as an exhibit to Amendment No. 1 to this Registration
Statement.

(15) Filed with the Company's Form 8-K filed with the SEC on February 20, 1997
and incorporated herein by reference thereto.

(16) Filed with the Company's Registration Statement on Form S-4 filed with the
SEC on March 24, 1997, and incorporated herein by reference thereto.

(B) FINANCIAL STATEMENT SCHEDULES:

Schedule II -- Valuation and Qualifying Accounts (Renaissance Cosmetics
Inc. & Subsidiaries)

Schedule II -- Valuation and Qualifying Accounts -- (Cosmar Corporation and
Affiliates)

ITEM 22. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.

II-12
<PAGE> 172

The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated amount offering range may be reflected
in the form of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent not more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; and

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.

(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

II-13
<PAGE> 173

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 26, 1997.

RENAISSANCE COSMETICS, INC.

By /s/ Thomas T. S. Kaung
------------------------------------
Name: Thomas T.S. Kaung
Title: Group Vice President and
Chief Financial Officer

Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.

<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------------- -------------------------------------- ---------------
<C> <S> <C>

/s/ Thomas V. Bonoma Chairman, Chief Executive Officer and March 26, 1997
- ---------------------------------------- President (principal executive
(Thomas V. Bonoma) officer) and Director

/s/ Thomas T.S. Kaung Group Vice President and Chief March 26, 1997
- ---------------------------------------- Financial Officer (principal financial
(Thomas T.S. Kaung) officer and principal accounting
officer)

* Director March 26, 1997
- ----------------------------------------
(Eric R. Hamburg)

Director March , 1997
- ----------------------------------------
(Kurt L. Kamm)

Director March , 1997
- ----------------------------------------
(William J. Kidd)

* Director March 26, 1997
- ----------------------------------------
(John H. Lynch)
* Director March 26, 1997
- ----------------------------------------
(E. Mark Noonan)

* Director March 26, 1997
- ----------------------------------------
(Terry M. Theodore)

* Director March 26, 1997
- ----------------------------------------
(Daniel D. Villanueva)
</TABLE>

* By
/s/ Thomas T.S.
Kaung
---------------------------
(Attorney-in-fact)

II-14
<PAGE> 174

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> 175

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> 176

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> 177

EXHIBIT INDEX

<TABLE>
<CAPTION>
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2.1 (6) Stock Purchase Agreement among Cosmar Corporation, a Delaware
corporation ("Cosmar Corporation"), Larry Pallini, Vincent Carbone
and Great American Cosmetics, Inc., a New York corporation ("GAC"),
entered into on June 27, 1996, providing for the acquisition by
Cosmar Corporation of all of the capital stock of GAC.
2.2 (6) Agreement and Plan of Merger, among Renaissance Cosmetics, Inc., a
Delaware corporation (the "Company"), Renaissance Acquisition, Inc.,
a New York corporation ("RAI") and MEM Company, Inc. a New York
corporation ("MEM"), dated as of August 6, 1996.
2.3 (13) Asset Sale and Purchase by and among the Procter & Gamble Company
(as Seller) and Dana Perfumes Corp. (as Buyer) and solely for
purposes of Sections 4.6, 6.6 and 6.12 hereof Renaissance Cosmetics,
Inc. and Cosmar Corporation dated as of October 25, 1996.
2.4 (13) Form of Asset Sale and Purchase Agreement among P&G foreign
affiliate sellers and Dana, dated as of October 29, 1996.
3.1 (1) Restated certificate of incorporation of the Company filed with the
Secretary of State of the State of Delaware on August 17, 1994.
3.1.2 (8) Certificate of Designation of Preferences and Rights of Senior
Exchangeable Redeemable Preferred Stock, Series A, of the Company,
filed with the Secretary of State of the State of Delaware on May
29, 1996.
3.1.3 (7) Certificate of Designation of Preferences and Rights of Senior
Redeemable Preferred Stock, Series B, of the Company, filed with the
Secretary of State of the State of Delaware on August 15, 1996.
3.1.4 (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.
3.2 (1) By-laws of the Company.
4.1 (7) Certificate of Designation of Preferences and Rights of Senior
Redeemable Preferred Stock, Series C, par value $.01 per share, of
the Company filed with the Secretary of State of the State of
Delaware on August 15, 1996.
4.2 (14) Certificate of Increase of Certificate of Designation of Preferences
and Rights of Senior Redeemable Preferred Stock, Series C filed with
the Secretary of State of the State of Delaware on September 27,
1996.
4.3 (14) Specimen certificate of share of Series C Preferred Stock.
5.1 (14) 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").
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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.
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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.
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.
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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.
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.
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10.68 (2) Note Purchase Agreement ("Note Purchase Agreement") regarding
Variable Rate Senior Secured Revolving Notes Due 1996 and Variable
Rate Senior Secured Term Notes due 1996, dated as of December 21,
1994 by and among Cosmar Corporation, Renaissance Cosmetics, Inc.,
and Nomura Holding America Inc.
10.69 (5) Amendment No. 1 and Waiver to Note Purchase Agreement, dated as of
April 7, 1995, among Nomura Holding America Inc., Cosmar Corporation
and the Company.
10.70 (10) Amendment No. 2 to Note Purchase Agreement, dated as of September 8,
1995, among Nomura Holding America Inc., Cosmar Corporation and the
Company.
10.71 (10) Amendment No. 3 and Consent to Note Purchase Agreement, dated as of
January 8, 1996, among Nomura Holding America Inc., Cosmar
Corporation and the Company.
10.72 (10) Amendment No. 4 and Waiver to Note Purchase Agreement and Amendment
No. 2 to Security Documents, dated as of May 29, 1996, among Nomura
Holding America Inc., Cosmar Corporation and the Company.
10.73 (10) Amendment No. 5 to Note Purchase Agreement, dated as of June 14,
1995, among Nomura Holding America Inc., Cosmar Corporation and the
Company.
10.74 (10) Waiver to Note Purchase Agreement, dated as of August 8, 1996, among
Nomura Holding America Inc., Cosmar Corporation and the Company.
10.75 (2) Variable Rate Senior Secured Revolving Note Due 1996 to Nomura
Holding America Inc., by Cosmar Corporation.
10.76 (2) Variable Rate Senior Secured Term Notes Due 1996 to Nomura Holding
America Inc., by Cosmar Corporation.
10.77 (2) Guarantee, dated December 22, 1994, by Renaissance Cosmetics, Inc.,
for and in consideration of the purchase by Nomura Holding America
Inc. of the Notes issued and to be issued by Cosmar Corporation
pursuant to the Note Purchase Agreement dated as of December 21,
1994.
10.78 (2) Guarantee, dated December 22, 1994, by Dana Perfumes Corp., for and
in consideration of the purchase by Nomura Holding America Inc. of
the Notes issued and to be issued by Cosmar Corporation pursuant to
the Note Purchase Agreement dated as of December 21, 1994.
10.79 (2) Guarantee, dated December 22, 1994, by New Dana Acquisition Corp.,
for and in consideration of the purchase by Nomura Holding America
Inc. of the Notes issued and to be issued by Cosmar Corporation
pursuant to the Note Purchase Agreement dated as of December 21,
1994.
10.80 (2) Guarantee, dated December 22, 1994, by Les Parfums de Dana, Inc.,
for and in consideration of the purchase by Nomura Holding America
Inc. of the Notes issued and to be issued by Cosmar Corporation
pursuant to the Note Purchase Agreement dated as of December 21,
1994.
10.81 (2) Guarantee, dated December 22, 1994, by Roslyn Importers Inc., for
and in consideration of the purchase by Nomura Holding America Inc.
of the Notes issued and to be issued by Cosmar Corporation pursuant
to the Note Purchase Agreement dated as of December 21, 1994.
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10.82 (2) Guarantee, dated December 22, 1994, by Perfumes and Cosmetics
Importers, Inc., for and in consideration of the purchase by Nomura
Holding America Inc. of the Notes issued and to be issued by Cosmar
Corporation pursuant to the Note Purchase Agreement dated as of
December 21, 1994.
10.83 (2) Guarantee, dated December 22, 1994, by Parfums Dana Export Corp.,
for and in consideration of the purchase by Nomura Holding America
Inc. of the Notes issued and to be issued by Cosmar Corporation
pursuant to the Note Purchase Agreement dated as of December 21,
1994.
10.86 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and
between Cosmar Corporation, and Nomura Holding America Inc.
10.87 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and
between Renaissance Cosmetics, Inc. and Nomura Holding America Inc.
10.88 (2) Intellectual Property Security Agreement, dated December 22, 1994,
by and among Cosmar Corporation, Renaissance Cosmetics, Inc.,
Parfums Parquet Incorporated, New Dana Acquisition Corp., Parfums
Dana Export Corp., Perfumes and Cosmetics Importers, Inc. Les
Parfums de Dana, Inc., Dana Perfumes Corp., Roslyn Importers Inc.
and Nomura Holding America Inc.
10.89 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and
between Les Parfums de Dana, Inc., and Nomura Holding America Inc.
10.90 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and
between Dana Perfumes Corp., and Nomura Holding America Inc.
10.91 (2) Pledge and Security Agreement, dated December 22, 1994, by and
between Parfums Parquet Incorporated, and Nomura Holding America
Inc.
10.92 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and
between New Dana Acquisition Corp., and Nomura Holding America Inc.
10.93 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and
between Roslyn Importers Inc., and Nomura Holding America Inc.
10.94 (2) Pledge and Security Agreement, dated as of December 22, 1994, by and
between Parfums Dana Export Corp., and Nomura Holding America Inc.
10.95 (10) Parent Cash Equivalent Pledge Agreement, dated as of August 15,
1996, among Nomura Holding America Inc., Renaissance Cosmetics, Inc.
and The Chase Manhattan Bank.
10.96 (5) Renaissance Cosmetics, Inc. 1994 Stock Option Plan.
10.97 (4) Aircraft lease agreement dated February 13, 1995 between the Company
and General Electric Capital Corporation.
10.98 (9) Filing dated October 11, 1995 to reflect on the public stock records
of Paris, France the purchase by the Company of the shares of RSH
149 S.A.R.L.
10.99 (8) Securities Purchase Agreement between the Company and CIBC WG Argosy
Merchant Fund 2, L.L.C. (the "Fund"), dated as of May 29, 1996.
Amendment No. 1, dated as of June 21, 1996, to Securities Purchase
Agreement, dated as of May 29, 1996, between Renaissance Cosmetics,
Inc. and CIBC WG Argosy Merchant Fund 2, L.L.C.
10.100 (8) Registration Rights Agreement between the Company and the Fund,
dated as of May 29, 1996.
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10.101 (8) Common Stock Registration Rights Agreement between the Company and
the Fund, dated as of May 29, 1996.
10.102 (7) Securities Purchase Agreement, dated as of August 8, 1996, between
the Company and CIBC Wood Gundy Securities Corp.
10.103 (7) Registration Rights Agreement, dated as of August 15, 1996, between
the Company and CIBC Wood Gundy Securities Corp.
10.104 (7) Common Stock Registration Rights Agreement, dated as of August 15,
1996, between the Company and CIBC Wood Gundy Securities Corp.
10.105 (10) Subscription Agreement, dated August 15, 1996, between the Company
and CIBC WG Argosy Merchant Fund 2, L.L.C.
10.106 (10) Warrant Agreement, dated as of August 18, 1994, between Renaissance
Cosmetics, Inc. and American Bank National Association.
10.107 (7) Warrant Agreement, dated as of August 15 1996, between the Company
and Firstar Trust Company.
10.108 (1) Indenture, dated as of August 18, 1994, among the Company, as
Issuer, the guarantors identified therein (the "Guarantors"), and
American Bank National Association, as Trustee.
10.109 (3) Form of the Exchange Notes.
10.110 (3) Form of the 2002 Notes.
10.111 (2) First supplemental indenture, dated as of November 15, 1994, among
the Company, as issuer, New Dana Acquisition Corp., as guarantor,
and American Bank National Association, as Trustee.
10.112 (2) Second supplemental indenture, dated as of December 15, 1994, among
the Company, as issuer, Houbigant (1995) Limitee, as guarantor, and
American Bank National Association as trustee.
10.113 (2) Third supplemental indenture, dated as of December 23, 1994, among
the Company, as issuer, certain subsidiaries of the Company, as
guarantors, and American National Bank Association, as trustee.
10.114 (8) Fourth supplemental indenture, dated as of February 27, 1996, among
the Company, as issuer, SH 149 S.A.R.L., as guarantor, and American
Bank National Association, as trustee.
10.115 (10) Fifth supplemental Indenture, dated as of August 21, 1996, among the
Company, as the issuer, GAC, as guarantor, and American Bank
National Association, as trustee.
10.115.1 (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.
10.115.2 (16) 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.
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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.
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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 Intentionally Omitted.
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, 1993.
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.
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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 with selected employees of MEM.
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 (16) 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 (15) Indenture, dated February 7, 1997, among Renaissance Cosmetics,
Inc., as issuer, Renaissance Guarantor, Inc., as guarantor, and
United States Trust Company of New York, as trustee.
10.159 (15) Escrow and Disbursement Agreement, dated February 7, 1997, among
Renaissance Cosmetics, Inc., as issuer, Renaissance Guarantor, Inc.,
as guarantor, United States Trust Company of New York, as trustee,
and United States Trust Company of New York, as escrow agent.
10.160 (15) Notes Registration Rights Agreement, dated February 7, 1997, between
Renaissance Cosmetics, Inc., as issuer, and CIBC Wood Gundy
Securities Corp., as initial purchaser.
10.161 (16) 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 (16) 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 (16) Pledge Agreement dated as of March 12, 1997 between General Electric
Capital Corporation, as the agent and the lender, and the pledgers
thereto.
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10.164 (16) 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 (16) 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 (16) List of subsidiaries.
23.1 (14) Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in
Exhibit 5.1).
23.2 Report and consent of Deloitte & Touche, LLP.
23.3 Consent of Ernst & Young LLP.
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23.4 Consent of Windes & McClaughry.
23.5 Consent of Deutsch, Marin & Company.
23.6 Consent of Deloitte & Touche LLP
24.1 (10) Power of Attorney (included on signature page).
99.1 (14) Form of Letter of Transmittal.
99.2 (14) Form of Notice of Guaranteed Delivery
99.3 (14) Form of Exchange Agency Agreement between the Exchange Agent and
Renaissance Cosmetics, Inc.
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