SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 1997
Commission file number: 33-87280
RENAISSANCE COSMETICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1396287
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
635 MADISON AVENUE
NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
(212) 751-3700
(Registrant's telephone number, including area code).
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
As of December 31, 1997, there were outstanding 826,336
shares of the registrant's common stock, $.01 par value
per share.
<PAGE>
2
INDEX
PAGE
PART I FINANCIAL INFORMATION.............................................4
ITEM 1. FINANCIAL STATEMENTS...........................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS....................................16
PART II -- OTHER INFORMATION.............................................32
ITEM 1. LEGAL PROCEEDINGS.............................32
ITEM 5. OTHER INFORMATION.............................33
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..............33
<PAGE>
3
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in
this Form 10-Q and any documents incorporated herein by reference constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These
statements are typically identified by their inclusion of phrases such as "the
Company anticipates," "the Company believes" and other phrases of similar
meaning. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, 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; actions that may be taken by the Company's lenders and unsecured
creditors if the Company fails to make timely payments of interest on its
outstanding 11 3/4% Senior Notes due 2004 or other indebtedness; the continued
availability of trade credit on terms previously enjoyed by 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 generally and the fragrance and cosmetics
industries specifically; 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; changes in, or the failure
to comply with, governmental regulations (especially environmental laws and
regulations); and other factors referenced in this Form 10-Q. 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.
<PAGE>
4
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Information called for by this item is set forth in the financial
statements contained on the immediately following five pages.
PAGE
Consolidated Balance Sheets........................................5
Consolidated Statements of Operations..............................6
Consolidated Statements of Cash Flows............................7-8
Notes to Consolidated Financial Statements......................9-15
<PAGE>
5
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
- ---------------------------------------- --------------------------------------
ASSETS DECEMBER 31, 1997 MARCH 31, 1997
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 4,037 $ 719
Marketable securities 9,109 14,331
Accounts receivable - net 47,564 48,837
Inventories 61,798 55,554
Prepaid expenses and other current
assets 11,371 7,827
----------------- ----------------
Total current assets 133,879 127,268
PROPERTY, PLANT AND EQUIPMENT - Net 27,251 26,581
DEFERRED FINANCING COSTS - Net 11,617 12,748
MARKETABLE SECURITIES 4,361 8,468
OTHER ASSETS - Net 11,377 12,141
INTANGIBLE ASSETS - Net 173,400 174,177
----------------- ----------------
TOTAL ASSETS $ 361,885 $ 361,383
----------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 17,665 $ 21,612
Accrued expenses and other current
liabilities 44,808 40,322
Short-term debt 41,700 --
----------------- ----------------
Total current liabilities 104,173 61,934
LONG-TERM LIABILITIES:
Long-term debt 204,024 203,877
Minimum royalty obligation and
other long-term liabilities 3,896 3,926
----------------- ----------------
Total long-term liabilities 207,920 207,803
TOTAL LIABILITIES 312,093 269,737
COMMITMENTS AND CONTINGENCIES
SENIOR REDEEMABLE PREFERRED STOCK 101,207 86,660
REDEEMABLE PREFERRED STOCK 14,384 13,167
COMMON STOCKHOLDERS' DEFICIT:
Common stock 8 8
Notes receivable from sale of common stock (518) (518)
Additional paid-in capital 69,403 69,403
Treasury stock, at cost (164) (210)
Deficit (133,408) (75,450)
Cumulative translation adjustment (1,120) (1,414)
----------------- ----------------
Total common stockholders' deficit (65,799) (8,181)
----------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 361,885 $ 361,383
----------------- ----------------
See notes to unaudited consolidated financial statements.
<PAGE>
6
<TABLE>
<CAPTION>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
- -------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
(AS RESTATED)
<S> <C> <C> <C> <C>
NET SALES $ 155,707 $ 124,590 $ 53,012 $ 46,880
COST OF GOODS SOLD 75,237 48,887 34,037 19,597
GROSS PROFIT 80,470 75,703 18,975 27,283
-------------- ------------- ---------- -----------
OPERATING EXPENSES:
Selling 65,178 47,660 24,380 17,436
General and Administrative 25,506 16,268 11,089 6,557
Restructuring costs 1,661 335 544 82
Amortization of intangible and other assets 9,185 5,141 3,233 2,019
-------------- ------------- ---------- -----------
Total operating expenses 101,530 69,404 39,246 26,094
-------------- ------------- ---------- -----------
OPERATING INCOME (LOSS) (21,060) 6,299 (20,271) 1,189
OTHER EXPENSE (INCOME):
Interest expense 22,922 17,206 8,343 6,368
Interest income (1,091) (1,217) (268) (679)
Other expense (income) - net (2,074) (231) 755 (34)
-------------- ------------- ---------- -----------
Total other expense - net 19,757 15,758 8,830 5,655
-------------- ------------- ---------- -----------
LOSS BEFORE INCOME TAX PROVISION (40,817) (9,459) (29,101) (4,466)
INCOME TAX PROVISION 1,472 569 561 260
-------------- ------------- ---------- -----------
NET LOSS (42,289) (10,028) (29,662) (4,726)
PREFERRED STOCK DIVIDENDS 15,669 9,838 5,410 4,778
-------------- ------------- ---------- -----------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $(57,958) $(19,866) $(35,072) $(9,504)
-------------- ------------- ---------- -----------
BASIC LOSS PER COMMON SHARE $ (70.20) $ (25.95) $ (42.44) $(11.52)
-------------- ------------- ---------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING 825,572 765,569 826,336 825,086
-------------- ------------- ---------- -----------
See notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
7
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $(42,289) $(10,028)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 5,192 2,715
Amortization of intangible assets 6,504 2,576
Amortization of minimum royalty and other assets 2,681 2,565
Amortization of deferred financing costs 1,584 2,918
Other non-cash interest expense 894 1,103
Non-cash interest income (588) -
Changes in operating assets and liabilities, net effects of
acquisitions and investments:
Accounts receivable (18) (921)
Inventories (7,444) (6,986)
Prepaid expenses and other assets (5,094) (9,357)
Accounts payable (4,213) (11,135)
Accrued expenses and other current liabilities 4,052 5,041
Other 336 (1,098)
---------- ----------
Net cash used in operating activities (38,403) (22,607)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,727) (2,826)
Proceeds from sale of property 1,823 -
Acquisition of business, net of cash acquired - (94,109)
Investment in joint venture, net of cash acquired (546) -
Sale of marketable securities 9,848 -
Purchase of marketable securities - (411)
Other investing activities (450) -
---------- ----------
Net cash provided by (used in) investing activities 2,948 (97,346)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Revolving Credit Facility 56,000 -
Repayments on Revolving Credit Facility (14,300) -
Payment of minimum royalty obligations (2,520) (1,386)
Proceeds from Old Credit Facility - 4,200
Repayment of Old Credit Facility - (61,200)
Proceeds from Old Senior Secured Credit Facility - 117,500
Proceeds of issuance of Series A preferred Stock - 18,955
Redemption of Series A preferred stock - (20,434)
Net proceeds of issuance of Series B preferred Stock - 108,319
Net proceeds from issuance of common stock - 9,750
Proceeds from sale of treasury stock 46 -
Payment of financing fees (453) (5,670)
---------- ----------
Net cash provided by financing activities 38,773 170,034
---------- ----------
</TABLE>
(Continued on next page)
<PAGE>
8
<TABLE>
<CAPTION>
(IN THOUSANDS)
- ------------------------------------------------------------------------- ---------------------------
NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
<S> <C> <C>
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,318 50,081
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 719 1,432
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,037 $ 51,513
---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest $ 14,396 $ 10,117
---------- ----------
Income taxes $ 596 $ 463
---------- ----------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING TRANSACTIONS:
Accrued dividends and accretion on redeemable preferred stocks $ 15,669 $ 9,838
---------- ----------
See notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
9
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 include
the accounts of the Company and its subsidiaries from the respective dates of
their acquisitions. All significant intercompany activity has been eliminated.
The results of operations for the three and nine months ended December 31, 1997
are not necessarily indicative of the results to be expected for any other
interim period or for the entire year.
The Company is reporting lower than expected Net Sales,
Operating Income and EBITDA for the three month period ended December 31, 1997,
primarily as a result of four factors. First, Christmas holiday fragrance sales
in the Fragrance division were significantly below the Company's expectations.
Second, profitability in this division was adversely affected during this period
by higher than expected costs of goods sold and freight due to difficulties
encountered in integrating the manufacturing of new brand products acquired in
the Acquisitions into the Company's Mountain Top, Pennsylvania manufacturing
facility. Third, the third quarter results also reflect lower than expected
sales and profitability of the Company's "Cosmar" brand artificial nail
products, which the Company attributes to increased competition from new
entrants in the category which has resulted in loss of market share and higher
than expected returns. Fourth, during the third quarter, the Company experienced
lower than expected sales in Brazil due to economic conditions in that country
resulting from government actions to support the Brazilian currency.
The Company has now experienced two consecutive disappointing
Christmas holiday seasons in the mass-market fragrance industry and now believes
that its third quarter results reflect a new trend in this market segment. The
Company also believes that its results indicate a significant change in the
competitive market environment in which the Company's "Cosmar" brand operates.
Therefore, during the third quarter the Company performed a comprehensive review
of its balance sheet to determine if the Company should make adjustments to
estimates and reserves reflected on its balance sheet that were based, when
made, on the Company's prior historical experience. Such review also included a
reassessment of the assumptions that should be used to arrive at estimates and
reserves in light of these changing market conditions. The Company reviewed its
estimates for customer charge-backs, sales returns and holiday markdowns,
accounts receivable, inventory and trade promotion, among other items. As a
result of this review, the Company's results of operations for the three and
nine month periods ending December 31, 1997 include adjustments of approximately
$16 million to reflect actual costs that exceeded estimates and other changes to
estimates that had been used in recording the prior year's results.
<PAGE>
10
In the opinion of management, all adjustments necessary to
present fairly the consolidated financial position, results of operations and
cash flows of the Company have been made. 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 state ments included in the Company's
Annual Report on Form 10-K for the year ended March 31, 1997, filed with the
Securities and Exchange Commission (the "1996 Form 10-K").
In January 1997, the Company restated its previously reported
results of operations for the three and six months ended September 30, 1996. The
information relating to the three months ended December 31, 1996, is restated to
reflect those changes. Additionally, certain reclassifications were made to the
financial statements for the three and nine months ended December 31, 1996, to
conform to the current year's presentation.
2. INVENTORIES
The components of inventories are as follows:
December 31, March 31,
1997 1997
----------- -----------
(in thousands)
Raw materials and components $32,051 $30,453
Work in process 3,143 2,413
Finished goods 26,604 22,688
----------- -----------
Total $61,798 $55,554
=========== ===========
<PAGE>
11
3. DEBT
Debt consists of the following:
December 31, March 31,
1997 1997
----------- -----------
(in thousands)
SHORT-TERM DEBT:
Revolving Credit Facility $41,700 $ --
----------- -----------
LONG-TERM DEBT:
Senior Notes $200,000 $200,000
Subordinated Sellers Notes 4,024 3,877
----------- -----------
Total $204,024 $203,877
=========== ===========
On June 8, 1997, the Company completed an exchange offer for
all of its outstanding 11-3/4% Senior Notes due 2004, originally issued on
February 7, 1997, which were subject to certain transfer restrictions, and
issued $200 million aggregate principal amount of 11-3/4% Senior Notes due 2004,
which were registered under the Securities Act.
At December 31, 1997, the Company has drawn letters of credit
of approximately $1,577,000 under its Revolving Credit Facility.
The agreement relating to the Revolving Credit Facility with
the Company's operating subsidiaries contains financial covenants that require
the Company to maintain specified ratios and satisfy other financial tests.
Because of the significant operating loss reported by the Company for the three
months ended December 31, 1997, the Company was not in compliance with certain
of these financial covenants at such date.
On February 17, 1998 (the "Effective Date"), the Company's
operating subsidiaries and the lenders who are parties to the Revolving Credit
Facility entered into a Waiver, Amendment and Consent (the "Amendment"), under
which the lenders agreed to (1) waive the covenant defaults in existence as of
December 31, 1997, (2) reset the financial covenants for the fiscal quarter
ending March 31, 1998, and (3) provide an overadvance of up to $6 million
through July 31, 1998. In exchange therefor, the operating subsidiaries of the
Company agreed (a) to restrict the payment of fees to the Company's majority
common shareholder, which are Restricted Payments under the Revolving Credit
Facility, (b) not to make certain other Restricted Payments through July 31,
1998, (c) to convert all LIBOR Loans outstanding on the Effective Date to Index
Rate Loans, (d) to fix the interest rates on (i) all revolving credit advances
(other than overadvances) at the Index Rate plus 2% and (ii) all overadvances at
the Index Rate plus 4%, (e) to pledge 100% of the stock of all domestic
operating subsidiaries, and 66% of the stock of Houbigant (1995) Ltee, (f) to
grant mortgages on the Company's Boucherville, Quebec and Northvale, New Jersey
properties and (g) to pay the lenders a fee of $450,000. In addition, the
lenders have provided additional borrowing base under the Revolving Credit
Facility. As of February 13, 1998, such increased availability would have been
approximately $8,900,000. This additional availability will fluctuate as the
nature and amount of the collateral changes. The Revolving Credit Facility
defines "Index Rate" as the floating rate equal to the higher of (i) the rate
publicly quoted from time to time by THE WALL STREET JOURNAL as the "base rate
on corporate loans at
<PAGE>
12
large U.S. money center commercial banks" (or, if THE WALL STREET JOURNAL ceases
quoting a base rate of the type described, the highest per annum rate of
interest published by the Federal Reserve Board in Federal Reserve statistical
release H.15 (519) entitled "Selected Interest Rates" as the bank prime loan
rate or its equivalent), and (ii) the Federal funds rate plus fifty basis points
per annum.
Interest in the aggregate amount of $11,750,000 on the
Company's outstanding 11-3/4% Senior Notes due 2004 (the "Senior Notes" ) is due
and payable on February 17, 1998. The Senior Notes are obligations of the
Company and are not guaranteed by any of the Company's operating subsidiaries.
At the time the Senior Notes were issued, a special purpose subsidiary of the
Company (the "Guarantor") established an escrow account to secure certain
payments of interest due on the Senior Notes. As of December 31, 1997, this
escrow account held approximately $13,470,000 in marketable securities. On
February 13, 1998, the Company announced that, in order to maximize its
liquidity available for marketing, product launch and trade related efforts, it
had on February 12, 1998 advised the trustee under the Indenture, dated February
7, 1997, under which the Senior Notes were issued (the "Indenture"), that
neither the Company nor the Guarantor will pay the portion of the interest
payment due on the Senior Notes required to be paid by them. The Company instead
requested that the trustee exercise its right to request the escrow agent to
make available additional funds to pay the balance of the interest due to the
holders of the Senior Notes. On February 17, 1998, pursuant to the request of
the trustee, the escrow agent released funds held in the escrow account in order
to make such interest payment in full.
The Company believes that its cash on hand, cash generated
from operations and borrowings made available to it under the Revolving Credit
Facility will be sufficient to enable it to satisfy its needs for cash and
working capital during the balance of the fiscal year ended March 31, 1998 and
during the quarter ended June 30, 1998. The waivers and modifications to the
Revolving Credit Facility do not relate to periods on or after June 30, 1998.
The Company intends to work with its secured lenders with a view to obtaining an
amendment to the Revolving Credit Facility under which such lenders would
extend their commitments beyond June 30, 1998. Unless the Company and its
secured lenders agree to further modifications of the covenants contained in the
Revolving Credit Facility or the Company is able to obtain alternative sources
of financing to refinance the Revolving Credit Facility, the Company expects
that it will again be in default thereunder at the end of the fiscal quarter
ending June 30, 1998. In such event, the Company's secured lenders again would
be entitled to refuse to make further advances under the Revolving Credit
Facility and to require the Company to repay all amounts then outstanding on
demand. In light of the reasons described above, the balance of the Revolving
Credit Facility at December 31, 1997 has been classified within current
liabilities.
<PAGE>
13
The Company intends to explore various alternatives for
enabling it to continue to satisfy its consolidated cash requirements, including
amounts due to its trade creditors and its secured lenders. Additionally, the
Company intends to refine and refocus its business strategy in light of its
current assessment of the competitive marketplace in which it operates. Such
strategies may include restructuring the Company's organization to be as
efficient and effective as possible; selling certain non-core assets (including
the former MEM manufacturing plants in Northvale, New Jersey and in
Boucherville, Quebec); and reducing capital expenditures and working capital
needs. There can be no assurance that the Company will be able to accomplish any
or all of these objectives.
Interest on the Senior Notes is payable semi-annually on
February 15 and August 15 at the rate of 11-3/4% per annum. Each required
payment is $11,750,000. Based on the Company's current and expected level of
operations for the balance of the current fiscal year and the first half of
fiscal 1998, the Company does not expect to be able to pay the installment of
interest due on August 15, 1998 with cash generated from operations. Unless the
Company is able to obtain sufficient cash from asset sales or the modification
or refinancing of the secured debt, the Company anticipates that it will be
required to undertake one or more extraordinary transactions during the next
twelve months. There can be no assurance, however, that the Company will be able
to consummate any such extraordinary transaction or that, if consummated, the
Company will have access to sufficient sources of funds to enable it to meet its
consolidated cash requirements, including payments of interest on the Senior
Notes.
4. SENIOR REDEEMABLE PREFERRED STOCK
AND REDEEMABLE PREFERRED STOCK
On April 28, 1997, the Company completed an offer to exchange
shares of Senior Redeemable Preferred Stock, Series C ("Series C Preferred
Stock"), which are registered under the Securities Act, for outstanding shares
of its Senior Redeemable Preferred Stock, Series B ("Series B Preferred Stock"),
which are subject to certain transfer restrictions, on a share-for-share basis.
The Series C Preferred Stock has substantially the same terms as the Series B
Preferred Stock but is not subject to transfer restrictions. Following the
exchange, there were 775 shares of Series B Preferred Stock outstanding and
126,916 shares of Series C Preferred Stock outstanding. Shares of Series B
Preferred Stock and Series C Preferred Stock are together referred to as Senior
Redeemable Preferred Stock on the Consolidated Balance Sheets at December 31,
1997, and March 31, 1997. As of December 31, 1997, the aggregate liquidation
preference of the Company's outstanding shares of Senior Redeemable Preferred
Stock was $136,891,000. As of December 31, 1997, accrued and unpaid dividends
were approximately $2,438,000.
On February 12, 1998, the Company's Board of Directors
declared the quarterly dividend payment on the Company's Senior Redeemable
Preferred Stock in the amount of approximately $4,877,000. Such dividend payment
will be made through the issuance of additional shares of Senior Redeemable
Preferred Stock. The dividend will be payable on February 17, 1998 to holders of
record of Senior
<PAGE>
14
Redeemable Preferred Stock on February 1, 1998, at the rate of 0.035625 shares
of Senior Redeemable Preferred Stock per share. According to the terms of the
Senior Redeemable Preferred Stock, if the Company does not pay cash dividends
after November 17, 1997, the per annum dividend rate is increased by 0.25%
during each quarter on which such non-cash dividend 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 quarter in which such
non-cash payment occurs, to a maximum rate of 17% per annum. Thus, the effective
quarterly dividend rate for the Senior Redeemable Preferred Stock is currently
3.5625%. The Company does not currently expect to pay cash dividends on the
Senior Redeemable Preferred Stock and accordingly the effective quarterly
dividend rate thereon will be increased as described.
At December 31, 1997, the aggregate liquidation preference of
the Company's Redeemable Preferred Stock was $13,781,000. As of December 31,
1997, accrued and unpaid dividends were $172,000.
5. OTHER EXPENSE (INCOME)-NET
Other expense (income)-net was ($2,074,000) for the
nine months ended December 31, 1997. Other expense (income)-net consists
primarily of the proceeds from a key man life insurance policy, of which the
Company was the beneficiary, on the life of Dr. Thomas V. Bonoma, the late
Chairman and Chief Executive Officer of the Company, net of incremental expenses
incurred by the Company relating to the death of Dr. Bonoma. Other expense
(income)-net also includes certain fees payable to Kidd Kamm Equity Partners,
L.P., the majority shareholder of the Company, of $506,000. As of December 31,
1997, approximately $306,000 of such fees had been paid. As of August 15, 1997,
such payments were restricted by the terms of the Company's Cumulative
Exchangeable Preferred Stock.
6. LITIGATION
ATLANTIS LITIGATION. The stipulation settling this litigation
was approved by the court in November 1997. Pursuant to the stipulation, in
consideration for the payment of $295,000 ($125,000 of which was paid by the
Company) to plaintiffs, all of the plaintiffs' claims were settled, each of the
defendants, including the Company, was released in full, and the litigation was
dismissed.
MEM LITIGATION. The court approved the settlement, pursuant to
which MEM paid $25,000 for plaintiffs' attorneys' fees, additional disclosure
was made to shareholders through the settlement notice and full releases were
exchanged by the parties. The order dismissing the litigation became final in
October 1997.
PREMIER SALES GROUP LITIGATION. The Company, Cosmar and GACI
filed their third party complaint against the sellers of GACI (the "Sellers") in
November 1997 (the "Third Party Complaint"). The claims alleged in the Third
Party Complaint are (i) breach of certain representations and warranties
contained in
<PAGE>
15
the Stock Purchase Agreement, (ii) indemnification, and (iii) misrepresentation.
In February 1998, the Sellers filed a motion to dismiss the Third Party
Complaint on jurisdictional grounds. The Company, Cosmar and GACI are preparing
their opposition to the motion to dismiss. Discovery is proceeding and
negotiations with the plaintiffs and Sellers are continuing. The Company does
not believe the outcome of this litigation will have a material impact on the
Company's financial condition or results of operations.
ORIGINAL ADDITIONS LITIGATION. In November 1997, Cosmar filed
a AAA arbitration claim against Original Additions (Beauty Products), Ltd.
("Original Additions"), a former distributor of Cosmar products in the United
Kingdom, seeking recovery of approximately $130,000 owed to Cosmar pursuant to a
distribution agreement between the parties. On the same day, Original Additions
filed a complaint in Superior Court in Los Angeles County, California against
the Company, Cosmar and Dana U.K. Limited ("Dana U.K."), another subsidiary of
the Company. The complaint alleges (i) breach of contract, (ii) interference
with and conspiracy to interfere with contract, (iii) unfair competition and
conspiracy to unfairly compete and (iv) fraud. Original Additions seeks
reformation of the distribution agreement, declaratory relief with respect to
its alleged right of set-off and compensatory and punitive damages in amounts to
be proven. The parties have agreed to extend the time to respond to the
complaint and the arbitration demand to April 10, 1998, and are in the process
of drafting an arbitration agreement pursuant to which both the complaint and
AAA arbitration will be dismissed and all claims will be resolved by arbitration
by a retired judge. The Company, Cosmar and Dana U.K. believe that they have
meritorious defenses to the claims, and intend to vigorously defend such claims.
The Company does not believe that the outcome of this litigation will have a
material impact on the Company's financial condition or results of operations.
<PAGE>
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The Company's fiscal year ending March 31, 1998, is referred
to herein as "Fiscal 1997." The Company's fiscal year ended March 31, 1997, is
referred to herein as "Fiscal 1996."
This discussion and analysis relates to the consolidated
results of operations of Renaissance Cosmetics, Inc. (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, each
of which is discussed in greater detail in Item 1 and Item 7 of the Company's
Fiscal 1996 Form 10-K.
1. The Houbigant Acquisition in July and August 1994, the Cosmar
Acquisition in August 1994, the Dana Acquisition in December
1994 and the ACB Acquisition in December 1994;
2. The acquisition of Great American Cosmetics, Inc. in August
1996 (the "GAC Acquisition"), the operations of which have
been integrated into Cosmar;
3. The acquisition of MEM Company, Inc. in December 1996 (the
"MEM Acquisition"), the domestic operations of which have been
integrated into Dana; and
4. The acquisition of certain mass-market fragrance brands from
Proctor & Gamble in December 1996 (the "P&G Brands
Acquisition"), the domestic operations of which have been
integrated into Dana.
The GAC Acquisition, the MEM Acquisition and the P&G Brands
Acquisition are referred to collectively as the "Acquisitions."
The Company is reporting lower than expected Net Sales,
Operating Income and EBITDA for the three month period ended December 31, 1997,
primarily as a result of four factors. First, as described more fully below,
Christmas holiday fragrance sales in the Fragrance division were significantly
below the Company's expectations. Second, profitability in this division was
adversely affected during this period by higher than expected costs of goods
sold and freight due to difficulties encountered in integrating the
manufacturing of new brand products acquired in the Acquisitions into the
Company's Mountain Top, Pennsylvania manufacturing facility (the "Plant").
Third, the third quarter results also reflect, as more fully described below,
lower than expected sales and profitability of the Company's "Cosmar" brand
artificial nail products, which the Company attributes to increased competition
from new entrants in the category which has resulted in loss of
<PAGE>
17
market share and higher than expected returns. Fourth, during the third quarter,
the Company experienced lower than expected sales in Brazil due to economic
conditions in that country, resulting from government actions to support the
Brazilian currency.
The Company has now experienced two consecutive disappointing
Christmas holiday seasons in the mass-market fragrance industry and now believes
that its third quarter results reflect a new trend in this market segment. The
Company also believes that its results indicate a significant change in the
competitive market environment in which the Company's "Cosmar" brand operates.
Therefore, during the third quarter the Company performed a comprehensive review
of its balance sheet to determine if the Company should make adjustments to
estimates and reserves reflected on its balance sheet that were based, when
made, on the Company's prior historical experience. Such review also included a
reassessment of the assumptions that should be used to arrive at estimates and
reserves in light of these changing market conditions. The Company reviewed its
estimates for customer charge-backs, sales returns and holiday markdowns,
accounts receivable, inventory and trade promotion, among other items. As a
result of this review, the Company's results of operations for the three and
nine month periods ending December 31, 1997 include adjustments of approximately
$16 million to reflect actual costs that exceeded estimates and other changes to
estimates that had been used in recording the prior year's results.
The Company believes that the factors that affected its
performance during the third quarter will also negatively impact the Company's
fourth quarter performance. Additionally, during the fourth quarter, the Company
expects to undergo a thorough reexamination of all aspects of its business with
the goal of restructuring its business as necessary to succeed in the current
industry environment. The Company expects that this may result in a
restructuring charge in the fourth quarter of Fiscal 1997 in an amount not yet
determined.
Based on the above developments, the Company has conducted an
evaluation of its long-lived assets, including goodwill, based upon the
Company's current best estimates of its current business plans, and has
presently determined that there has not been an impairment in such assets. The
Company will continue to actively monitor the carrying value of its long-lived
assets as the changes in the business develop.
<PAGE>
18
OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 AS COMPARED TO THE NINE
MONTHS ENDED DECEMBER 31, 1996
NET SALES. The Company's net sales were as follows:
Nine Months
Ended December 31,
1997 1996
--------------- --------------- --------------- -------------
(dollars in thousands)
DIVISION Gross Profit % of Net Sales Gross Profit % of Net Sales
- ----------------- --------------- --------------- --------------- -------------
Fragrance $75,277 48.3% $55,624 44.6%
Cosmetics 39,333 25.3 37,586 30.2
International 41,097 26.4 31,380 25.2
--------- --------- --------- ------
TOTAL $155,707 100.0% $124,590 100.0%
======== ===== ======== =====
Total net sales increased by 25.0% to $155,707,000.
Fragrance division net sales increased 35.3% to $75,277,000
which includes approximately $9,400,000 of adjustments to the prior year's
estimated accruals for customer charge-backs, holiday markdowns and sales
returns. Without giving effect to these adjustments, net sales for the Fragrance
division would have been $84,677,000 for the first nine months of Fiscal 1997.
The increase in net sales was due principally to net sales of brands acquired in
the MEM Acquisition and P&G Brands Acquisition. Net sales of MEM brands and P&G
brands were $25,145,000 during the first nine months of Fiscal 1997 as compared
to sales of MEM brands and P&G brands during the first nine months of Fiscal
1996 of $1,818,000. Fragrance division net sales were negatively impacted by the
lower than expected Christmas season sell-through, resulting in an increase in
estimated sales returns accruals over what was originally expected, of
approximately $2,700,000 at December 31, 1997.
Cosmetics division net sales increased 4.6% to $39,333,000
which includes approximately $2,000,000 of adjustments to the prior year's
estimated accruals for sales returns. Without giving effect to these
adjustments, net sales for the first nine months of Fiscal 1997 would have been
$41,333,000. The increase in net sales is due to increased sales of a new brand
of cosmetics, which was acquired in the GAC Acquisition, being included for the
entire year offset by declines in sales of the "Cosmar" brand products. Net
sales of such new brand of cosmetics during the first nine months of Fiscal 1997
were approximately $6 million higher than sales in the comparable period of
Fiscal 1996. Net sales of the "Cosmar" brand products during the first nine
months of Fiscal 1997 were approximately $5 million lower than sales in the
comparable period of Fiscal 1996. The Company attributes the lower than expected
sales and profitability of the "Cosmar" brand products to increased competition
from new entrants in the category which resulted in loss of market share and
higher than expected returns.
<PAGE>
19
International division net sales increased 31.0% to
$41,097,000. Substantially all of this increase consisted of the sales from the
UK subsidiary which began operations in December 1996. This increase, together
with an increase in sales in Canada, was offset, in part, by a decrease in
export sales as the Company is in the process of establishing new distribution
agreements.
GROSS PROFIT. The Company's gross profit was as follows:
Nine Months
Ended December 31,
1997 1996
--------------- --------------- --------------- -------------
(dollars in thousands)
DIVISION Gross Profit % of Net Sales Gross Profit % of Net Sales
- ----------------- --------------- --------------- --------------- -------------
Fragrance $35,046 46.6% $35,876 64.5%
Cosmetics 21,684 55.1 21,892 58.2
International 23,740 57.8 17,935 57.2
--------- --------- --------- ------
TOTAL $80,470 51.7% $75,703 60.8%
======= ==== ======= ====
Fragrance division gross profit margin declined to 46.6% from
64.5% due in part to the effects of approximately $9,400,000 of adjustments
described in "Net Sales" above and approximately $1,900,000 of adjustments to
cost of goods sold. Without such adjustments, gross profit for the fragrance
division would have been $46,346,000 or 54.7%. The decline in gross profit
margins without giving effect to the adjustments discussed above is due to
higher close-out sales and to higher sales of children's cosmetics products,
which generate lower gross margins. Nonetheless, the gross profit margin on
fragrance products sold through normal channels declined to 58.4%. Such decline
was due to difficulties encountered in integrating the manufacturing
of new brand products acquired in the Acquisitions into the Company's Plant
which resulted in delays in production and required the Company to out-source a
large portion of Christmas production. Higher labor and overhead costs at the
Plant caused by increased levels of overtime and lower throughput also
contributed to the decline in the gross profit margin on fragrance products.
Gross profit was further reduced by additional depreciation incurred in the
first nine months of Fiscal 1997 in connection with the expansion of the Plant.
Cosmetics division gross profit margin declined to 55.1%
compared to 58.2% during the comparable period in the prior year. Without giving
effect to the $2,000,000 of adjustments discussed in "Net Sales" above, gross
profit margins for the Cosmetics division would have been 57.3%.
International division gross profit margin increased to 57.8%
from 57.2% reflecting changes in product mix.
SELLING EXPENSES. The Company's selling expenses in the first
nine months of Fiscal 1997 and the first nine months of Fiscal 1996 were
$65,178,000
<PAGE>
20
(41.9% of Net Sales) and $47,660,000 (38.3% of Net Sales), respectively. Without
giving effect to the adjustments discussed in "Net Sales" above, selling
expenses would have been 38.8% of Net Sales. Selling expenses increased in the
first nine months of Fiscal 1997 due to higher advertising expenditures,
primarily to support the brands acquired in the Acquisitions, and the
additional fixed selling costs of the larger selling organizations required by
the Company's expanded product offerings. The increase in selling expenses as a
percentage of sales is attributable to the combination of the aforementioned
increased costs and lower than expected net sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses in the first nine months of Fiscal 1997 were $25,506,000
(16.4% of Net Sales), compared to $16,268,000 (13.1% of Net Sales) in the first
nine months of Fiscal 1996. General and administrative expenses in the Fiscal
1997 period includes approximately $1,900,000 of adjustments to prior year's
estimated accruals. Excluding these adjustments, general and administrative
expenses would have been $23,606,000 (14.1% of Net Sales). The increase in
general and administrative expenses was attributable to the additional fixed
costs for the infrastructure necessary to run a larger organization, primarily
resulting from increased expenses as a result of the Acquisitions within the
Cosmetic and Fragrance divisions, the Corporate office, the children's cosmetics
business and the UK subsidiary established in December 1996. The increase in
general and administrative expenses as a percentage of sales reflects the
additional fixed costs discussed above and lower than expected net sales.
RESTRUCTURING COSTS. Restructuring costs in the first nine
months of Fiscal 1997 and the nine months of Fiscal 1996 were $1,661,000 (1.1%
of Net Sales) and $335,000 (0.3% of Net Sales). Restructuring costs consist of
severance, relocation costs, and recruiting and outplacement fees. Such costs
increased in Fiscal 1997 due to personnel changes made in order to expand and
upgrade the organization following consummation of the Acquisitions.
AMORTIZATION OF INTANGIBLE AND OTHER ASSETS. Amortization of
intangible and other assets during the first nine months of Fiscal 1997 was
$9,185,000 (5.9% of Net Sales) and $5,141,000 (4.1% of Net Sales) in the first
nine months of Fiscal 1996. This increase is due to an increase in intangible
assets resulting principally from the Acquisitions.
OPERATING INCOME (LOSS). Operating loss was $21,060,000 (13.5%
of Net Sales) for the first nine months of Fiscal 1997 as compared to operating
income of $6,299,000 (5.1% of Net Sales) for the first nine months of Fiscal
1996.
Management believes that, as an additional measurement,
earnings (loss) before interest, taxes, depreciation and amortization ("EBITDA")
is useful and meaningful to an understanding of the operating performance of the
Company. However, EBITDA should not be considered as an alternative to net
income (loss) as an indicator of the Company's operating performance or to cash
flows as a measurement of liquidity.
<PAGE>
21
The computation of EBITDA is set forth in the table below:
NINE MONTHS ENDED
DECEMBER 31,
1997 1996
------------------- --------------
(in thousands)
Operating Income (Loss) $(21,060) $6,299
Plus: Amortization of Intangibles
and Other Assets 9,185 5,141
Plus: Depreciation 5,192 2,715
------------------- --------------
EBITDA $(6,683) $14,155
EBITDA % of Net Sales (4.3%) 11.4%
Without giving effect to the adjustments discussed above,
EBITDA for the first nine months of Fiscal 1997 would have been approximately
$9,300,000 (5.5% of Net Sales).
INTEREST EXPENSE. The Company's total interest expense was
$22,922,000 for the first nine months of Fiscal 1997 as compared to $17,206,000
for the first nine months of Fiscal 1996, while cash interest paid or accrued
for the periods was $20,444,000 and $13,185,000 respectively. Interest expense
consisted of the following:
<PAGE>
22
NINE MONTHS ENDED
DECEMBER 31,
1997 1996
------------------- --------------
CASH INTEREST PAID OR ACCRUED (in thousands)
Interest on Senior Notes $17,625 $ --
Interest on Revolving Credit Facility 2,251 --
Interest on Old Senior Notes -- 6,706
Interest on Seller Notes (payable in
2002) 387 337
Interest on Old Credit Facility -- 4,912
Interest on Old Senior Secured Credit
Facility -- 1,090
Other Interest 181 140
-------- --------
Total Cash Interest Expense $20,444 $13,185
------- -------
------------------- --------------
NON-CASH INTEREST EXPENSE
Amortization of Deferred Financing
Costs $1,584 $ 2,918
Accretion of Old Senior Notes and
Seller Notes 147 265
Accretion of Interest on Obligations
for Minimum Royalty Payment 747 838
------------------- --------------
Total Non-Cash Interest Expense $ 2,478 $ 4,021
------- -------
Total Interest Expense $22,922 $17,206
======= =======
OTHER EXPENSE (INCOME)-NET. Other expense (income)-net was
($2,074,000) for the first nine months of Fiscal 1997 and consisted primarily of
the proceeds from a key man life insurance policy covering the Company's late
Chairman and Chief Executive Officer, Dr. Thomas V. Bonoma, on which the Company
was the beneficiary, net of incremental expenses incurred by the Company
relating to Dr. Bonoma's death. Other expense (income) also included other fees
payable to the Company's majority shareholder during the first nine months of
Fiscal 1997 of $506,000. As of December 31, 1997, approximately $306,000 of such
fees had been paid. As of August 15, 1997, the Company was restricted from
making such payments pursuant to the terms of the Company's Cumulative
Exchangeable Preferred Stock. No fees were paid or accrued during the first nine
months of Fiscal 1996, because the Company was prohibited from making such
payments pursuant to the indenture for the then-outstanding Old Senior Notes.
Other expenses (income) also included $824,000 of foreign currency losses
primarily from intercompany transactions.
INCOME TAX PROVISION. Income tax provision was $1,472,000 for
the first nine months of Fiscal 1997 and $569,000 for the first nine months of
Fiscal 1996. The effective tax rates differ from the United States federal
income tax rate due to state and foreign income taxes and limitations on
utilization of federal income tax benefits. The increase in income taxes during
the first nine months of Fiscal 1997 is due to higher pre-tax income in foreign
jurisdictions.
<PAGE>
23
OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AS COMPARED TO THE THREE
MONTHS ENDED DECEMBER 31, 1996
NET SALES. The Company's net sales were as follows:
Three Months
Ended December 31,
1997 1996
--------------- --------------- --------------- -------------
(dollars in thousands)
DIVISION Net Sales % of Total Net Sales % of Total
- ----------------- --------------- --------------- --------------- -------------
Fragrance $27,872 52.6% $21,558 46.0%
Cosmetics 7,830 14.8 13,567 28.9
International 17,310 32.7 11,755 25.1
--------- --------- --------- ------
TOTAL $53,012 100.0% $46,880 100.0%
======= ====== ======= ======
Total net sales increased by 13.1% to $ 53,012,000.
Fragrance division net sales increased 29.3% to $27,872,000
which includes approximately $7,500,000 of adjustments to the prior year's and
the first half of Fiscal 1997's estimated accruals for customer charge-backs,
holiday markdowns and sales returns. Without giving effect to these adjustments,
net sales for the Fragrance division would have been $35,372,000 for the third
quarter of Fiscal 1997. The increase in net sales was due principally to net
sales of brands acquired in the MEM Acquisition and P&G Brands Acquisition as
well as certain customers' deferring shipments of Christmas orders from the
second quarter to the third quarter. Approximately 57% of Christmas orders were
shipped during the third quarter of Fiscal 1997 as compared to 27% shipped
during the third quarter of Fiscal 1996. Net sales of MEM brands and P&G brands
were $10,135,000 during the third quarter of Fiscal 1997 as compared to sales of
MEM brands and P&G brands during the third quarter of Fiscal 1996 of $1,818,000.
Fragrance division net sales were negatively impacted by the lower than expected
Christmas season sell-through resulting in an increase in estimated sales
returns accruals over what was originally expected, of approximately $2,700,000
at December 31, 1997.
Cosmetics division net sales decreased 42.3% to $7,830,000
which includes approximately $3,400,000 of adjustments to the prior year's and
to the first half of Fiscal 1997's estimated accruals for sales returns. Without
giving effect to these adjustments, net sales for the third quarter of Fiscal
1997 would have been $11,230,000. The decrease in net sales is due to declines
in sales of the "Cosmar" brand products. Net sales of the "Cosmar" brand
products during the third quarter of Fiscal 1997 were approximately $3 million
lower than sales during the comparable period of Fiscal 1996. The Company
attributes the lower than expected sales and profitability of the "Cosmar" brand
products to increased competition from new entrants in the category which
resulted in loss of market share and higher then expected returns.
<PAGE>
24
International division net sales increased 47.3% to
$17,310,000. Substantially all of this increase consisted of the sales from the
UK subsidiary which began operations in December 1996. This increase, together
with an increase in sales in Canada, was offset, in part, by a decrease in
export sales as the Company is in the process of establishing new distribution
agreements.
GROSS PROFIT. The Company's gross profit was as follows:
Nine Months
Ended December 31,
1997 1996
--------------- --------------- --------------- -------------
(dollars in thousands)
DIVISION Gross Profit % of Net Sales Gross Profit % of Net Sales
- ----------------- --------------- --------------- --------------- -------------
Fragrance $ 6,339 22.7% $12,502 58.0%
Cosmetics 2,785 35.6 7,971 58.8
International 9,851 56.9 6,810 57.9
--------- --------- --------- ------
TOTAL $18,975 35.8% $27,283 58.2%
======= ==== ======= ====
Fragrance division gross profit margin declined to 22.7% from
58.0% due in part to the effects of approximately $7,500,000 of adjustments
described in "Net Sales" above and approximately $1,900,000 of adjustments to
cost of goods sold. Without such adjustments, gross profit for the fragrance
division would have been $15,739,000 or 44.5%. The decline in gross profit
margins without giving effect to the adjustments discussed above is due to
higher close-out sales and to higher sales of children's cosmetics products,
which generate lower gross profit margins. Nonetheless, the gross margin on
fragrance products sold through normal channels declined to 45.0%. Such decline
was due to difficulties encountered in integrating the manufacturing of new
brand products acquired in the Acquisitions into the Company's Plant which
resulted in delays in production and required the Company to out-source a
large portion of Christmas production. Higher labor and overhead costs at the
Plant caused by increased levels of overtime and lower through-put also
contributed to the decline in the gross profit margin on fragrance products.
Gross profit was further reduced by additional depreciation incurred in the
third quarter of Fiscal 1997 in connection with the expansion of the Plant.
Cosmetics division gross profit margin declined to 35.6%
compared to 58.8% during the comparable period in the prior year. Without giving
effect to the $3,400,000 of adjustments discussed in "Net Sales" above, gross
profit margins for the Cosmetics division would have been 55.1%.
International division gross profit margin decreased to 56.9%
from 57.9 % reflecting changes in product mix.
SELLING EXPENSES. The Company's selling expenses in the third
quarter of Fiscal 1997 and the third quarter of Fiscal 1996 were $24,380,000
(46.0% of Net Sales) and $17,436,000 (37.2% of Net Sales), respectively. Without
giving effect to the adjustments discussed in "Net Sales" above, selling
expenses would have been
<PAGE>
25
37.7% of Net Sales. Selling expenses increased in the third quarter of Fiscal
1997 due to higher advertising expenditures, primarily to support the brands
acquired in the Acquisitions, and the additional fixed selling costs of the
larger selling organizations required by the Company's expanded product
offerings. The increase in selling expenses as a percentage of sales is
attributable to the combination of the aforementioned increased costs and lower
than expected net sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses in the third quarter of Fiscal 1997 were $11,089,000
(20.9% of Net Sales) compared to $6,557,000 (14.0% of Net Sales) in the third
quarter of Fiscal 1996. General and administrative expenses in the Fiscal 1997
period include approximately $1,500,000 of adjustments to the prior year's and
the first half of Fiscal 1997's estimated accruals. Excluding these adjustments,
general and administrative expenses would have been $9,589,000 (14.8% of Net
Sales). The increase in general and administrative expenses was attributable to
the additional fixed costs for the infrastructure necessary to run a larger
organization, primarily resulting from increased expenses as a result of the
Acquisitions within the Cosmetic and Fragrance divisions, the Corporate office,
the children's cosmetics business and the UK subsidiary established in December
1996. The increase in general and administrative expenses as a percentage of
sales reflects the additional fixed costs discussed above and lower than
expected net sales.
RESTRUCTURING COSTS. Restructuring costs in the third quarter
of Fiscal 1997 and the third quarter of Fiscal 1996 were $544,000 (1.0% of Net
Sales) and $82,000 (.2% of Net Sales). Restructuring costs consist of severance,
relocation costs, and recruiting and outplacement fees. Such costs increased in
Fiscal 1997 due to personnel changes made in order to expand and upgrade the
organization following consummation of the Acquisitions.
AMORTIZATION OF INTANGIBLES AND OTHER ASSETS. Amortization of
intangibles and other assets during the third quarter of Fiscal 1997 was
$3,233,000 (6.1% of Net Sales) and $2,019,000 (4.3% of Net Sales) in the third
quarter of Fiscal 1996. This increase is due to an increase in intangible assets
resulting principally from the Acquisitions.
OPERATING INCOME (LOSS). Operating loss was $20,271,000 (38.2%
of Net Sales) for the third quarter Fiscal 1997 as compared to operating income
of $1,189,000 (2.5% of Net Sales) for the third quarter of Fiscal 1996.
Management believes that, as an additional measurement,
earnings (loss) before interest, taxes, depreciation and amortization ("EBITDA")
is useful and meaningful to an understanding of the operating performance of the
Company. However, EBITDA should not be considered as an alternative to net
income (loss) as an indicator of the Company's operating performance or to cash
flows as a measurement of liquidity. The computation of EBITDA is set forth in
the table below:
<PAGE>
26
NINE MONTHS ENDED
DECEMBER 31,
1997 1996
------------------- --------------
(in thousands)
Operating Income (Loss) $(20,271) $1,189
Plus: Amortization of Intangibles
and Other Assets 3,233 2,019
Plus: Depreciation 2,003 1,036
------------------- --------------
EBITDA $(15,035) $4,244
EBITDA % of Net Sales (28.4)% 9.1%
Without giving effect to the adjustments discussed above,
EBITDA for the third quarter of Fiscal 1997, would have been approximately
($35,000) (0.1% of Net Sales).
INTEREST EXPENSE. The Company's total interest expense was
$8,343,000 for the third quarter of Fiscal 1997 as compared to $6,368,000 for
the third quarter of Fiscal 1996, while cash interest paid or accrued for the
periods was $7,448,000 and $4,609,000, respectively.
<PAGE>
27
Interest expense consisted of the following:
THREE MONTHS ENDED
DECEMBER 31,
1997 1996
------------------- --------------
CASH INTEREST PAID OR ACCRUED (in thousands)
Interest on Senior Notes $5,875 --
Interest on Revolving Credit Facility 1,300 --
Interest on Old Senior Notes -- 2,235
Interest on Seller Notes (payable in
2002) 141 117
Interest on Old Credit Facility -- 1,082
Interest on Old Senior Secured Credit
Facility -- 1,090
Other Interest 132 85
-------- --------
Total Cash Interest Expense $7,448 $4,609
------------------- --------------
NON-CASH INTEREST EXPENSE
Amortization of Deferred Financing
Costs $577 $1,313
Accretion of Old Senior Notes and
Seller Notes 48 96
Accretion of Interest on Obligations
for Minimum Royalty Payment 270 350
------------------- --------------
Total Non-Cash Interest Expense $895 $1,759
------------------- --------------
Total Interest Expense $8,343 $6,368
=================== ==============
OTHER EXPENSE (INCOME) - NET. Other expense (income) - net was
$755,000 for the third quarter of Fiscal 1997 which consists primarily of
foreign currency losses primarily from intercompany transactions.
INCOME TAX PROVISION. Income tax provision was $561,000 for
the third quarter of Fiscal 1997 and $260,000 for the third quarter of Fiscal
1996. The effective tax rates differ from the United States federal income tax
rate due to state and foreign income taxes and limitations on utilization of
federal income tax benefits. The increase in income taxes is due to higher
pre-tax income during the third quarter of Fiscal 1997 in foreign jurisdictions.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131") and SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 131 establishes standards
for reporting financial and descriptive information for reportable segments on
the same basis which is used internally for evaluating segment performance and
the allocation of resources to segments. SFAS 130 establishes standards for
presenting items that are not related to shareholders, that are excluded from
net income and reported as components of stockholders' equity, such as foreign
currency translation.
<PAGE>
28
These statements are effective for fiscal years beginning after December 15,
1997. The adoption of these statements is not expected to have a material effect
on the Company's results of operations or financial position.
OTHER
The Company has evaluated the potential impact of the
situation commonly known as the Year 2000 problem. The Year 2000 problem, which
is common to most corporations, concerns the inability of information systems,
primarily computer software programs, to properly recognize and process date
sensitive information related to years beginning with 2000. The Company's
assessment indicates that the Company and many of its subsidiaries will each
have "Year 2000 Compliant" software no later than the end of Fiscal 1998. The
Company is currently evaluating the proper course of action regarding its
remaining systems. Additionally, the Company is in the process of determining
the effect of this problem on its vendors' and customers' systems. The Company
presently believes that with conversions to new systems and modifications to
existing software the Year 2000 problem can be mitigated. However, if such
modifications and conversions are not made, or not timely, the Year 2000 problem
could have a material impact on the operations of the Company.
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, 1997 was $38,403,000, consisting primarily of
a net loss of $42,289,000 less (i) non-cash items impacting net loss of
$16,267,000 (ii) increases in accounts receivable, inventories and prepaid
expenses and other assets of $18,000, $7,444,000, and $5,094,000, respectively,
(iii) decreases in accounts payable of $4,213,000, offset by (iv) increases in
accrued expenses and other of $4,052,000 and $336,000, respectively.
Net cash provided by investing activities was $2,948,000,
consisting primarily of net proceeds from the sale of marketable securities of
$9,848,000 and proceeds from the sale of one of the properties acquired in the
MEM acquisition of $1,823,000, offset by capital expenditures of $7,727,000,
other investing activities of $450,000 and investments in the joint venture in
China of $546,000, net of cash acquired.
Net cash provided by financing activities was $38,773,000,
consisting primarily of borrowings on the revolving credit facility with General
Electric Capital Corporation and other lenders ("Revolving Credit Facility") of
$56,000,000 and the proceeds from the sale of treasury stock of $46,000 offset
by repayments on the New Revolving Credit Facility of $14,300,000, the payment
of minimum royalty obligations of $2,520,000 and financing fees of $453,000.
<PAGE>
29
OUTSTANDING INDEBTEDNESS AND LIQUIDITY REQUIREMENTS. As of
December 31, 1997, the Company had total outstanding indebtedness of
$245,724,000, consisting of (1) $200,000,000 of Senior Notes, (2) $4,024,000 of
Subordinated Seller Notes and (3) $41,700,000 under the Revolving Credit
Facility which is classified within current liabilities. Additionally, the
Company has drawn approximately $1,577,000 of letters of credit against the
available revolving credit facility at December 31, 1997. As of February 13,
1998, the Company has outstanding indebtedness of $48,965,000 under the
Revolving Credit Facility including outstanding letters of credit. Additionally,
as of February 13, 1998, the Company had cash balances of $6,054,000 and
availability under the Revolving Credit Facility of $15,728,000 including the
overadvance of $6,000,000.
The agreement relating to the Revolving Credit Facility with
the Company's operating subsidiaries contains financial covenants that require
the Company to maintain specified ratios and satisfy other financial tests.
Because of the significant operating loss reported by the Company for the three
months ended December 31, 1997, the Company was not in compliance with certain
of these financial covenants at such date.
On February 17, 1998 (the "Effective Date"), the Company's
operating subsidiaries and the lenders who are parties to the Revolving Credit
Facility entered into a Waiver, Amendment and Consent (the "Amendment"), under
which the lenders agreed to (1) waive the covenant defaults in existence as of
December 31, 1997, (2) reset the financial covenants for the fiscal quarter
ending March 31, 1998, and (3) provide an overadvance of up to $6 million
through July 31, 1998. In exchange therefor, the operating subsidiaries of the
Company agreed (a) to restrict the payment of fees to the Company's majority
common shareholder, which are Restricted Payments under the Revolving Credit
Facility, (b) not to make certain other Restricted Payments through July 31,
1998, (c) to convert all LIBOR Loans outstanding on the Effective Date to Index
Rate Loans, (d) to fix the interest rates on (i) all revolving credit advances
(other than overadvances) at the Index Rate plus 2% and (ii) all overadvances at
the Index Rate plus 4%, (e) to pledge 100% of the stock of all domestic
operating subsidiaries, and 66% of the stock of Houbigant (1995) Ltee, (f) to
grant mortgages on the Company's Boucherville, Quebec and Northvale, New Jersey
properties and (g) to pay the lenders a fee of $450,000. In addition, the
lenders have provided additional borrowing base under the Revolving Credit
Facility. As of February 13, 1998, such increased availability would have been
approximately $8,900,000. This additional availability will fluctuate as the
nature and the amount of collateral changes. The Revolving Credit Facility
defines "Index Rate" as the floating rate equal to the higher of (i) the rate
publicly quoted from time to time by THE WALL STREET JOURNAL as the "base rate
on corporate loans at large U.S. money center commercial banks" (or, if THE WALL
STREET JOURNAL ceases quoting a base rate of the type described, the highest per
annum rate of interest published by the Federal Reserve Board in Federal Reserve
statistical release H.15 (519) entitled "Selected Interest Rates" as the bank
prime loan rate or its equivalent), and (ii) the Federal funds rate plus fifty
basis points per annum.
Interest in the aggregate amount of $11,750,000 on the
Company's outstanding 11-3/4% Senior Notes due 2004 (the "Senior Notes") is due
and payable on February 17, 1998. The Senior Notes are obligations of the
Company and are not guaranteed by any of the Company's operating subsidiaries.
At the time the Senior
<PAGE>
30
Notes were issued, a special purpose subsidiary of the Company (the "Guarantor")
established an escrow account to secure certain payments of interest due on the
Senior Notes. As of December 31, 1997, this escrow account held approximately
$13,470,000 in marketable securities. On February 13, 1998, the Company
announced that, in order to maximize its liquidity available for marketing,
product launch and trade related efforts, it had on February 12, 1998 advised
the trustee under the Indenture dated February 7, 1997, under which the Senior
Notes were issued (the "Indenture"), that neither the Company nor the Guarantor
will pay the portion of the interest payment due on the Senior Notes required to
be paid by them. The Company instead requested that the trustee exercise its
right to request the escrow agent to make available additional funds to pay the
balance of the interest due to the holders of the Senior Notes. On February 17,
1998, pursuant to the request of the trustee, the escrow agent released funds
held in the escrow account to make such interest payment in full.
The Company believes that its cash on hand, cash generated
from operations and borrowings made available to it under the Revolving Credit
Facility will be sufficient to enable it to satisfy its needs for cash and
working capital during the balance of the fiscal year ended March 31, 1998 and
during the quarter ended June 30, 1998. The waivers and modifications to the
Revolving Credit Facility do not relate to periods on or after June 30, 1998.
The Company intends to work with its secured lenders with a view to obtaining an
amendment to the Revolving Credit Facility under which such lenders would
extend their commitments beyond June 30, 1998. Unless the Company and its
secured lenders agree to further modifications of the covenants contained in the
Revolving Credit Facility or the Company is able to obtain alternative sources
of financing to refinance the Revolving Credit Facility, the Company expects
that it will again be in default thereunder at the end of the fiscal quarter
ending June 30, 1998. In such event, the Company's secured lenders again would
be entitled to refuse to make further advances under the Revolving Credit
Facility and to require the Company to repay all amounts then outstanding on
demand.
The Company intends to explore various alternatives for
enabling it to continue to satisfy its consolidated cash requirements, including
amounts due to its trade creditors and its secured lenders. Additionally, the
Company intends to refine and refocus its business strategy in light of its
current assessment of the competitive marketplace in which it operates. Such
strategies may include restructuring the Company's organization to be as
efficient and effective as possible; selling certain non-core assets (including
the former MEM manufacturing plants in Northvale, New Jersey and in
Boucherville, Quebec); and reducing capital expenditures and working capital
needs. There can be no assurance that the Company will be able to accomplish any
or all of these objectives.
<PAGE>
31
Interest on the Senior Notes is payable semi-annually on
February 15 and August 15 at the rate of 11-3/4% per annum. Each required
payment is $11,750,000. Based on the Company's current and expected level of
operations for the balance of the current fiscal year and the first half of
fiscal 1998, the Company does not expect to be able to pay the installment of
interest due on August 15, 1998 with cash generated from operations. Unless the
Company is able to obtain sufficient cash from asset sales or the modification
or refinancing of the secured debt, the Company anticipates that it will be
required to undertake one or more extraordinary transactions during the next
twelve months. There can be no assurance, however, that the Company will be able
to consummate any such extraordinary transaction or that, if consummated, the
Company will have access to sufficient sources of funds to enable it to meet its
consolidated cash requirements, including payments of interest on the Senior
Notes.
<PAGE>
32
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ATLANTIS LITIGATION. The stipulation settling this litigation
was approved by the court in November 1997. Pursuant to the stipulation, in
consideration for the payment of $295,000 ($125,000 of which was paid by the
Company) to plaintiffs, all of the plaintiffs' claims were settled, each of the
defendants, including the Company, was released in full, and the litigation was
dismissed.
MEM LITIGATION. The court approved the settlement, pursuant to
which MEM paid $25,000 for plaintiffs' attorneys' fees, additional disclosure
was made to shareholders through the settlement notice and full releases were
exchanged by the parties. The order dismissing the litigation became final in
October 1997.
PREMIER SALES GROUP LITIGATION. The Company, Cosmar and GACI
filed their third party complaint against the sellers of GACI (the "Sellers") in
November 1997 (the "Third Party Complaint"). The claims alleged in the Third
Party Complaint are (i) breach of certain representations and warranties
contained in the Stock Purchase Agreement, (ii) indemnification, and (iii)
misrepresentation. In February 1998, the Sellers filed a motion to dismiss the
Third Party Complaint on jurisdictional grounds. The Company, Cosmar and GACI
are preparing their opposition to the motion to dismiss. Discovery is proceeding
and negotiations with the plaintiffs and Sellers are continuing. The Company
does not believe the outcome of this litigation will have a material impact on
the Company's financial condition or results of operations.
ORIGINAL ADDITIONS LITIGATION. In November 1997, Cosmar filed
a AAA arbitration claim against Original Additions (Beauty Products), Ltd.
("Original Additions"), a former distributor of Cosmar products in the United
Kingdom, seeking recovery of approximately $130,000 owed to Cosmar pursuant to a
distribution agreement between the parties. On the same day, Original Additions
filed a complaint in Superior Court in Los Angeles County, California against
the Company, Cosmar and Dana U.K. Limited ("Dana U.K."), another subsidiary of
the Company. The complaint alleges (i) breach of contract, (ii) interference
with and conspiracy to interfere with contract, (iii) unfair competition and
conspiracy to unfairly compete and (iv) fraud. Original Additions seeks
reformation of the distribution agreement, declaratory relief with respect to
its alleged right of set-off and compensatory and punitive damages in amounts to
be proven. The parties have agreed to extend the time to respond to the
complaint and the arbitration demand to April 10, 1998, and are in the process
of drafting an arbitration agreement pursuant to which both the complaint and
AAA arbitration will be dismissed and all claims will be resolved by arbitration
by a retired judge. The Company, Cosmar and Dana U.K. believe that they have
meritorious defenses to the claims, and intend to vigorously defend such claims.
The Company does not believe the outcome of this litigation will have a material
impact on the Company's financial condition or results of operations.
<PAGE>
33
See Item 3 of the Company's Fiscal 1996 Form 10-K and Item 1
of the Company's Form 10-Q for the Quarter ended September 30, 1997 for
additional information relating to the foregoing and other legal proceedings.
ITEM 5. OTHER INFORMATION
On October 20, 1997, John H. Lynch resigned as a director of
the Company, and, on January 30, 1998, Eric R. Hamburg resigned as a director of
the Company. On November 1, 1997, Sean E. Greene was elected to the Board to
fill the vacancy created by Mr. Lynch's resignation. Mr. Greene serves as Group
Vice President, Sales and has entered into an employment agreement, dated
November 1, 1997, with the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
See the exhibit Index on pages 34 through 36 hereof.
(B) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarterly
period ended December 31, 1997. The Company, however, has filed two reports on
Form 8- K on February 3, 1998 and February 13, 1998, respectively, with
accompanying press releases.
<PAGE>
34
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
2.1 (1) 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 (1) Agreement and Plan of Merger, among Renaissance Cosmetics,
Inc., a Delaware corporation ("RCI" or the "Company"),
Renaissance Acquisition, Inc., a New York corporation ("RAI")
and MEM Company, Inc., a New York corporation ("MEM"), dated
as of August 6, 1996.
2.3 (2) Asset Sale and Purchase by and among the Procter & Gamble
Company (as Seller) and Dana Perfumes Corp. ("Dana") (as
Buyer) and solely for purposes of Sections 4.6, 6.6 and 6.12
hereof of Renaissance Cosmetics, Inc. and Cosmar Corporation
dated as of October 25, 1996.
2.4 (2) Form of Asset Sale and Purchase Agreement among P&G foreign
affiliate sellers and Dana, dated as of October 29, 1996.
3.1 (3) Restated certificate of incorporation of RCI filed with the
Secretary of State of the State of Delaware on August 17,
1994.
3.1.2 (4) Certificate of Designation of Preferences and Rights of
Senior Exchangeable Redeemable Preferred Stock, Series A, of
RCI, filed with the Secretary of State of the State of
Delaware on May 29, 1996.
3.1.3 (5) Certificate of Designation of Preferences and Rights of
Senior Redeemable Preferred Stock, Series B, of RCI, filed
with the Secretary of State of the State of Delaware on August
15, 1996.
3.1.4 (6) Certificate of Increase of Certificate of Designation of
Preferences and Rights of Senior Redeemable Preferred Stock,
Series B, of RCI, filed with the Secretary of State of the
State of Delaware on September 27, 1996.
3.1.5 (6) Certificate of Designation of Preferences and Rights of
Senior Redeemable Preferred Stock, Series C, par value $.01
per share, of RCI, filed with the Secretary of State of the
State of Delaware on August 15, 1996.
<PAGE>
35
3.1.6 (6) Certificate of Increase of Certificate of Designation of
Preferences and Rights of Senior Redeemable Preferred Stock,
Series C, of RCI, filed with the Secretary of State of the
State of Delaware on September 27, 1996.
3.2 (7) Amended and Restated Bylaws of RCI
3.3 (8) Certificate of Incorporation of Renaissance Guarantor, Inc.
("RGI") filed with the Secretary of State of the State of
Delaware on February 6, 1997.
3.4 (8) Bylaws of RGI.
4.1 (9) Indenture, dated February 7, 1997, among RCI, as issuer, RGI,
as guarantor, and United States Trust Company of New York, as
trustee.
4.2 (9) Escrow and Disbursement Agreement, dated February 7, 1997,
among RCI, as issuer, RGI, as guarantor, United States Trust
Company of New York, as trustee, and United States Trust
Company of New York, as escrow agent.
4.3 (9) Notes Registration Rights Agreement, dated February 7, 1997,
between RCI, as issuer, and CIBC Wood Gundy Securities Corp.,
as initial purchaser.
10.1 Employment Agreement, dated as of August 26, 1997 and approved
by the Board of Directors on October 22, 1997, between RCI and
Norbert Becker.
10.2 Employment Letter Agreement, dated as of August 28, 1997 and
approved by the Board of Directors on October 22, 1997,
between RCI and Robert Corso.
10.3 Shareholder Acknowledgment, dated as of November 1, 1997,
executed by Kidd Kamm Equity Partners, L.P., with respect to
Norbert Becker.
10.4 Employment Letter Agreement, dated as of November 1, 1997,
between RCI and Sean Greene.
10.5 Shareholder Acknowledgment, dated as of November 1, 1997,
executed by Kidd Kamm Equity Partners, L.P., with respect to
Sean Greene.
10.6 Amendment and Consent, dated as of November 12, 1997, among
Renaissance International Export, Inc., Dana Perfumes Corp.,
as Borrower, the other Credit Parties to the Credit Agreement,
General Electric Capital Corporation, as Agent and Lender, and
the other Lenders to the Credit Agreement.
<PAGE>
36
10.7 Agreement, dated as of December 1, 1997, between RCI and
Thomas T.S. Kaung.
10.8 Consulting Agreement, dated as of December 1, 1997, between
RCI and River International, Inc.
27.1 Financial Data Schedule.
- -------------------
NOTES TO EXHIBIT INDEX:
(1) Filed with RCI's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1996, filed with the SEC on August 14, 1996, and
incorporated herein by reference thereto.
(2) Filed with RCI's Form 8-K filed with the SEC on December 20, 1996, and
incorporated herein by reference thereto.
(3) Filed with RCI's Registration Statement on Form S-4 filed with the SEC
on December 12, 1994, Registration No.33-87280, and incorporated herein
by reference thereto.
(4) Filed with RCI's Annual Report on Form 10-K filed with the SEC for the
fiscal year ended March 31, 1996, and incorporated herein by reference
thereto.
(5) Filed with RCI's Form 8-K filed with the SEC on August 8, 1996, and
incorporated herein by reference thereto.
(6) Filed with Amendment No. 1 to RCI's Registration Statement on Form S-4
filed with the SEC on January 31, 1997, Registration No. 33-13171, and
incorporated herein by reference thereto.
(7) Filed with RCI's Annual Report on Form 10-K filed with the SEC for the
fiscal year ended March 31, 1997, and incorporated herein by reference
thereto.
(8) Filed with RCI's Registration Statement on Form S-4 filed with the SEC
on March 24, 1997, Registration No. 33-23847, and with Amendment No. 1
thereto, as filed with the SEC on May 2, 1997, and incorporated herein
by reference thereto.
(9) Filed with RCI's Form 8-K filed with the SEC on February 20, 1997, and
incorporated herein by reference thereto.
<PAGE>
37
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
RENAISSANCE COSMETICS, INC.
Dated: February 17, 1998 By: /s/ ROBERT CORSO
----------------------------------------
Robert Corso
Group Vice President, Finance
and Chief Financial Officer
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of this 26th
day of August, 1997, between Renaissance Cosmetics, Inc. ("Company"), 635
Madison Avenue, New York, New York 10022, and Norbert Becker, 635 Madison
Avenue, New York, New York 10022 ("Executive").
W I T N E S S E T H
WHEREAS, Executive was appointed President of the Company effective as
of May 1, 1997; and
WHEREAS, Executive was appointed Chief Executive Officer of the Company
effective as of May 28, 1997;
WHEREAS, as an incentive to Executive to accept the positions of
President and Chief Executive Officer, the Company has agreed to employ
Executive under the terms and conditions hereof.
NOW, THEREFORE, the parties agree that effective on the date hereof:
1. Title and Responsibilities. During the Term (as defined below) of
this Agreement, Executive will be employed as the President and Chief Executive
Officer of the Company and President of such subsidiaries of the Company as may
be designated by the Board of Directors of the Company at any time and from time
to time (the "Subsidiaries" and, together with the Company, the "Companies").
Executive will have responsibility for managing the day to day affairs of the
Companies subject to policies and procedures established by, and the ultimate
authority of, the boards of directors of the Companies.
2. Salary and Bonus. During the Term of this Agreement, Executive's
salary will be as follows: (i) for the Company's fiscal year ending March 31,
1998, $360,000 (on an annualized basis), (ii) for the Company's fiscal year
ending March 31, 1999, $390,000 and (iii) for the Company's fiscal year ending
March 31, 2000 (and the portion of the following fiscal year to the expiration
of this Agreement), $450,000 (on an annualized basis) ("Base Salary"). During
the Term of this Agreement, Executive will be eligible for an annual bonus of
100% (or greater, if applicable) of Base Salary ("Eligible Bonus"), based on
certain objectives to be established by the Board of Directors not later than
the end of the of the first fiscal quarter of the subject fiscal year, and to
include all relevant factors including annual EBITDA targets and targets related
to return on assets and return on capital. In this connection, the parties agree
that such objectives will be the same objectives which are provided by the
Company to senior executives of the Company. Any Eligible Bonus, if earned, will
be paid in cash no later than 30 days after the audited financials are available
following the end of the applicable annual period but will be deemed due and
payable, regardless
<PAGE>
of Executive's status on the payment date, so long as Executive is employed by
the Company on the last business day of the applicable annual period.
3. Term. The term ("Term") of this Agreement will commence on July 1,
1997 and will expire on June 30, 2000, unless renewed as provided for in this
Section 3 or upon termination of Executive's employment as provided in Section 7
hereof. The Term shall automatically renew for successive one year periods from
the then scheduled expiration date unless, not less than 90 days prior thereto,
either the Company or the Executive notifies the other of its or his intention
not to renew, in which case this Agreement shall expire at the end of the then
current Term.
4. Election to Board of Directors. The Board of Directors of the
Company will include the Executive. The Company agrees to indemnify Executive
(in his capacity as an officer and director) to the fullest extent permitted by
law and as provided in that certain Amended and Restated Indemnification
Agreement, dated as of May 28, 1997, by and between the Company and Executive.
5. Benefits and Other Matters.
(a) Insurance. The Company will provide retirement, employee
welfare and benefit (pre- and post-retirement) and fringe benefit plans to
Executive no less favorable than those made available to the Company's executive
employees generally. Executive will be fully vested for all purposes under all
such plans. In addition, the Company will purchase for Executive (who will be
the owner) a $5 million life insurance policy and a disability policy on terms
mutually satisfactory to both the Company and Executive, subject to Executive
satisfying industry insurability criteria.
(b) Vacation. Executive will be entitled to 4 weeks of
vacation per year. Unused vacation will accrue for the following year; however,
Executive agrees not to take more than 5 weeks of vacation in any one year. Upon
expiration of this Agreement or termination of Executive's employment for any
reason, Executive will be entitled to receive payment (based on the Base Salary
in effect in the year of termination) for any accrued but unused vacation
through the date of termination.
(c) Reimbursement of Expenses. The Company will reimburse
Executive for all reasonable out-of-pocket expenses actually incurred by
Executive in connection with performing his obligations hereunder upon receipt
from Executive of standard documentation supporting such expenses. For purposes
hereof, "reasonable" shall include first-class travel and hotel expenses.
(d) Miscellaneous Benefits.
(i) Executive will be entitled to the use of an executive
class company car at Employer's expense (subject to the last sentence of this
paragraph (i)) on terms no less favorable than those provided to the Company's
executives generally ("Executive's Vehicle"). The Company may, in its
discretion, lease or acquire Executive's Vehicle for Executive's use, consistent
with the Company's prior practice; provided, however, that the purchase price of
Executive's Vehicle (or the purchase price implicit in the lease rate) including
all taxes shall not exceed $80,000.
2
<PAGE>
(ii) The Company will not require Executive to move his
residence during the Term. If, however, Executive moves his residence from its
location as of the date hereof (A) at the request of the Board of Directors or
(B) as a result of a relocation of the Company's principal executive offices
which causes Executive's commuting time by car to be longer than such commuting
time as of the date hereof, the Company will pay the costs of relocation,
including, without limitation, any loss Executive incurs in connection with the
sale of his residence. In the event Executive is required to spend an extended
continuous period of time away from his residence in one location, the Company
will reimburse him for the cost of renting an apartment for him and his family
in such location. The Company will reimburse Executive for any liability
(including tax liability) incurred by Executive in connection with Executive's
permanent or temporary relocation as described in this paragraph (ii) and with
the reimbursements to be made by the Company pursuant to this paragraph (ii).
(iii) The Company will reimburse Executive for the cost of
purchasing and installing computer and related equipment, dedicated telephone
lines, a fax machine and other reasonable expenditures for similar office
equipment necessary for Executive to perform his obligations hereunder for use
in his home office and will provide Executive with a notebook computer for use
while traveling or working in any of the Company's offices. At the expiration of
the Term hereof as provided in Section 3 or upon the termination of Executive's
employment by the Company without Cause (as defined below) or by Executive for
Good Reason (as defined below, other than by reason of Executive's death), all
such equipment provided to Executive or for which the Company reimbursed
Executive (the "Equipment") and Executive's Vehicle will become the property of
Executive (at no cost to Executive). The Company will reimburse Executive for
any tax liability incurred by Executive upon the transfer of ownership to
Executive of the Equipment and Executive's Vehicle. In the event Executive dies
during the Term hereof, ownership of the Equipment and Executive's Vehicle
shall, at the election of Executive's estate, be transferred to Executive's
estate.
6. Non-Compete.
(a) Executive agrees that he will not compete with the
Companies in the mass-market fragrance, color cosmetics, or artificial or
natural nail products business during the period of his employment hereunder.
The scope of this non-compete is worldwide. In addition, upon termination of
this Agreement in accordance with Section 3 hereof or termination of Executive's
employment for any reason, the Company (or its successor) may elect to have this
non-compete apply for a period of one or two years from the date of termination
(the "Enforcement Election").
Upon termination of this Agreement in accordance with Section
3 hereof or in the event Executive's employment is terminated by the Company
without Cause (as defined below) or by the Executive for any reason, and the
Company makes the Enforcement Election, Executive shall be entitled to receive
from the Company payment of $500,000 per year for each year the Company elects
to enforce this non-compete provision (the "Election Payment"). At the time the
Company makes the Enforcement Election, the full amount of the Election Payment
shall be placed in escrow with an escrow agent ("Escrow Agent") mutually
acceptable to the Company and Executive. The terms of the escrow shall include
those set forth on Schedule A hereto and such other terms as are
3
<PAGE>
mutually agreed to by the Company, Executive and Escrow Agent. The Company shall
make all reasonable efforts to structure the escrow arrangement in a manner
which shall protect the escrowed Election Payment from the claims of creditors
of the Company, including any claims arising in a bankruptcy or similar
proceeding filed by or against the Company.
In the event that Executive's employment is terminated by the
Company with Cause, and the Company makes the Enforcement Election, Executive
shall be entitled to receive from the Company payment of $1,000 per year for
each year the Company elects to enforce this non-compete. Payment of the full
amount will be made directly to Executive by the Company at the time the Company
makes the Enforcement Election.
Any payments to which Executive is entitled under this
paragraph (a) are in addition to, and not in replacement of, any payments to
which Executive is otherwise entitled under Section 7 hereof.
(b) The Company shall give written notice of its election to
enforce the non-compete provisions hereof (the "Enforcement Election Notice") to
Executive as follows:
(i) if the Company gives notice of termination of this
Agreement in accordance with Section 3 hereof, the Company shall give the
Enforcement Election Notice simultaneously with the notice of termination;
(ii) if the Company terminates Executive's employment with or
without Cause (as defined below), the Company shall give the Enforcement
Election Notice within 15 days after the date of termination;
(iii) if Executive gives notice of termination of this
Agreement in accordance with Section 3 hereof, the Company shall give the
Enforcement Election Notice within 15 days after receipt by the Company of the
termination notice; and
(iv) if Executive terminates his employment with or without
Good Reason, the Company shall give the Enforcement Election Notice within 15
days after the date of termination.
(c) Nothing herein shall prohibit Executive from being a
passive owner of not more than 3% of any publicly-traded class of capital stock
of any entity engaged in a competing business.
(d) If a determination is made that any temporal, territorial
or activity-related restriction on competition contained in paragraph (a) above
is too broad to permit enforcement thereof to its fullest extent, then such
restriction shall be enforced to the maximum extent permitted by law, and the
parties agree that paragraph (a) may be judicially reformed, revised, modified
or partially enforced in any proceeding brought to enforce such paragraph.
Subject to the foregoing, if any portion of paragraph (a) is deemed invalid or
unenforceable by a court of law, such portion shall be considered to be
automatically deleted from paragraph (a). However, any such deletion shall apply
only to that portion of any provision so adjudicated, and the operation of such
provision
4
<PAGE>
shall only be deemed inapplicable in the particular jurisdiction in which the
adjudication is made.
7. Termination.
(a) The Company may terminate the employment of Executive at
any time, with or without Cause (as defined below), subject to the provisions
hereof. Executive may terminate his employment at any time, with or without Good
Reason (as defined below), subject to the provisions hereof.
(b) If (i) the Company terminates the employment of Executive
with Cause, or (ii) the Executive terminates his employment without Good Reason,
the Executive shall be entitled to receive only accrued but unpaid Base Salary
and other benefits to which Executive is entitled through the date of
termination, plus unreimbursed expenses incurred through the date of
termination.
(c) In the event that the Company terminates the employment of
Executive for reasons other than for Cause or Executive terminates his
employment for Good Reason, Executive shall be entitled to (i) the amount of any
accrued but unpaid Base Salary and other benefits to which Executive is entitled
through the date of termination, and unreimbursed expenses incurred through the
date of termination, plus (ii) the greater of (x) the applicable Base Salary for
each year (or pro rated for any part thereof) through the end of the Term or (y)
one year's Base Salary (as in effect in the year of termination) (in each case,
net of any severance benefits payable to Executive under the Company's severance
policy as may then be in effect) and (iii) a bonus equal to the Bonus Amount, as
defined on Schedule B hereto ((ii) and (iii) are together referred to as the
"Severance Payments"). Executive shall also be entitled to receive the full
benefits (as described in Section 5(a) hereof) he was receiving immediately
prior to the termination date for the period in which he is receiving Severance
Payments. In addition, the Option (as defined in each of the Option Agreements
of even date herewith) shall be/become exercisable as provided in such Option
Agreements. In the event the termination is pursuant to (d)(ii)(D) below,
Executive (or his estate) shall also be entitled to receive all benefits to
which Executive (or his estate) is entitled under the insurance policies
referred to in Section 5(a) above.
(d) For purposes of this Agreement:
(i) "Cause" shall be limited to the following:
(A) Deliberate dishonesty or willful misconduct in
the performance of Executive's responsibilities resulting in
an effect materially adverse to the Company's business,
financial condition or results of operation;
(B) Executive shall be convicted of a felony
involving moral turpitude which materially adversely reflects
on the Company; or
(C) Breach by Executive of the provisions of Section
6 hereof.
5
<PAGE>
A determination that Cause exists shall be made by the Board
of Directors.
(ii) "Good Reason" shall mean termination at the election of
Executive based on (A), (B) or (C) below (provided that such termination occurs
within 90 days of the date on which the event described in (A), (B), or (C)
below becomes effective) or by reason of an event described in (D) below:
(A) Without Executive's express written consent, the
assignment of Executive to a position other than President and
Chief Executive Officer of the Company and President of the
Subsidiaries with day-to-day responsibility and authority for
the operation of the business of the Companies or a material
diminution in Executive's duties as President and Chief
Executive Officer except in connection with the termination of
his employment for Cause, normal retirement, death of
Executive, or termination by the Executive other than for Good
Reason;
(B) A reduction in Executive's fringe or retirement
benefits that is not applied by the Company to executives
generally or, in the case of any benefit unique to Executive,
a more than immaterial reduction in such benefit, or a
reduction by the Company in Executive's Base Salary or
Eligible Bonus;
(C) The (I) merger or consolidation of the Company
into or with any other entity, (II) change in control of the
Company (which, for purposes hereof, shall mean Kidd Kamm
Equity Partners, L.P. no longer controls the Board of
Directors of the Company) or (III) sale, transfer or other
disposition of all or substantially all of the assets of the
Company ((I), (II) and (III) are collectively referred to as a
"Restructuring Event"), unless the entity which survives the
Restructuring Event shall assume and agree to perform the
obligations of the Company hereunder pursuant to an instrument
reasonably acceptable to Executive; or
(D) Executive dies or becomes mentally or physically
disabled for such period of time and under circumstances which
entitle Executive to receive disability benefits under the
terms of the Company's long-term disability insurance policy
then maintained by the Company.
(e) In the event that, during the period in which Executive is
receiving Severance Payments and the other benefits described in paragraph (c)
hereof (collectively, the "Severance Benefits"), Executive secures full-time
employment with any third party, Executive shall notify the Company of such
employment prior to the commencement thereof. Effective immediately upon the
commencement of Executive's new employment, the Severance Benefits shall cease
and the Company shall have no further obligation to Executive with respect to
Severance Benefits.
(f) In the event the Company elects to terminate this
Agreement in accordance with Section 3 hereof, Executive shall be entitled to
receive one year's Base Salary after the expiration hereof (at the rate in
effect for the year immediately prior to the expiration).
6
<PAGE>
(g) All Severance Payments or payments under (f) of this
Section 7 shall be made monthly, in advance.
8. Key Man Life Insurance. Executive will provide the Company with such
information, and execute such documents, as may be necessary for the Company to
purchase a key man life insurance policy covering Executive.
9. Arbitration. Subject to Section 13(b) hereof, the parties hereto
agree to submit any dispute hereunder to binding arbitration. Arbitration shall
be conducted in New York, New York under the commercial rules of the American
Arbitration Association by a panel of three arbitrators. The aforementioned
arbitrators shall be chosen as follows: The Company and Executive shall each
designate one arbitrator from a list of acceptable and qualified arbitrators
which will be provided by the American Arbitration Association. The two
arbitrators so designated shall then choose the panel's third arbitrator who
shall be an attorney-at-law and who shall serve as the Chairman of the panel;
provided that if either party fails to designate an arbitrator within 10 days of
receipt of the Association's list or if the two arbitrators are unable to agree
on the appointment of the third arbitrator within 10 days of the later of the
date of their respective appointments, such arbitrator shall be designated by
the American Arbitration Association. If any arbitrator resigns or is unable to
continue serving as such, the successor to such arbitrator shall be appointed by
the party who appointed such arbitrator or by the remaining arbitrators if they
appointed such arbitrator, or by the American Arbitration Association, as the
case may be. A stenographic record of the arbitration must be maintained, the
panel, including the successor arbitrator, may rely on such record and no
rehearing shall be required. Subject to Section 10 hereof, each of the parties
shall pay the fees and expenses of the arbitrator appointed by it and each shall
pay one-half the fees and expenses of the third arbitrator and any other
expenses of the arbitration, unless the arbitrators determine that the losing
party shall bear the cost of the arbitration. The decision of the arbitrators
with respect to any issues subject to arbitration shall be final and binding on
the parties and may be entered into any court of competent jurisdiction by
either party, or application may be made to such court for judicial confirmation
of the award and order of enforcement, as the case may be. The demand for
arbitration shall be made within a reasonable time after the claim, dispute or
other matter in question has arisen. Notwithstanding the foregoing, it is hereby
agreed that no arbitration panel shall have any power to (i) add to, alter or
modify the terms and conditions of this Agreement, (ii) decide any issue which
does not arise from the interpretation or application of the provisions of this
Agreement or (iii) award any punitive damages under this Agreement.
10. Enforcement. If either party is required to arbitrate or seek
judicial enforcement of his or its rights under this Agreement, the party
prevailing in such proceeding shall be entitled to be reimbursed by the other
for all reasonable attorney fees and expenses.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware.
12. Entire Agreement. This Agreement supersedes all prior negotiations
and understandings of any kind with respect to the subject matter hereof and,
except for the Option Agreement which shall remain in full force and effect in
accordance with its terms, contains all of the terms and provisions of agreement
between the parties hereto with respect to the subject matter
7
<PAGE>
hereof. Any representation, promise or condition, whether written or oral, not
specifically incorporated herein, shall be of no binding effect upon the
parties.
13. Severability; Specific Performance; Assignment; Survival.
(a) If any portion of this Agreement is held invalid or
unenforceable by a court of competent jurisdiction, that portion only shall be
deemed deleted as though it had not been included herein but the remainder of
this Agreement shall remain in full force and effect.
(b) Executive acknowledges and agrees that the Company's
remedies at law for a breach or threatened breach of Section 6 hereof would be
inadequate and, in recognition of this fact, Executive agrees that, in the event
of such a breach or threatened breach, the Company, without posting any bond,
shall be entitled to obtain equitable relief in the form of specific
performance, temporary restraining order, temporary or permanent injunction or
any other equitable remedy which may then be available.
(c) This Agreement shall not be assignable by Executive except
pursuant to the laws of descent and distribution, and then only for purposes of
enforcing Executive's rights under Section 7.
(d) Notwithstanding anything to the contrary herein, in the
event of a termination of this Agreement, the provisions of Section 6 hereof
shall survive and be enforceable in accordance with their terms.
14. Taxes. In the event that any payment or benefit (within the meaning
of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code")) to the Executive or for his benefit paid or payable or distributed or
distributable pursuant to the terms of this Agreement, the Option Agreement or
otherwise in connection with, or arising out of, his employment with the Company
or a change in control (within the meaning of Section 280G of the Code) (a
"Payment" or "Payments") would be subject to the excise tax imposed by Section
4999 of the Code (the "Excise Tax"), the Executive shall be entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes, including Excise Tax, imposed on the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed on the Payments.
15. Valid and Binding. The Company represents that it has all requisite
power and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement, and that this Agreement is valid, binding and
enforceable against the Company in accordance with its terms.
16. Notices. All notices or other communications in connection with the
Agreement shall be in writing and may be given by personal delivery or mailed,
certified mail, return receipt requested, postage prepaid or by a nationally
recognized overnight courier to the parties at the addresses set forth below (or
at such other address as the Company or Executive may specify in a notice to the
Executive or Company, as the case may be):
8
<PAGE>
If to the Company: Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, New York 10022
attn: Group Vice President,
Corporate Development and
Human Resources
If to Executive: Norbert Becker
c/o Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, New York 10022
[REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY]
9
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused its duly
authorized officer to execute this Agreement as of the date first above written.
RENAISSANCE COSMETICS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
---------------------------------
Agreed to by:
- -------------------------------------------
NORBERT BECKER
10
<PAGE>
SCHEDULE A
TO EMPLOYMENT AGREEMENT
ESCROW TERMS
The terms of the escrow described in Section 6(a) of the Employment
Agreement shall include the following:
1. The Election Payment shall be held in an interest-bearing
account (the "Escrow Account").
2. The term of the escrow shall be the number of years for
which the Company elects to enforce the non-compete provisions of Section 6(a).
3. The principal amount of the Election Payment shall be
distributed to Executive by the Escrow Agent monthly, in advance, during the
term hereof, with the first payment to be made within __ days after the Election
Payment is deposited into the Escrow Account.
4. Interest earned on the escrowed Election Payment shall be
paid first to the Escrow Agent to cover the Escrow Agent's fees and any
remaining interest shall be distributed to the Company on terms agreed to be the
Company in the Escrow Agreement.
5. Any disputes arising between the parties in connection with
the Employment Agreement shall be settled by arbitration as more fully described
in Section 9 of the Employment Agreement.
11
<PAGE>
SCHEDULE B
TO EMPLOYMENT AGREEMENT
BONUS AMOUNT
The calculation of Bonus Amount shall be as follows:
The Bonus Amount shall be equal to the Base Salary in the year of
termination multiplied by the Applicable Percentage (as defined below).
Applicable Percentage ("AP") shall be calculated as follows:
AP = A, unless A is less than B, in which case AP shall be
equal to C
where
A = the dollar amount of Executive's bonus for the fiscal year
immediately preceding the year in which termination occurs
(the "Prior Year") divided by Executive's base salary in the
Prior Year;
B = the dollar amount of Executive's bonus for the fiscal year
immediately preceding the Prior Year (the "Second Prior Year")
divided by Executive's base salary in the Second Prior Year;
and
C = (A + B)/2
12
Exhibit 10.2
RENAISSANCE COSMETICS, INC.
635 MADISON AVENUE
NEW YORK, NEW YORK 10022
August 28, 1997
Mr. Robert Corso
625 Towne House Road
Fairfield, Connecticut 06430
Re: EMPLOYMENT AGREEMENT ("AGREEMENT")
Dear Mr. Corso:
This letter sets forth the terms and conditions of your
employment with Renaissance Cosmetics, Inc., a Delaware corporation ("RCI"), and
certain of its subsidiaries (the "Subsidiaries") as designated from time to time
by the Chief Executive Officer and/or Board of Directors of RCI (the "Board").
RCI and the Subsidiaries are sometimes collectively referred to herein as the
"Company." This letter shall become effective as of October 1, 1997 (the
"Effective Date").
1. EMPLOYMENT AND SERVICES. You shall be employed as a Group
Vice President and Chief Financial Officer of RCI with primary responsibility
for the Company's financial affairs and relationships for the period beginning
on the Effective Date and ending upon the third anniversary of the Effective
Date or earlier termination pursuant to paragraph 4 (the "Employment Period");
provided, however, that, in the absence of termination, the Employment Period
shall be extended for successive one year terms so long as neither party gives
written notice of non-renewal to the other party not less than 90 days prior to
the scheduled expiration date of the Employment Period. During the Employment
Period, you shall render such services to the Company as the Chief Executive
Officer and/or Board shall designate from time to time, and you shall devote
your best efforts and full time and attention to the business of the Company.
2. COMPENSATION. During the Employment Period, the Company
shall pay you an annual base salary of $300,000, which salary shall be subject
to review and possible increase on an annual basis, in the discretion of the
Board. Such salary shall be payable in installments in accordance with the
Company's regular payroll practices. In addition, during the Employment Period,
you will participate in the Company's senior executive annual bonus program on
terms to be determined by the Board; provided, however, that you will be
entitled to receive a minimum bonus of $50,000 for each of the first two years
of the Employment Period without regard to the amount you would otherwise be
entitled to receive under the bonus program then in effect. The
<PAGE>
bonus program is reviewed by the Board yearly at which time the Board sets
targets which it deems reasonable for the Company. If the Company achieves 100%
of those targets, you will receive a bonus equal to 100% of your annual base
salary.
3. BENEFITS.
(a) GENERALLY. During the Employment Period, you
shall receive four weeks of paid vacation per year. Unused vacation shall accrue
for the following year; however, you agree not to take more than five weeks of
vacation in any one year. Upon termination of your employment for any reason,
you will be entitled to receive payment for any accrued but unused vacation
through the date of termination. You shall be entitled to participate in the
Company's insurance plans, retirement plans and all other benefit plans
generally available to the Company's executive employees as in effect from time
to time. You will have the use of a Company car for personal and business use,
consistent with the Company's executive Company car policy in effect from time
to time. In addition, the Company will reimburse your reasonable out-of-pocket
expenses incurred in connection with the performance of your services hereunder,
in each case subject to and consistent with Company policy. In the event you are
required to be in the Company's New York office for two or more consecutive
days, the Company will reimburse you for hotel and related travel expenses
consistent with Company policy.
(b) STOCK OPTION. Effective on and as of the first
day of the Employment Period, you will receive a stock option grant covering
16,500 shares of common stock of RCI (the "Option"). The grant will be made to
you under the Company's First Amended and Restated Stock Option Plan (the
"Plan"), and the terms thereof will be set forth in the standard form stock
option agreement previously approved for use under the Plan by the Board;
provided, however, that your stock option agreement will include a provision
that, in the event your employment is terminated by the Company without Cause
(as defined below), and to the extent that the Option or any portion thereof has
vested prior to the termination date (the "Vested Option") such Vested Option
will not terminate as otherwise provided in the Plan, but shall continue to be
exercisable until the Option expiration date as set forth in your stock option
agreement (10 years from the grant date). All other terms of the Plan and the
standard form stock option agreement will remain the same with the exception of
the last sentence to paragraph 17 of the Stock Option Agreement attached to this
agreement. The principal terms of the Option shall be as follows: (i) term - 10
years from the date of grant; (ii) exercise price - to be determined by the
Board prior to the grant date, but in no event shall the exercise price exceed
$96.23 per share; and (iii) vesting - four equal tranches on the first through
fourth anniversary dates of the grant date. For purposes of your stock option
agreement, vesting shall begin on the first day of your employment with the
Company.
(c) STAY BONUS PROGRAM. If the Board implements a
stay bonus program (the "Program") during the Employment Period, you will
participate in such Program in such manner and at such level as the Board, in
its sole and absolute discretion, determines is appropriate; provided, however,
that your participation will be in an amount that is no less than the average of
the four lowest participation amounts.
<PAGE>
4. TERMINATION AND SEVERANCE. The Employment Period shall
terminate on the first to occur of (a) the then-current scheduled expiration
date of the Employment Period, (b) your death or permanent disability (defined
as your inability to perform normal duties for a period of 90 consecutive days
or for a total of 120 days in any two-year period as determined in good faith by
the Board), (c) termination for Cause (as defined below) by the Chief Executive
Officer or the Board or (d) termination without Cause by the Chief Executive
Officer or the Board. In the event of termination of the Employment Period
pursuant to clause (d) and so long as you comply with the restrictions set forth
in paragraphs 5 and 6 below, (i) the Company shall continue to pay your base
salary for a period of nine months following the date of such termination or for
the remainder of the Employment Period, whichever is greater, and (ii) you will
receive the bonus, if any, you would have received if you had remained in the
employment of the Company. Except as otherwise set forth in this paragraph 4 or
pursuant to the terms of employee benefit plans in which you participate
pursuant to paragraph 3 above, you shall not be entitled to any compensation or
other payment from the Company following termination of the Employment Period.
For purpose of this Agreement, "Cause" shall mean (i) your willful and repeated
failure to comply with the lawful directives of the Chief Executive Officer
and/or the Board, (ii) any criminal act or act of dishonesty, disloyalty,
misconduct or moral turpitude by you that is injurious in any significant
respect to the property, operations, business or reputation of the Company, or
(iii) your material breach of this Agreement.
5. CONFIDENTIAL INFORMATION. You acknowledge that information
obtained by you during your employment with the Company concerning the business
or affairs of the Company ("Confidential Information") is the property of the
Company. You shall not at any time during or after the Employment Period,
without the prior written consent of the Board, disclose to any unauthorized
person or use for your own account or for the account of any person other than
the Company and its subsidiaries any Confidential Information, except to the
extent necessary to comply with applicable laws or to the extent that such
information becomes generally known to and available for use by the public other
than as a result of your acts or failure to act. Upon termination of the
Employment Period or at the request of the Board at any time, you shall deliver
to the Board all documents containing Confidential Information or relating to
the business or affairs of the Company that you may then possess or have under
your control.
6. NON-COMPETITION; NON-SOLICITATION.
(a) NON-COMPETITION. You acknowledge that you
are and will be in possession of Confidential Information and that your services
are of unique and great value to the Company. Accordingly, during the Employment
Period and for a period of two years thereafter (the "Non-Compete Period"), you
shall not directly or indirectly own, manage, control, participate in, consult
with, render services to, or in any manner engage in, any enterprise competing
with any business of the Company conducted or proposed (during the Employment
Period or on the date of termination of the Employment Period) to be conducted,
within any geographical area in which the Company engages or plans (during the
Employment Period or on the date of termination of the Employment Period) to
engage in such business. Nothing herein shall prohibit you from being a
<PAGE>
passive owner of not more than 1% of any publicly-traded class of capital stock
of any entity engaged in a competing business.
(b) NON-SOLICITATION. During the Non-Compete
Period, you shall not (i) induce or attempt to induce any employee of the
Company to terminate, or in any way interfere with, the relationship between the
Company and any employee thereof, (ii) hire directly or through another entity
any person who was an employee of the Company at any time during the Employment
Period or (iii) induce or attempt to induce any customer or other business
relation of the Company to cease doing business with the Company, or in any way
interfere with the relationship between any such customer or business relation
and the Company.
(c) SCOPE OF RESTRICTION. If, at the time of
enforcement of this paragraph 6, a court shall hold that the duration, scope or
area restrictions stated herein are unreasonable under circumstances then
existing, the parties hereto agree that the maximum duration, scope or area
reasonable under such circumstances shall be substituted for the stated
duration, scope or area.
(d) INJUNCTIVE RELIEF. You acknowledge that the
Company would be irreparably harmed by a breach by you of the provisions of this
paragraph 6 or of paragraph 5 above, and hereby consent to the Company's request
for injunctive relief in connection with any such breach or threatened breach.
7. PRIOR AGREEMENTS. This Agreement embodies the complete
agreement and understanding between the parties and supersedes any and all prior
agreements, arrangements or understandings, written or oral, with respect to
your employment with RCI and/or the Company. This Agreement may be amended or
modified, and the terms hereof may be waived, only in a writing duly executed
and delivered by you and RCI.
8. SURVIVAL. The provisions of paragraphs 5 and 6 hereof will
survive any termination of this Agreement.
9. GOVERNING LAW. All questions concerning the construction,
validity and interpretation of this Agreement shall be governed by the internal
law, and not the law of conflicts, of the State of Delaware.
10. NOTICES. Any notices, consents or other communications
required hereunder shall be in writing and shall be sufficiently given only if
sent by overnight courier (such as Federal express) or by registered or
certified mail (return receipt requested), postage prepaid, addressed as follows
(or to such other address or addresses as may hereafter be furnished in writing
by notices similarly given by one party to the other):
To you:
Mr. Robert Corso
<PAGE>
To the Company:
Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, New York 10022
Attention: Group Vice President, Corporate
Development and Human Resources
11. COUNTERPARTS. This Agreement may be executed in two or
more original counterparts, each of which shall constitute an original and both
or all of which together shall constitute one and the same instrument. Only one
such counterpart signed by the party against whom enforceability is sought needs
to be produced to evidence the existence of this Agreement. Signatures may be
exchanged by telecopy, with original signatures to follow. Each party to this
Agreement agrees to be bound by its/his own telecopied signature and to accept
the telecopied signature of the other party to this Agreement.
12. SEVERABILITY. The various provision of this Agreement are
severable from each other and from the rest of this Agreement, and, in the event
any part of this Agreement is held to be invalid or unenforceable by a court or
otherwise, the remainder of this Agreement shall be fully effective, operative
and enforceable.
13. ATTORNEYS' FEES. Should any dispute arise between the
Company and you concerning this Agreement or its terms and conditions, the
substantially prevailing party in any action or proceeding brought to resolve
such dispute, whether at trial, on appeal or in another proceeding shall be
entitled to receive from the other party its/his reasonable attorneys' fees.
<PAGE>
Please execute the extra copy of this letter agreement in the
space below and return it to the undersigned at the address set forth above to
confirm your understanding and acceptance of the agreements contained herein.
Very truly yours,
RENAISSANCE COSMETICS, INC.
By: /s/ Norbert Becker
--------------------------------
Name: Norbert Becker
Title: Chief Executive Officer
Accepted and agreed to:
MR. ROBERT CORSO
Exhibit 10.3
SHAREHOLDER ACKNOWLEDGMENT
This Shareholder Acknowledgment ("Acknowledgment") is executed
as of this 1st day of November, 1997, by Kidd Kamm Equity Partners, L.P.
WHEREAS, Kidd Kamm Equity Partners, L.P. ("KKEP"), owns the
majority of the issued and outstanding shares of the Renaissance Cosmetics, Inc.
(the "Company") common stock (the "KKEP Shares"), and has a vested interest in
the success of the Company by virtue of its ownership of the KKEP Shares; and
WHEREAS, KKEP believes that it is in the best interests of the
Company for Norbert Becker to continue in his position as President and Chief
Executive Officer of the Company and as a member of the Board of Directors of
the Company; and
WHEREAS, in exchange for Norbert Becker signing the Employment
Agreement dated as of August 26, 1997 (and approved by the Board on October 22,
1997), KKEP agrees to take the action described below.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, KKEP agrees as
follows:
1. KKEP shall, at each annual or special meeting of the
shareholders at which directors of the Company are to be elected which occurs
during the term of the Employment Agreement, or in connection with each
solicitation of consents thorough which directors of the Company are to be
selected which takes place during the term of the Employment Agreement, vote (or
give a written consent with respect to) all of the KKEP Shares in favor of the
election of Norbert Becker to the Board of Directors of the Company.
IN WITNESS WHEREOF, KKEP has executed this Acknowledgment as
of the date first above written.
KIDD KAMM EQUITY PARTNERS, L.P.
By: /s/ Terry Theodore
Name:______________________________
Title:_____________________________
Exhibit 10.5
SHAREHOLDER ACKNOWLEDGMENT
This Shareholder Acknowledgment ("Acknowledgment") is executed
as of this 1st day of November, 1997, by Kidd Kamm Equity Partners, L.P.
WHEREAS, Kidd Kamm Equity Partners, L.P. ("KKEP"), owns the
majority of the issued and outstanding shares of the Renaissance Cosmetics, Inc.
(the "Company") common stock (the "KKEP Shares"), and has a vested interest in
the success of the Company by virtue of its ownership of the KKEP Shares; and
WHEREAS, KKEP believes that it is in the best interests of the
Company for Sean Greene to continue in his position as Group Vice President of
the Company and to be on the Board of Directors of the Company; and
WHEREAS, in exchange for Sean Greene signing the Employment
Agreement dated as of November 1, 1997, KKEP agrees to take the action described
below.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, KKEP agrees as
follows:
1. KKEP shall, at each annual or special meeting of the
shareholders at which directors of the Company are to be elected which occurs
during the term of the Employment Agreement, or in connection with each
solicitation of consents thorough which directors of the Company are to be
selected which takes place during the term of the Employment Agreement, vote (or
give a written consent with respect to) all of the KKEP Shares in favor of the
election of Sean Greene to the Board of Directors of the Company.
IN WITNESS WHEREOF, KKEP has executed this Acknowledgment as
of the date first above written.
KIDD KAMM EQUITY PARTNERS, L.P.
By: /s/ Terry Theodore
Name:_____________________________
Title:____________________________
Exhibit 10.8
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is entered into
by and between Renaissance Cosmetics, Inc., a Delaware corporation (the
"Company") and River International, Inc. ("RII") whose president is Thomas T.S.
Kaung ("Kaung") (RII and Kaung are together referred to herein as "Consultant")
as of this 1st day of December, 1997. The Company and the Consultant are
sometimes referred to herein individually as a "Party" and together as the
"Parties."
WHEREAS, the Company desires to hire Consultant to provide
consulting services for the Company and its affiliates under the terms and
conditions set forth herein with the express understanding that Kaung will be
the sole and exclusive provider of consulting services hereunder on behalf of
RII absent mutual agreement of the Parties to the contrary; and
WHEREAS, Consultant desires to be engaged to provide
consulting services for the Company under the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Consulting Agreement; Term. The Company hereby engages
Consultant as a consultant to the Company and each of its affiliated entities
and businesses and Consultant accepts such engagement commencing on December 1,
1997 and continuing for a period of eight (8) months thereafter (the "Consulting
Term"). The Consulting Term may be extended by agreement of the Parties on
mutually acceptable terms and conditions.
2. Consulting Duties. During the Consulting Term, the
Consultant shall provide such advisory and consulting services to the Company
and its affiliates as may be designated from time to time by the Board of
Directors of the Company (the "Board"), the Chief Executive Officer of the
Company (the "CEO"), the Chief Financial Officer of the Company or the
applicable General Manager or Group Vice President as determined by the Company
for each project on which Consultant provides consulting services. Consultant
shall report to the CEO and shall perform Consultant's duties consistent with
the best interests of the Company and the policies and guidelines of the Company
as in effect at any time and from time to time, to the best of Consultant's
ability, and in a diligent manner.
3. Retainer Fee. During the initial eight (8) months of the
Consulting Term, the Company shall pay to Consultant a retainer fee (the
"Retainer Fee") in the amount of $22,000 per month. In the event the Consulting
Term is extended beyond the initial eight (8) months, the Company the Retainer
Fee shall be $2,000 per day, or such other amount as mutually agreed. The
Company shall also reimburse Consultant for reasonable out-of-pocket business
expenses incurred in connection with the services provided to the Company by
Consultant, provided that
<PAGE>
standard documentation and/or receipts are submitted to the Company by
Consultant at the time reimbursement is requested. At the end of each month
during the Consulting Term, Consultant shall provide the Company with a
statement for services rendered during that month and expenses incurred (along
with supporting documentation) for which Consultant seeks reimbursement, and the
Company shall pay the Retainer Fee, and reimburse the reimbursable expenses,
within five (5) business days following receipt of such statements.
4. Independent Contractor. The Parties acknowledge, understand
and agree that Consultant is an independent contractor and shall not be
considered an employee or agent of the Company or any of its affiliates pursuant
to the terms of this Agreement for any purposes whatsoever and Consultant shall
have no right or authority to assume or create any obligation or liability,
express or implied, on behalf of the Company or any of its affiliates, or to
bind the Company or any of its affiliates in any manner whatsoever, without the
Company's express prior written consent. Consultant shall be responsible for all
income taxes, Social Security and other tax liabilities with respect to the
Retainer Fee paid hereunder.
5. Termination.
a. Notwithstanding anything to the contrary herein, in the
event Consultant intentionally breaches a material provision of this Agreement
(for purposes hereof, the covenants in Sections 6, 7 and 8 shall be deemed to be
material provisions), the Company shall have the right to terminate this
Agreement by giving Consultant written notice thereof (and such termination
shall be effective upon the date of such notice).
b. On or after August 1, 1998, either Party may terminate this
Agreement at any time by giving written notice to the other (and such
termination shall be effective ten (10) business days after the date of such
notice, unless otherwise agreed to by the Parties).
c. The Company's right of termination shall be in addition to
and shall not affect its rights and remedies under Sections 6, 7, 8 and 9
hereof, and such rights and remedies under such Sections shall survive
termination of this Agreement.
d. In the event of termination of this Agreement pursuant to
the terms hereof, Consultant shall have no right to receive any compensation for
any period subsequent to the date of such termination, except for any pro rated
amounts earned prior to such termination, and all rights of Consultant to
receive compensation for any period subsequent to the date of such termination
shall terminate in their entirety effective on and as of the termination date.
6. Non-Competition Agreement. Without the prior consent of the
Company, Consultant shall not, for a period extending from the date hereof and
continuing for so long as Consultant is receiving payments from the Company for
consulting services provided hereunder, directly or indirectly, be employed in
any capacity by, serve as an employee, agent, officer or director of, serve as a
consultant or advisor to, or otherwise participate in the management or
2
<PAGE>
operation of, any person, firm, corporation or other entity of any kind
(collectively, a "Person") which engages in any facet of the business of
manufacturing and marketing fragrance products, artificial fingernails or
artificial or natural nail care products in the continental United States.
7. Confidentiality. Consultant shall not, at any time, divulge
to any Person (as defined in Section 6 above), other than to employees of the
Company and its affiliates who have a need to know such information in
connection with the performance of their duties on behalf of the Company and
except as required by law, any confidential, proprietary or privileged
information to which Consultant becomes privy during the Consulting Term,
including, without limitation, information relating to the financial condition,
business, operations, or method of business of the Company or its affiliates,
customer and supplier information, independent contractor information, know-how,
trade-secrets, procedures, litigation or other confidential information
regarding the affairs of the Company, or any of its officers, directors,
stockholders, subsidiaries, affiliates, customers or suppliers ("Confidential
Information").
Confidential Information does not include any information that (i) is or becomes
generally available to the public other than as a result of a disclosure by
Consultant or anyone to whom Consultant transmits the Confidential Information
in accordance with this Agreement, or (ii) becomes available to Consultant on a
non-confidential basis from a source other than the Company or its affiliates.
8. Nonsolicitation of Employees. Consultant shall not, for a
period extending from the date hereof and continuing for so long as Consultant
is receiving payments from the Company for consulting services provided
hereunder, directly or indirectly, solicit, interfere with, employ or retain in
any other capacity any employee of the Company or any of its affiliates, nor
permit, encourage or allow any entity in which the Consultant owns, directly or
indirectly, more than a 5% equity or proprietary interest or the right or
option, legally or beneficially, directly or indirectly, to acquire or own any
stock or other proprietary or equity interest, to solicit, interfere with,
employ or retain in any other capacity any employee of the Company or any of its
affiliates.
9. Remedies. Consultant acknowledges and agrees that (a) the
covenants contained in Sections 6, 7 and 8 hereof are reasonable in content and
scope, are entered into by Consultant in partial consideration for the
compensation to be paid to Consultant hereunder and are a necessary and material
inducement to the Company to go forward with the engagement contemplated by this
Agreement, and (b) the services and agreements to be performed hereunder by
Consultant are of a unique, special and extraordinary character, and that a
breach by Consultant of any covenants contained in Sections 6, 7 and 8 above
would result in irreparable damage to the Company and its affiliates which may
be unascertainable. Accordingly, Consultant agrees that, in the event of any
breach or threatened breach of any of the covenants contained in Sections 6, 7
and 8, the Company and its affiliates shall be entitled, in addition to money
damages and reasonable attorneys' fees and the right, in the Company's sole and
absolute discretion, to terminate this Agreement, to seek an injunction or other
appropriate equitable relief to prevent such breach or any continuation thereof
in any court of competent jurisdiction.
3
<PAGE>
10. Indemnification. The Company shall indemnify and hold
harmless Consultant from and against any claims, judgments, liabilities,
obligations, expenses (including reasonable attorneys' fees) and costs incurred
by Consultant that arise from the performance by Consultant of services for the
Company in accordance with the terms hereof, to the extent that (i) Consultant
acted in good faith and in a manner which Consultant reasonably believed to be
in, or not opposed to, the best interests of the Company, and (ii) with respect
to any criminal proceeding, Consultant had no reasonable cause to believe the
conduct was unlawful.
11. Notices. All notices or other communications in connection
with this Agreement shall be in writing and may be given by personal delivery or
mailed, certified mail, return receipt requested, postage prepaid or by a
nationally recognized overnight courier to the Parties at the addresses set
forth below (or at such other address as one Party may specify in a notice to
the other Party):
If to the Company: Renaissance Cosmetics, Inc.
635 Madison Avenue, Fifth Floor
New York, New York 10022
Attention: Group Vice President, Corporate
Development and Human Resources
with a copy to: Brownstein Hyatt Farber & Strickland
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jacquelyn Kilmer
If to Consultant: River International, Inc.
12 Pepper Ridge Road
Cleveland, Ohio 44124
Attention: Thomas Kaung
12. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
13. Attorneys' Fees. The Parties agree that, if any action is
instituted to enforce this Agreement, the Party not prevailing shall pay to the
prevailing Party all costs and expenses, including reasonable attorneys' fees,
incurred by such prevailing party in connection with such action. If both
Parties prevail in part in such action, the court or arbitrator(s) shall
allocate the financial responsibility for such costs and expenses.
14. Entire Agreement; Amendments. This Agreement represents
the entire agreement between the Parties with respect to the matters addressed
herein and supersedes all prior negotiations, representations or agreements
between the Parties, either written or oral, on the subject matter hereof. This
Agreement may not be amended, modified, altered or rescinded except upon a
written instrument designated as an amendment to this Agreement and executed
4
<PAGE>
by both Parties hereto.
15. Severability. If any provision of this Agreement, or part
thereof, is held invalid, void or voidable as against public policy or
otherwise, the invalidity shall not affect other provisions, or parts thereof,
which may be given effect without the invalid provision or part. If any
provisions of this Agreement shall be held to be excessively broad as to
duration, geographical scope, activity or subject, such provisions shall be
construed by limiting or reducing the same so as to render such provision
enforceable to the extent compatible with applicable law.
16. Waiver. Failure on the part of the Company to exercise any
right or option arising out of a breach of this Agreement shall not be deemed a
waiver of any right or option with respect to subsequent or different breach, or
the continuation of any existing breach.
17. Sole Provider of Consulting Services. Notwithstanding
anything herein to the contrary, RII and Kaung agree that, absent mutual
agreement between Consultant and the Company to the contrary, Kaung shall be the
sole provider of consulting services on behalf of RII and that RII shall not
have the right, without the prior agreement of the Company, to substitute,
designate or appoint any person other than Kaung as the sole provider of
consulting services hereunder on behalf of RII.
18. Counterparts; Telecopied Signatures. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
but all of which when taken together shall constitute one and the same
agreement. Signatures may be exchanged by telecopy and the originals shall be
exchanged by overnight mail. Each of the Parties agrees that it will be bound by
it telecopied signature and that it accepts the telecopied signature of the
other Party.
5
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement
as of the day and date first above written.
RIVER INTERNATIONAL, INC.
By: /s/ Thomas T. S. Kaung
---------------------------
Name: Thomas T.S. Kaung
Title: President
RENAISSANCE COSMETICS, INC.
By: /s/ John R. Jackson
---------------------------
Name: John R. Jackson
Title: GVP
6
Exhibit 10.4
RENAISSANCE COSMETICS, INC.
635 MADISON AVENUE
NEW YORK, NEW YORK 10022
November 1, 1997
Mr. Sean Greene
3003 Lake Shore Drive
Long Beach, Indiana 46360
Re: EMPLOYMENT AGREEMENT ("AGREEMENT")
Dear Sean:
This Agreement sets forth the terms and conditions of your
continued employment with Renaissance Cosmetics, Inc., a Delaware corporation
("RCI"), and certain of its subsidiaries (the "Subsidiaries") as designated from
time to time by the Chief Executive Officer and/or Board of Directors of RCI
(the "Board"). RCI and the Subsidiaries are sometimes collectively referred to
herein as the "Company." This Agreement shall become effective as of November 1,
1997 (the "Effective Date").
1. EMPLOYMENT AND SERVICES. You shall continue to be employed
as a Group Vice President, Sales of RCI and President, RCI Sales Co., for the
period beginning on the Effective Date and ending upon the third anniversary of
the Effective Date or earlier termination pursuant to paragraph 5 (the
"Employment Period"); provided, however, that, in the absence of termination,
the Employment Period shall be extended for successive one year terms so long as
neither party gives written notice of non-renewal to the other party not less
than 90 days prior to the then-current scheduled expiration date of the
Employment Period. If such notice of non-renewal is given, this Agreement shall
expire at the end of the then-current term. During the Employment Period, you
shall render such services to the Company as the Chief Executive Officer and/or
Board shall designate from time to time, and you shall devote your best efforts
and full time and attention to the business of the Company.
2. COMPENSATION. During the Employment Period, the Company
shall pay you an annual base salary of $350,000 ("Base Salary"), payable in
installments in accordance with the Company's regular payroll practices. The
Base Salary shall be subject to annual review by the Board and possible increase
on an annual basis, in the discretion of the Board. In addition, during the
Employment Period, you will participate in the Company's senior executive annual
bonus
<PAGE>
program, on terms to be determined by the Board. The bonus program is reviewed
by the Board yearly at which time the Board sets targets which it deems
reasonable for the Company. If the Company achieves 100% of those targets, you
will receive a bonus equal to 100% of your annual base salary.
3. APPOINTMENT TO BOARD OF DIRECTORS.
(a) Effective as of the Effective Date, the Board has
appointed you to the position of director and Vice Chairman of the Board, to
serve until your successor shall be duly elected and qualified.
(b) RCI shall, during the Employment Period, (i) include you
on its slate of directors to be re-elected to the Board at each annual or
special meeting of the shareholders at which directors of RCI are to be elected
or in connection with each solicitation of consents through which directors of
RCI are to be selected, and (ii) use its best efforts to cause you to be
re-elected to the Board at each such meeting or through each such solicitation
of consents.
(c) See Attachment A hereto.
(d) RCI will indemnify you (both in your capacity as an
officer and a director) to the fullest extent permitted by law and as provided
in that certain Amended and Restated Indemnification Agreement, dated as of even
date herewith, by and between you and RCI.
4. BENEFITS.
(a) INSURANCE. You shall be entitled to
participate in the Company's insurance plans, retirement plans and all other
benefit plans generally available to the Company's executive employees as in
effect from time to time.
(b) VACATION. During the Employment Period, you
shall receive four weeks of paid vacation per year. Unused vacation shall accrue
for the following year; however, you agree not to take more than five weeks of
vacation in any one year. In addition, any unused vacation (determined on the
basis of four weeks per year) from the first date of your employment with the
Company up to the Effective Date shall accrue in accordance with the terms
hereof. Upon termination of your employment for any reason, you will be entitled
to receive payment for any accrued but unused vacation through the date of
termination.
(c) STAY BONUS PROGRAM. If the Board implements
a stay bonus program (the "Program") during the Employment Period, you will
participate in such Program in the same manner and at the same level as the
Chief Executive Officer of the Company (as determined by the Board).
2
<PAGE>
(d) REIMBURSEMENT OF EXPENSES. The Company will
reimburse your reasonable out-of-pocket expenses incurred in connection with the
performance of your services hereunder, in each case subject to and consistent
with Company policy.
(e) COMPANY CAR. You will be entitled to the
use of a company car at the Company's expense on terms no less favorable than
those provided to the Company's executives generally (the "Company Car"). The
Company may, in its discretion, lease or acquire the Company Car for your use,
consistent with the Company's prior practice; provided, however, that the
purchase price of the Company Car (or the purchase price implicit in the lease
rate) including all taxes shall not exceed $45,000 (or you may choose a car
allowance of $1,200 per month). At the expiration of the Employment Period as
provided in paragraph 1 hereof or upon the termination of your employment by the
Company without Cause (as defined below) or by you for Good Reason (as defined
below), the Company Car shall become your property, at no expense to you;
provided, however, that in the event the Company Car is under lease to the
Company at such time, the Company may, in its discretion, elect to continue to
make the payments under the lease and transfer title to the Company Car to you
at the end of the term of the lease, and provided further that you will not be
entitled to the continuation of any other benefits under the Company's
then-current car policy.
5. TERMINATION AND SEVERANCE.
(a) The Employment Period shall terminate on the
first to occur of (a) the then-current scheduled expiration date of the
Employment Period, (b) termination with or without Good Reason (as defined
below) by you, or (c) termination with or without Cause (as defined below) by
the Chief Executive Officer or the Board.
(b) If (i) the Company terminates your
employment with Cause, or (ii) you terminate your employment without Good
Reason, you shall be entitled to receive only accrued but unpaid Base Salary and
other benefits to which you are entitled through the date of termination, plus
unreimbursed expenses incurred through the date of termination.
(c) If the Company terminates your employment
for reasons other than for Cause, or you terminate your employment for Good
Reason, you shall be entitled to (i) the amount of any accrued but unpaid Base
Salary and other benefits to which you are entitled through the date of
termination, and unreimbursed expenses incurred through the date of termination,
plus (ii) one year's Base Salary (net of any severance benefits payable to you
under the Company's severance policy as may then be in effect) (the "Severance
Payments"). In addition, in the event the executives participating in the senior
executive bonus program receive a bonus for the fiscal year in which your
employment is terminated for the reasons described in this paragraph (c), you
will also receive the full amount of the bonus you would have been entitled to
receive with respect to such fiscal year but for the termination of our
employment at any time during such fiscal year. You shall also be entitled to
receive the full benefits (as described in paragraph 4(a) hereof) you were
receiving immediately prior to the termination date for the period in which you
are receiving Severance Payments.
3
<PAGE>
(d) For purposes of this Agreement:
(i) "Cause" shall mean:
(A) your willful and repeated failure to
comply with the lawful directives of the Chief Executive Officer and/or the
Board;
(B) any criminal act or act of
dishonesty, disloyalty, misconduct or moral turpitude by you that is injurious
in any significant respect to the property, operations, business or reputation
of the Company; or
(C) your material breach of this
Agreement (which shall include any breach of paragraph 6 or paragraph 7 hereof).
A determination that Cause exists shall be made by the Board.
(ii) "Good Reason" shall mean termination at your
election based on (A), (B), (C) or (D) below (provided that such termination
occurs within 90 days of the date on which the event described in (A), (B), (C)
or (D) becomes effective) or by reason of an event described in (E) below:
(A) a reduction in your fringe or
retirement benefits that is not applied by the Company to executives generally
or, in the case of any benefit unique to you, a more than immaterial reduction
in such benefit, or a reduction by the Company in your Base Salary;
(B) the (I) merger or consolidation of
RCI into or with any other entity, (II) change in control of RCI (which, for
purposes hereof, shall mean a transfer to a third party (i.e., a party other
than RCI or one of its Subsidiaries) which vests in such third party 50% or more
of the total voting power of the common stock of RCI), or (III) sale, transfer
or other disposition of all or substantially all of the assets of RCI ((I), (II)
and (III) are collectively referred to as a "Restructuring Event"), unless the
entity which survives the Restructuring Event shall assume and agree to perform
the obligations of RCI hereunder pursuant to an instrument reasonably acceptable
to you;
(C) you are required by the Company to
relocate or your travel time increases materially compared to your past practice
with the Company;
(D) you are removed from your position
as a director on the Board or you are not re-elected to such position (for
reasons other than in connection with the termination of your employment by the
Company for Cause or by you without Good Reason); or
4
<PAGE>
(E) you die or become mentally or physically disabled
for such period of time and under circumstances which entitle you to receive
disability benefits under the terms of the Company's long-term disability
insurance policy then maintained by the Company.
(e) In the event that, during the period in which you are
receiving Severance Payments and the other benefits described in paragraph (c)
hereof (collectively, the "Severance Benefits"), you secure full-time employment
with any third party, you shall notify the Company of such employment prior to
the commencement thereof. Effective immediately upon the commencement of your
new employment, the Severance Benefits shall cease and the Company shall have no
further obligation to you with respect to Severance Benefits.
(f) All Severance Payments shall be made monthly.
6. CONFIDENTIAL INFORMATION. You acknowledge that information
obtained by you during your employment with the Company concerning the business
or affairs of the Company ("Confidential Information") is the property of the
Company. You shall not at any time during or after the Employment Period,
without the prior written consent of the Board, disclose to any unauthorized
person or use for your own account or for the account of any person other than
the Company and its subsidiaries any Confidential Information, except to the
extent necessary to comply with applicable laws or to the extent that such
information becomes generally known to and available for use by the public other
than as a result of your acts or failure to act. Upon termination of the
Employment Period or at the request of the Board at any time, you shall deliver
to the Board all documents containing Confidential Information or relating to
the business or affairs of the Company that you may then possess or have under
your control.
7. NON-COMPETITION; NON-SOLICITATION.
(a) NON-COMPETITION. You acknowledge that you are and
will be in possession of Confidential Information and that your services are of
unique and great value to the Company. Accordingly, during the Employment Period
and, if applicable, for so long as you are receiving Severance Payments in
accordance with the terms of paragraph 5 hereof (the "Non-Compete Period"), you
shall not directly or indirectly own, manage, control, participate in, consult
with, render services to, or in any manner engage in, any enterprise competing
with any business of the Company conducted or proposed (during the Employment
Period or on the date of termination of the Employment Period) to be conducted,
within any geographical area in which the Company engages or plans (during the
Employment Period or on the date of termination of the Employment Period) to
engage in such business. Nothing herein shall prohibit you from being a passive
owner of not more than 1% of any publicly-traded class of capital stock of any
entity engaged in a competing business.
(b) NON-SOLICITATION. During the Non-Compete Period,
you shall not (i) induce or attempt to induce any employee of the Company to
terminate, or in any way interfere with, the relationship between the Company
and any employee thereof, (ii) hire directly or through
5
<PAGE>
another entity any person who was an employee of the Company at any time during
the Employment Period or (iii) induce or attempt to induce any customer or other
business relation of the Company to cease doing business with the Company, or in
any way interfere with the relationship between any such customer or business
relation and the Company.
(c) SCOPE OF RESTRICTION. If, at the time of
enforcement of this paragraph 7, a court shall hold that the duration, scope or
area restrictions stated herein are unreasonable under circumstances then
existing, the parties hereto agree that the maximum duration, scope or area
reasonable under such circumstances shall be substituted for the stated
duration, scope or area.
(d) INJUNCTIVE RELIEF. You acknowledge that the
Company would be irreparably harmed by a breach by you of the provisions of this
paragraph 7 or of paragraph 6 above, and hereby consent to the Company's request
for injunctive relief in connection with any such breach or threatened breach.
8. KEY MAN LIFE INSURANCE. In the event the Company purchases
a key man life insurance policy covering you, you agree to provide the Company
with such information, and execute such documents, as may be necessary for the
Company to purchase such policy.
9. PRIOR AGREEMENTS. This Agreement embodies the complete
agreement and understanding between the parties and supersedes any and all prior
agreements, arrangements or understandings, written or oral, with respect to
your employment with RCI and/or the Company. This Agreement may be amended or
modified, and the terms hereof may be waived, only in a writing duly executed
and delivered by you and RCI.
10. SURVIVAL. The provisions of paragraphs 6 and 7 hereof will
survive any termination of this Agreement.
11. GOVERNING LAW. All questions concerning the construction,
validity and interpretation of this Agreement shall be governed by the internal
law, and not the law of conflicts, of the State of Delaware.
12. NOTICES. Any notices, consents or other communications
required hereunder shall be in writing and shall be sufficiently given only if
sent by overnight courier (such as Federal express) or by registered or
certified mail (return receipt requested), postage prepaid, addressed as follows
(or to such other address or addresses as may hereafter be furnished in writing
by notices similarly given by one party to the other):
To you:
Mr. Sean Greene
3003 Lake Shore Drive
Long Beach, Indiana 46360
6
<PAGE>
To the Company:
Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, New York 10022
Attention: Group Vice President, Corporate
Development and Human Resources
13. COUNTERPARTS. This Agreement may be executed in two or
more original counterparts, each of which shall constitute an original and both
or all of which together shall constitute one and the same instrument. Only one
such counterpart signed by the party against whom enforceability is sought needs
to be produced to evidence the existence of this Agreement. Signatures may be
exchanged by telecopy, with original signatures to follow. Each party to this
Agreement agrees to be bound by its/his own telecopied signature and to accept
the telecopied signature of the other party to this Agreement.
14. SEVERABILITY. The various provision of this Agreement are
severable from each other and from the rest of this Agreement, and, in the event
any part of this Agreement is held to be invalid or unenforceable by a court or
otherwise, the remainder of this Agreement shall be fully effective, operative
and enforceable.
15. ATTORNEYS' FEES. Should any dispute arise between the
Company and you concerning this Agreement or its terms and conditions, the
substantially prevailing party in any action or proceeding brought to resolve
such dispute, whether at trial, on appeal or in another proceeding shall be
entitled to receive from the other party its/his reasonable attorneys' fees.
Please execute the extra copy of this letter agreement in the
space below and return it to the undersigned at the address set forth above to
confirm your understanding and acceptance of the agreements contained herein.
7
<PAGE>
Very truly yours,
RENAISSANCE COSMETICS, INC.
By: /s/ Norbert Becker
---------------------------
Name: Norbert Becker
Title: Chief Executive Officer
Accepted and agreed to:
- -----------------------
MR. SEAN GREENE
/s/ Sean E. Greene
- -----------------------
Exhibit 10.7
AGREEMENT
This Agreement (this "Agreement") is entered into by and
between Thomas T.S. Kaung ("Kaung") and Renaissance Cosmetics, Inc. (the
"Company") as of this 1st day of December, 1997. Kaung and the Company are
sometimes referred to herein individually as a "Party" and together as the
"Parties."
For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties, intending to be bound
hereby, agree as follows:
1. Resignation from Employment; Payments from the Company.
Kaung's resignation from his position with the Company shall be effective as of
December 1, 1997 (the "Effective Date"). The Company shall pay Kaung his salary
at his current base rate of pay through the Effective Date, in accordance with
the Company's standard and customary payroll practices and subject to standard
withholding and deductions for applicable taxes. Within 14 days after the
Effective Date, Kaung shall receive payment for all accrued but unused vacation
time, plus reimbursement for all properly documented business expenses remaining
unreimbursed as of such date.
2. Continuation of Certain Benefits.
a. The Company, at its expense, shall continue to provide
medical, dental and long term disability insurance coverage to Kaung until such
time as Kaung reaches the age of 65, under the same programs available to all
Company employees from time to time, and to the extent that such benefits
continue to be made generally available to the Company's employees. Kaung's
spouse and dependents shall be permitted to participate in such benefit programs
to the extent, and in the same manner as, the spouses and dependents of the
Company's employees are entitled to participate in such programs.
b. The Company shall provide Kaung with the continued use of
the vehicle currently used by Kaung under the senior executive Company car
program. The Company may, in its discretion, continue to lease the vehicle (at
its expense) and purchase it at the end of the lease term, and transfer title to
the vehicle to Kaung at the time of purchase. In addition, Kaung shall be
entitled to retain the laptop computer currently in his possession for so long
as he is providing consulting services to the Company pursuant to the Consulting
Agreement of even date herewith.
c. All other Company-provided insurance, retirement or other
benefit programs shall terminate as of the Effective Date.
3. Stock and Stock Options.
a. In consideration for the continuation of the benefits
described in paragraph 2 above, and notwithstanding anything in the Company's
First Amended and Restated Stock Option
<PAGE>
Plan and Kaung's Stock Option Agreement to the contrary, as of the Effective
Date, Kaung agrees to forfeit his rights to all of his stock options, including
such portion of the stock options as have vested prior to the Effective Date,
and all of his stock options shall terminate as of the Effective Date.
b. Notwithstanding anything in the Stockholder Agreement
between the Company and Kaung to the contrary, the Company shall have the option
to repurchase all or any portion of the 2,690 shares of Common Stock of the
Company owned by Kaung at a price of $37.17 per share. The Company's option to
repurchase such shares shall be assignable by the Company, in whole or in part,
to anyone, in its discretion. The Company, or its assignee(s) shall exercise
such option by giving written notice of its (their) intent to exercise to Kaung
by not later than March 31, 1998 (the "Repurchase Notice"), setting forth the
number of shares to be repurchased ("Repurchased Shares") and the closing date,
which shall take place not longer than 30 days after the date of the Repurchase
Notice, or as otherwise agreed to by Kaung and the Company (the "Closing Date").
On the Closing Date, the Company, or its assignee(s), shall deliver payment for
the Repurchased Shares in cash and Kaung shall deliver the certificates for the
Repurchased Shares, duly endorsed with payment of all stock transfer taxes, if
any, and free and clear of all liens, claims or encumbrances.
4. Releases of Claims.
a. Kaung, for himself and his agents, representatives,
trustees, guardians, conservators, subrogees, assigns, beneficiaries, executors,
administrators, heirs and successors, does hereby voluntarily and knowingly,
unconditionally and absolutely release and forever discharge the Company and its
present and former principals, officers, directors, employees, shareholders,
agents, partners, joint venturers, subsidiaries, affiliates, related
corporations, successors and assigns, from any and all claims, complaints,
contracts, liabilities, obligations, demands, debts, damages, losses, costs,
expenses, attorneys' fees, rights of action and causes of action, of any kind or
character whatsoever, at law or in equity, whether known or unknown, suspected
or unsuspected, relating to or arising out of Kaung's employment with the
Company. Excluded from this release are all claims relating to the enforcement
of this Agreement and the Consulting Agreement of even date herewith between the
Company and River International, Inc. (the "Consulting Agreement").
b. The Company, for itself and its present and former
principals, officers, directors, employees, shareholders, agents, partners,
joint venturers, subsidiaries, affiliates, related corporations, successors and
assigns, does hereby voluntarily and knowingly, unconditionally and absolutely
release and forever discharge Kaung and his agents, representatives, trustees,
guardians, conservators, subrogees, assigns, beneficiaries, executors,
administrators, heirs and successors, from any and all claims, complaints,
contracts, liabilities, obligations, demands, debts, damages, losses, costs,
expenses, attorneys' fees, rights of action and causes of action, of any kind or
character whatsoever, at law or in equity, whether known or unknown, suspected
or unsuspected, related to or arising out of Kaung's employment with the
Company. Excluded from this release are all claims relating to the enforcement
of this Agreement and the Consulting Agreement.
5. Proprietary and Company Materials. Within five (5) business
days after a
2
<PAGE>
request from the Company, Kaung shall return to the Company all proprietary and
other materials of the Company then in his possession, including, without
limitation, memoranda, sales brochures, credit cards, telephone charge cards,
manuals, building keys and passes, courtesy parking passes, financial
information, business or marketing plans, reports, projections, software
programs and data compiled with the use of those programs, tangible copies of
trade secrets and confidential information, product samples, and any and all
other information or property held or used by Kaung in connection with his
employment with the Company.
6. Non-Solicitation. Kaung agrees that for a period of one (1)
year from the Effective Date, he will not (i) attempt to employ or employ, (ii)
attempt to assist in employing or assist in employing, (iii) attempt to
recommend the employment of or recommend the employment of, or (iv) otherwise
interfere with the employment of any employee of the Company while that employee
is employed by the Company or during the one-year period following the
termination of the employee's employment with the Company.
7. Confidentiality. Kaung agrees that he will not use for his
own benefit or for the benefit of any third party, or directly or indirectly
disclose to any third party, any confidential, proprietary or privileged
information to which Kaung became privy during the period of his employment with
the Company, including, without limitation, information relating to the
financial condition, business, operations, or method of business of the Company
or its affiliates, customer and supplier information, independent contractor
information, know-how, trade-secrets, procedures, litigation or other
confidential information regarding the affairs of the Company, or any of its
officers, directors, stockholders, subsidiaries, affiliates, customers or
suppliers, except for information which is or becomes generally available to the
public or disclosed to a third party through no fault of Kaung, or as required
by law.
8. Notices. All notices or other communications in connection
with this Agreement shall be in writing and may be given by personal delivery or
mailed, certified mail, return receipt requested, postage prepaid or by a
nationally recognized overnight courier to the Parties at the addresses set
forth below (or at such other address as one Party may specify in a notice to
the other Party):
If to the Company: Renaissance Cosmetics, Inc.
635 Madison Avenue, Fifth Floor
New York, New York 10022
Attention: Group Vice President,
Corporate Development and Human
Resources
with a copy to: Brownstein Hyatt Farber & Strickland
410 Seventeenth Street, Suite 2200
Denver, Colorado 80202
Attention: Jacquelyn Kilmer
3
<PAGE>
If to Kaung: 12 Pepper Ridge Road
Cleveland, Ohio 44124
9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
10. Attorneys' Fees. The Parties agree that, if any action is
instituted to enforce this Agreement, the Party not prevailing shall pay to the
prevailing Party all costs and expenses, including reasonable attorneys' fees,
incurred by such prevailing Party in connection with such action. If both
Parties prevail in part in such action, the court or arbitrator(s) shall
allocate the financial responsibility for such costs and expenses.
11. Entire Agreement; Amendments. This Agreement represents
the entire agreement between the Parties with respect to the matters addressed
herein and supersedes all prior negotiations, representations or agreements
between the Parties, either written or oral, on the subject hereof. This
Agreement may not be amended, modified, altered or rescinded except upon a
written instrument designated as an amendment to this Agreement and executed by
both Parties hereto.
12. Severability. If any provision of this Agreement, or part
thereof, is held invalid, void or voidable as against public policy or
otherwise, the invalidity shall not affect other provisions, or parts thereof,
which may be given effect without the invalid provision or part.
13. Counterparts; Telecopied Signatures. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
but all of which when taken together shall constitute one and the same
agreement. Signatures may be exchanged by telecopy and the originals shall be
exchanged by overnight mail. Each of the Parties agrees that it/he will be bound
by its/his telecopied signature and that it/he accepts the telecopied signature
of the other Party.
14. Remedies. The Parties agree that they shall have the right
to exercise any and all remedies available at law or in equity to enforce this
Agreement, and that such remedies shall be cumulative and non-exclusive. With
respect to paragraphs 6 and 7 hereof, the Parties acknowledge that remedies at
law may be inadequate and damages from a breach thereof may be irreparable, and
therefore the Parties consent to specific performance or injunctive relief.
4
<PAGE>
The Parties have executed this Agreement as of the day and
date first written above.
RENAISSANCE COSMETICS, INC.
By: /s/ John R. Jackson
------------------------
Name: John R. Jackson
Title: GVP
/s/ Thomas T.S. Kaung
---------------------------
THOMAS T.S. KAUNG
5
AMENDMENT AND CONSENT
AMENDMENT AND CONSENT, dated as of November 12, 1997, among
Renaissance International Export, Inc., a Delaware corporation, Dana Perfumes
Corp. ("Borrower"), the other Credit Parties to the Credit Agreement referred to
below, General Electric Capital Corporation, for itself, as Lender, and as Agent
for Lenders, and the other Lenders party to the Credit Agreement.
W I T N E S S E T H:
WHEREAS, Borrower, the other Credit Parties, Agent and Lenders
are parties to that certain Credit Agreement dated as of March 12, 1997 (as from
time to time amended, restated, supplemented or otherwise modified, the "Credit
Agreement", and unless the context otherwise requires or unless otherwise
defined herein, capitalized terms used herein shall have the meanings assigned
to them in the Credit Agreement); and
WHEREAS, Borrower has requested that Agent and Lenders amend
the Credit Agreement to provide for Letters of Credit and make certain other
amendments as hereinafter set forth; and
WHEREAS, Borrower has requested that Agent and Lenders consent
to the formation by Borrower of Renaissance International Export, Inc., and to
amend the Loan Documents to add Renaissance International Export, Inc. as a
Credit Party as hereinafter set forth; and
WHEREAS, Agent and Lenders have agreed to amend the Loan
Documents and consent to the formation of Renaissance International Export,
Inc., on the terms and subject to the conditions as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein, the parties hereto hereby agree as follows:
SECTION 1. Amendments to the Credit Agreement. The following
amendments shall be effective on the Effective Date (as defined below) (except
for the amendments set forth in Sections 1(g), 1(h), 1(z), 1(af), 1(ag) and
1(ah) below, which shall be effective as of September 30, 1997):
<PAGE>
(a) Section 1.1(a)(i) of the Credit Agreement is amended by
adding the phrase ", in each case less the sum of the Letter of Credit
Obligations outstanding at such time" after the phrase "the Borrowing Base" in
the fourth sentence thereof.
(b) Section 1.1(a)(iii) of the Credit Agreement is amended by
adding the phrase "or incur any Letter of Credit Obligations," after the phrase
"Overadvances or Revolving Credit Advances," in the first sentence thereof.
(c) Section 1 of the Credit Agreement is amended by adding a
new Section 1.1A at the end thereof which reads as follows:
"1.1A Letters of Credit. Subject to and in
accordance with the terms and conditions contained herein and
in Annex B, Borrower shall have the right to request, and
Revolving Lenders agree to incur, or purchase participations
in, Letter of Credit Obligations in respect of Borrower."
(d) The fourth sentence of Section 1.2(a) of the Credit
Agreement is amended to read in its entirety as follows:
"Upon any such prepayment and reduction or termination of the
Commitment, Borrower's right to request Revolving Credit
Advances, or request that Letter of Credit Obligation be
incurred on its behalf, shall simultaneously be permanently
reduced or terminated, as the case may be; provided that a
permanent reduction of the Commitment shall not require a
corresponding pro rata reduction in the L/C Sublimit (as
defined in Annex B)."
(e) Section 1.2(b) of the Credit Agreement is amended by
adding a new sentence after the first sentence thereof to read as follows:
"If any such excess remains after repayment in full of the
aggregate outstanding Revolving Credit Advances, Borrower
shall provide cash collateral for the Letter of Credit
Obligations in the manner set forth in Annex B to the extent
required to eliminate such excess."
(f) The first sentence of Section 1.2(c) of the Credit
Agreement is amended by (i) deleting the word "and" before the word "third", and
(ii) adding to the end thereof the following clause:
"; and fourth, to any Letter of Credit Obligations, to provide
cash collateral therefor in the manner set forth in Annex B,
until such Letter
2
<PAGE>
of Credit Obligations have been fully cash collateralized in
the manner set forth in Annex B."
(g) The second paragraph of Section 1.4(a) of the Credit
Agreement is amended to read in its entirety as follows:
"The Applicable Revolver Index Margin and
Applicable Revolver LIBOR Margin will be 1.00% and 2.25% per
annum, respectively, as of the Closing Date. The Applicable
Margins will be adjusted (up or down) prospectively on a
quarterly basis as determined by Parent's Interest Coverage
Ratio for the 12-month period then ended, commencing with the
delivery of Parent's quarterly Financial Statements to Lenders
for the Fiscal Quarter ending September 30, 1997 (subject to
adjustment as provided in the following paragraph).
Adjustments in Applicable Margins will be determined by
reference to the following grids:
<TABLE>
<CAPTION>
IF INTEREST LEVEL OF
COVERAGE RATIO IS: APPLICABLE MARGINS:
-------------------
<S> <C>
greater than 2.00 Level I
greater than 1.25, but less than or equal to 2.00 Level II
greater than 1.00, but less than or equal to 1.25 Level III
less than or equal to 1.00 Level IV
</TABLE>
APPLICABLE MARGINS
<TABLE>
<CAPTION>
LEVEL I LEVEL II LEVEL III LEVEL IV
------- -------- --------- --------
<S> <C> <C> <C> <C>
Applicable Revolver
Index Margin 1.00% 1.25% 1.50% 2.00%
Applicable Revolver LIBOR
Margin 2.25% 2.50% 2.75% 3.00%"
</TABLE>
3
<PAGE>
(h) The first sentence of the third paragraph of Section
1.4(a) of the Credit Agreement is amended to delete the phrase "except that
there shall be no adjustment of the Applicable Revolver LIBOR Margin for an
outstanding LIBOR Loan during the LIBOR Period for such Loan".
(i) Section 1.4(d) of the Credit Agreement is amended to read
in its entirety as follows:
"(d) So long as any Default or Event of
Default shall have occurred and be continuing, and at the
election of Agent (or upon the written request of Requisite
Lenders) confirmed by written notice from Agent to Borrower,
the interest rates applicable to the Loans and the Letter of
Credit Fees shall be increased by two percentage points (2%)
per annum above the rates of interest or the rate of such Fees
otherwise applicable hereunder ("Default Rate"), and all
outstanding Obligations shall bear interest at the Default
Rate applicable to such Obligations. Interest and Letter of
Credit Fees at the Default Rate shall accrue from the initial
date of such Default or Event of Default until that Default or
Event of Default is cured or waived and shall be payable upon
demand."
(j) Clause number "(3)" of the last sentence of Section
1.10(a) of the Credit Agreement is amended to read in its entirety as follows:
"(3) to principal payments on the Loans and to provide cash
collateral for Letter of Credit Obligations in the manner
described in Annex B, ratably to the aggregate, combined
principal balances of the Loans and outstanding Letter of
Credit Obligations;"
(k) Section 2.2 of the Credit Agreement is amended to read in
its entirety as follows:
"2.2 Further Conditions to Each Loan. Except
as otherwise expressly provided herein, no Lender shall be
obligated to fund any Loan, convert or continue any Loan as a
LIBOR Loan or incur any Letter of Credit Obligation, if, as of
the date thereof:
(a) Any representation or warranty by any
Credit Party contained herein or in any of the other Loan
Documents shall be untrue or incorrect as of such date in any
material respect, except to the extent that such
representation or warranty expressly relates to an
4
<PAGE>
earlier date and except for changes therein expressly
permitted or expressly contemplated by this Agreement; or
(b) Any event or circumstance having a
Material Adverse Effect shall have occurred since the date
hereof and be continuing; or
(c) (i) Any Event of Default shall have
occurred and be continuing or would result after giving effect
to any Loan (or the incurrence of any Letter of Credit
Obligations), or (ii) a Default shall have occurred and be
continuing or would result after giving effect to any Loan,
and Agent or Requisite Lenders shall have determined not to
make any Loan or incur any Letter of Credit Obligation so long
as that Default is continuing; or
(d) After giving effect to any Advance (or
the incurrence of any Letter of Credit Obligations), the
outstanding principal amount of the Revolving Loan would
exceed the lesser of the Borrowing Base (plus Overadvances as
to which demand for payment has not been made) and the Maximum
Amount.
The request and acceptance by Borrower of the proceeds of any
Loan, the incurrence of any Letter of Credit Obligations or
the conversion or continuation of any Loan into, or as, a
LIBOR Loan, as the case may be, shall be deemed to constitute,
as of the date of such request or acceptance, (i) a
representation and warranty by Borrower that the conditions in
this Section 2.2 have been satisfied and (ii) a reaffirmation
by Borrower of the granting and continuance of Agent's Liens,
on behalf of itself and Lenders, pursuant to the Collateral
Documents."
(l) The introductory paragraph of Section 3 of the Credit
Agreement is amended by adding the phrase "and to incur Letter of Credit
Obligations" immediately after the word "Loans".
(m) The last sentence of Section 3.9 of the Credit Agreement
is amended by adding the phrase "the incurrence of the Letter of Credit
Obligations on behalf of Borrower," after the phrase "Borrower,".
(n) Section 3.23(a) of the Credit Agreement is amended by
adding the phrase "and Letter of Credit Obligations" immediately after each
reference to "Loans" therein.
5
<PAGE>
(o) Section 3.25 of the Credit Agreement is amended to read in
its entirety as follows:
"3.25 Parent Debt. As of the Closing Date,
Borrower has delivered to Agent a complete and correct copy of
the Parent Notes (including all schedules, exhibits,
amendments, supplements, modifications, assignments and all
other documents delivered pursuant thereto or in connection
therewith). Parent has the corporate power and authority to
incur the Indebtedness evidenced by the Parent Notes. The
subordination provisions of the Parent Notes (other than the
1997 Senior Notes) are enforceable against the holders thereof
by Agent and Lenders. All Obligations, including the
Obligations to pay principal of and interest on the Loans and
the Letter of Credit Obligations, constitute senior
Indebtedness entitled to the benefits of the subordination
provisions contained in the Parent Notes (other than the 1997
Senior Notes). The principal of and interest on the Notes, all
Letter of Credit Obligations and all other Obligations will
constitute "senior debt" as that or any similar term is or may
be used in any other instrument evidencing or applicable to
any other Parent Debt (other than the 1997 Senior Notes).
Borrower acknowledges that Agent and each Lender are entering
into this Agreement and are extending the Commitments in
reliance upon such subordination provisions and this Section
3.25."
(p) The first sentence of Section 6.1 of the Credit Agreement
is amended by deleting in clause (b) thereof the phrase "except mergers,
consolidations or combinations of any Credit Party (other than Parent) with any
other Credit Party (other than Parent (other than a merger of Holdings into
Parent)), provided that no Default or Event of Default shall have occurred and
be continuing or would result from such merger, consolidation or combination"
and substituting in place thereof the following phrase:
"except mergers, consolidations or combinations of any Credit
Party (other than Parent) or any non-Credit Party Subsidiary
of a Credit Party with any Credit Party (other than Parent
(other than a merger of Holdings into Parent)), and
liquidations and dissolutions of any Credit Party (other than
Parent) or any non-Credit Party Subsidiary of a Credit Party
by transfer of its assets and liabilities to a Credit Party
(other than Parent), provided that no Default or Event of
Default shall have occurred and be continuing or would result
from such merger, consolidation, combination, liquidation or
dissolution"
6
<PAGE>
(q) Section 6.1 of the Credit Agreement is further amended by
adding the following paragraph at the end thereto:
"Notwithstanding the foregoing provisions of
this Section 6.1, any Credit Party may form one or more new
wholly-owned domestic Subsidiaries whose sole purpose is to
serve as a joint venturer in a Permitted Joint Venture (a
"Joint Venture Subsidiary"), provided that (i) the Joint
Venture Subsidiary becomes a Credit Party, a Guarantor, a
party to the Security Agreement, and a party to the Pledge
Agreement, (ii) no Default or Event of Default shall have
occurred and be continuing or result from such formation, and
(iii) the requirements of a Permitted Joint Venture are
complied with."
(r) Clause "(h)" of Section 6.2 of the Credit Agreement is
amended by deleting the amount "$2,000,000" and substituting therefor
"$5,000,000".
(s) The first sentence of Section 6.8 of the Credit Agreement
is amended: (i) by deleting the word "and" immediately preceding clause "(b)";
(ii) by deleting the word "and" immediately preceding clause "(e)"; and (iii) by
adding the following clause to the end thereof ", and (f) as permitted by
Section 6.1".
(t) Section 8.2 of the Credit Agreement is amended to read in
its entirety as follows:
"8.2 Remedies. (a) If any Default or Event
of Default shall have occurred and be continuing, Agent may
(and at the written request of the Requisite Lenders shall),
without notice, suspend this facility with respect to further
Advances and/or the incurrence of further Letter of Credit
Obligations whereupon any further Advances and Letter of
Credit Obligations shall be made or extended in Agent's sole
discretion (or in the sole discretion of the Requisite
Lenders, if such suspension occurred at their direction) so
long as such Default or Event of Default is continuing. If any
Default or Event of Default shall have occurred and be
continuing, Agent may (and at the written request of the
Requisite Lenders shall), without notice except as otherwise
expressly provided herein, increase the rate of interest
applicable to the Loans and the Letter of Credit Fees to the
Default Rate.
(b) If any Event of Default shall have
occurred and be continuing, Agent may (and at the written
request of the Requisite Lenders shall), without notice, (i)
terminate this facility with respect to further Advances or
the incurrence of further Letter of Credit
7
<PAGE>
Obligations; (ii) declare all or any portion of the
Obligations, including all or any portion of any Loan to be
forthwith due and payable, and require that the Letter of
Credit Obligations be cash collateralized as provided in Annex
B, all without presentment, demand, protest or further notice
of any kind, all of which are expressly waived by Borrower and
each other Credit Party; and (iii) exercise any rights and
remedies provided to Agent under the Loan Documents and/or at
law or equity, including all remedies provided under the Code;
provided, however, that upon the occurrence of an Event of
Default specified in Sections 8.1(g), (h) or (i), all of the
Obligations, including the Revolving Loan, shall become
immediately due and payable without declaration, notice or
demand by any Person."
(u) Section 9.1(a) of the Credit Agreement is amended by
adding the phrase "Letter of Credit Obligations," immediately after the word
"Loans," in the first sentence thereof.
(v) Section 11.2(b) of the Credit Agreement is amended by
adding the phrase "or Letter of Credit Obligations" after the word "Loan" in
clause (ii) thereof.
(w) Annex A to the Credit Agreement is hereby amended by
adding the following definitions thereto in the appropriate alphabetical order:
"Joint Venture Subsidiary" shall have the
meaning assigned to such term in Section 6.1.
"L/C Issuer" shall have the meaning assigned
to such term in Annex B.
"Letter of Credit Fee" shall have the
meaning assigned to such term in Annex B.
"Letter of Credit Obligations" shall mean
all outstanding obligations incurred by Agent and Lenders at
the request of Borrower, whether direct or indirect,
contingent or otherwise, due or not due, in connection with
the issuance of a reimbursement agreement or guaranty by Agent
or purchase of a participation as set forth in Annex B with
respect to any Letter of Credit. The amount of such Letter of
Credit Obligations shall equal the maximum amount which may be
payable by Agent or Lenders thereupon or pursuant thereto.
8
<PAGE>
"Letters of Credit" shall mean commercial or
standby letters of credit issued for the account of Borrower
by any L/C Issuer, and bankers' acceptances issued by
Borrower, for which Agent and Lenders have incurred Letter of
Credit Obligations.
(x) The definition of "Commitments" in Annex A to the Credit
Agreement is amended to read in its entirety as follows:
"Commitments" shall mean (a) as to any
Lender, the aggregate commitment of such Lender to make
Revolving Credit Advances and/or incur Letter of Credit
Obligations as set forth on the signature page to the
Agreement or in the most recent Assignment Agreement executed
by such Lender and (b) as to all Lenders, the aggregate
commitment of all Lenders to make Revolving Credit Advances
and/or incur Letter of Credit Obligations, which aggregate
commitment shall be Seventy Five Million Dollars ($75,000,000)
on the Closing Date, as such amount may be adjusted, if at
all, from time to time in accordance with the Agreement.
(y) The definition of "Commitment Termination Date" in Annex A
to the Credit Agreement is amended to read in its entirety as follows:
"Commitment Termination Date" shall mean the
earliest of (a) March 12, 2002, (b) the date of termination of
Lenders' obligations to make Advances and/or incur Letter of
Credit Obligations or permit existing Loans to remain
outstanding pursuant to Section 8.2(b), and (c) the date of
indefeasible prepayment in full by Borrower of the Loans and
the cancellation and return (or stand-by guarantee) of all
Letters of Credit or the cash collateralization of all Letter
of Credit Obligations pursuant to Annex B, and the permanent
reduction of the Commitment to zero dollars ($0), in
accordance with the provisions of Section 1.2(a).
(z) The definition of "Interest Coverage Ratio" in Annex A to
the Credit Agreement is amended to read in its entirety as follows:
"Interest Coverage Ratio" shall mean, with
respect to any Person for any 12-month period, the ratio of
(a) EBITDA, to (b) cash Interest Expense (without regard to
interest income), less the Escrow Adjustment (as defined
below), plus cash dividends paid to holders of Cumulative
Exchangeable Preferred Stock. For purposes of this definition
the term "Escrow Adjustment" shall represent the current
9
<PAGE>
accrual of amounts to be paid out of the 1997 Senior Notes
Escrow Account as follows: (i) $4,842,000 for the 12-month
period ended on the Fiscal Quarter ending September 30, 1997;
(ii) $7,263,000, for the 12- month period ended on the Fiscal
Quarter ending December 31, 1997; and (iii) $9,684,000 for the
12-month period ended on the Fiscal Quarter ending March 31,
1998 and each Fiscal Quarter end thereafter; provided,
however, such adjustment shall be made only so long as a
semi-annual disbursement representing the semi-annual interest
due on $79.0 million aggregate principal amount of the 1997
Senior Notes is being paid out of the 1997 Senior Notes Escrow
Account, pursuant to the 1997 Senior Notes Escrow Agreement.
(aa) The definition of "Requisite Lenders" in Annex A to the
Credit Agreement is amended to read in its entirety as follows:
"Requisite Lenders" shall mean (a) Lenders
having at least sixty-six and two-thirds percent (66 2/3%) of
the Commitments of all Lenders, or (b) if the Commitments have
been terminated, at least sixty-six and two-thirds percent (66
2/3%) of the aggregate outstanding amount of the Loans and
Letter of Credit Obligations.
(bb) The definition of "Revolving Loan" in Annex A to the
Credit Agreement is amended to read in its entirety as follows:
"Revolving Loan" shall mean, as the context
may require, at any time, the sum (i) the aggregate amount of
Revolving Credit Advances outstanding to Borrower plus (ii)
the aggregate Letter of Credit Obligations incurred on behalf
of Borrower.
(cc) The definition of "Termination Date" in Annex A to the
Credit Agreement is amended to read in its entirety as follows:
"Termination Date" shall mean the date on
which the Loans have been indefeasibly repaid in full and all
other Obligations under the Agreement and the other Loan
Documents have been completely discharged and Letter of Credit
Obligations have been cash collateralized, cancelled or backed
by stand-by letters of credit in accordance with Annex B, and
Borrower shall not have any further right to borrow any monies
under the Agreement.
(dd) Annex B to the Credit Agreement is amended and restated
in its entirety to read as Annex B annexed hereto.
10
<PAGE>
(ee) Annex E to the Credit Agreement is amended by deleting
clause (iii) of the second sentence of paragraph (d) thereof and renumbering
clauses (iv) and (v) therein as clauses (iii) and (iv), respectively.
(ff) Paragraph (a) of Annex G to the Credit Agreement is
amended by deleting "12,000,000" as the amount of maximum Capital Expenditures
for the Fiscal Year ending March 31, 1998, and substituting therefor the amount
of "13,500,000".
(gg) Paragraph (b) of Annex G to the Credit Agreement is
amended to read in its entirety as follows:
"(b) Minimum EBITDA. The Parent on a consolidated
basis shall have, at the end of each Fiscal Quarter set forth
below, EBITDA for the respective periods set forth below of
not less than the following:
<TABLE>
<CAPTION>
12-month
Period Ended EBITDA
------------ ------
<S> <C>
March 31, 1997 $18,000,000
June 30, 1997 18,000,000
September 30, 1997 16,000,000
December 31, 1997 17,000,000
March 31, 1998 26,000,000
June 30, 1998 26,500,000
September 30, 1998 27,000,000
December 31, 1998 28,500,000
March 31, 1999 31,500,000
June 30, 1999 32,000,000
September 30, 1999 32,000,000
December 31, 1999 32,500,000
March 31, 2000 34,000,000
June 30, 2000 34,500,000
September 30, 2000 35,000,000
December 31, 2000 36,000,000
March 31, 2001 37,000,000
and each Fiscal Quarter end thereafter."
</TABLE>
11
<PAGE>
(hh) The first paragraph of Paragraph (d) of Annex G to the
Credit Agreement is amended to read in its entirety as follows:
"(d) Minimum Interest Coverage Ratio. The Parent on a
consolidated basis shall have at the end of each Fiscal
Quarter set forth below, an Interest Coverage Ratio for the
12-month period then ended of not less than the following:
0.94 for the Fiscal Quarter ending March 31, 1997;
0.85 for the Fiscal Quarter ending June 30, 1997;
0.85 for the Fiscal Quarter ending September 30, 1997;
0.90 for the Fiscal Quarter ending December 31, 1997;
1.50 for the Fiscal Quarter ending March 31, 1998;
1.50 for the Fiscal Quarter ending June 30, 1998;
1.60 for the Fiscal Quarter ending September 30, 1998;
1.70 for the Fiscal Quarter ending December 31, 1998;
1.75 for the Fiscal Quarter ending March 31, 1999;
1.70 for the Fiscal Quarter ending June 30, 1999;
1.50 for the Fiscal Quarter ending September 30, 1999;
1.40 for the Fiscal Quarter ending December 31, 1999;
1.30 for the Fiscal Quarter ending March 31, 2000;
1.30 for the Fiscal Quarter ending June 30, 2000;
1.30 for the Fiscal Quarter ending September 30, 2000;
and 1.40 for the Fiscal Quarter ending December 31, 2000
and each Fiscal Quarter end thereafter."
SECTION 2. Consent and Amendments regarding Renaissance
International Export, Inc. Effective as of the Effective Date: (a)
notwithstanding Section 6.1(a) of the Credit Agreement, Agent and Lenders hereby
consent to the formation of Renaissance International Export, Inc., a Delaware
corporation and newly-formed wholly-owned subsidiary of Borrower ("Export"); and
(b) the Credit Agreement is hereby amended to add Export as a Credit Party, (ii)
the Security Agreement is hereby amended to add Export as a Grantor, (iii) the
Guaranty is hereby amended to add Export as a Guarantor, and (iv) the Pledge
Agreement is hereby amended to add Export as a Pledgor, in each case, as though
Export had been an original signatory thereto.
12
<PAGE>
SECTION 3. Fees. In consideration of the amendments and
consent herein, Borrower shall pay on the Effective Date to Agent (i) a fee of
$200,000, to be divided among the Lenders executing this Amendment and Consent
based on their Pro Rata Share and (ii) a fee of $50,000 solely for the benefit
of GE Capital (collectively, the "Amendment Fee").
SECTION 4. TCW Landlord Consent. The parties hereto agree that
if pursuant to that certain Landlord's Subordination and Consent, dated
September 18, 1997, by and among, Trust Company of the West, as trustee of TCW
Realty Fund IV, Cosmar Corporation and Agent (the "TCW Landlord Consent"), Agent
is required to reimburse any Person for attorneys' fees and costs and
disbursements in connection with an action or proceeding against Agent, then the
Credit Parties shall promptly pay such attorneys' fees and costs and
disbursements for Agent's account. The parties hereto further agree that if the
Credit Parties fail to pay or reimburse Agent for such attorneys' fees and costs
and disbursements within ten (10) Business Days following Agent's demand for
such payment or reimbursement, such failure shall constitute an Event of Default
under the Credit Agreement, and that in any event, any such unpaid amounts shall
be included in the Obligations.
SECTION 5. Representations and Warranties of the Credit
Parties and Export. The Credit Parties and Export represent and warrant to Agent
and each Lender as follows:
(a) The execution, delivery and performance by each Credit
Party and Export of this Amendment and Consent (and each of the financing
statements and other documents to be executed by such Person pursuant hereto)
and the creation of all Liens provided for herein: (1) are within such Person's
corporate power; (2) have been duly authorized by all necessary or proper
corporate and shareholder action; (3) do not contravene any provision of such
Person's charter or bylaws; (4) do not violate any law or regulation, or any
order or decree of any Governmental Authority; (5) do not conflict with or
result in the breach or termination of, constitute a default under or accelerate
or permit the acceleration of any performance required by, any indenture,
mortgage, deed of trust, lease, agreement or other instrument to which such
Person is a party or by which such Person or any of its property is bound; (6)
do not result in the creation or imposition of any Lien upon any of the property
of such Person other than those in favor of Agent, on behalf of itself and
Lenders, pursuant to the Loan Documents; and (7) do not require the consent or
approval of any Governmental Authority or any other Person.
(b) This Amendment and Consent and the financing statements
and other documents to be executed and delivered by the Credit Parties and
Export have been duly executed and delivered by each Credit Party and Export and
this
13
<PAGE>
Amendment and Consent and the Loan Documents as amended hereby constitute the
legal, valid and binding obligation of such Credit Party and Export enforceable
against it in accordance with their terms.
(c) After giving effect to the amendments and consent
contained in this Amendment and Consent, each of the representations and
warranties of the Credit Parties (including Export) contained in the Credit
Agreement and each of the other Loan Documents shall be true and correct on and
as of the Effective Date as if made on such date, except to the extent any such
representation or warranty expressly relates to an earlier date and except for
changes therein expressly permitted or expressly contemplated by such
agreements.
(d) After giving effect to the amendments and consent
contained in this Amendment and Consent, no Default or Event of Default shall be
continuing.
(e) Upon the Effective Date, Export shall be a Credit Party,
Grantor, Guarantor and Pledgor under the Credit Agreement, Security Agreement,
Guaranty and Pledge Agreement, respectively.
SECTION 6. Conditions Precedent to the Effectiveness of this
Amendment and Consent. This Amendment and Consent shall become effective as of
the first date on which each of the following conditions shall have been
satisfied or provided for in a manner satisfactory to Agent, or waived by Agent
and Requisite Lenders (such date is referred to herein as the "Effective Date"):
(a) Agent shall have executed this Amendment and Consent.
(b) Agent shall have received, in form and substance
satisfactory to Agent, this Amendment and Consent, duly executed and delivered
by Export, Borrower, the other Credit Parties and Requisite Lenders.
(c) Agent on behalf of Lenders executing this Amendment and
Consent and GE Capital shall have received the Amendment Fee.
(d) Agent shall have received, in form and substance
satisfactory to Agent, financing statements on Form UCC-1 in proper form for
filing, duly executed and delivered by Export.
(e) Agent shall have received, in form and substance
satisfactory to Agent, Pledge Amendments, duly executed and delivered by
Borrower and Export, pledging Intercompany Notes between Borrower and Export
pursuant to Section 6.4(a)(vii) of the Credit Agreement, along with the original
Intercompany Notes and
14
<PAGE>
duly executed instruments of transfer in blank in form and substance
satisfactory to Agent.
SECTION 7. Reference to and Effect on the Loan Documents. (a)
On and after the Effective Date, each reference in the Loan Documents to "this
Agreement", "herein", "hereof", "hereunder" or words of similar import, shall
mean and be a reference to such Loan Document as amended hereby.
(b) Except as specifically amended above, the Credit
Agreement, the Notes and all other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment and Consent shall not, except as expressly provided herein, operate as
a waiver of any right, power or remedy of Lenders under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
SECTION 8. Fees and Expenses. Borrower agrees to reimburse
Agent for all reasonable out-of-pocket fees, costs and expenses, including the
reasonable fees, costs and expenses of counsel or other advisors in connection
with the preparation, execution, and delivery of this Amendment and Consent.
SECTION 9. GOVERNING LAW. THIS AMENDMENT AND CONSENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA.
SECTION 10. Section Titles. Section titles contained in this
Amendment and Consent are and shall be without substantive meaning or content of
any kind whatsoever and are not a part of the agreement between the parties
hereto.
SECTION 11. Counterparts. This Amendment and Consent may be
executed in any number of separate counterparts, each of which shall
collectively and separately constitute one agreement.
15
<PAGE>
IN WITNESS WHEREOF, this Amendment and Consent has been duly
executed as of the date first written above.
RENAISSANCE INTERNATIONAL
EXPORT, INC.
By: /s/
Name:
Title:
DANA PERFUMES CORP.
By: /s/
Name:
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION,
as Agent and Lender
By: /s/
Name:
Title: Duly Authorized Signatory
NATIONAL CITY COMMERCIAL
FINANCE, INC.,
as Lender
By: /s/
Name:
Title:
16
<PAGE>
PNC BANK, N.A.,
as Lender
By: /s/
Name:
Title:
Other Credit Parties:
RENAISSANCE COSMETICS, INC.
COSMAR CORPORATION
RCI CHINA, INC.
GREAT AMERICAN COSMETICS, INC.
HOUBIGANT (1995) LIMITED
MEM COMPANY, INC.
TINKERBELL, INC.
(f/k/a MARTON FRERES, INC.)
MEM COMPANY (CANADA) LIMITED
By: /s/
Name:
Title:
17
<PAGE>
ANNEX B (SECTION 1.2)
TO
CREDIT AGREEMENT
LETTERS OF CREDIT
(a) Issuance. Subject to the terms and conditions of the
Agreement, Agent and Revolving Lenders agree to incur, from time to time prior
to the Commitment Termination Date, upon the request of Borrower and for
Borrower's account, Letter of Credit Obligations by causing Letters of Credit to
be issued (by a bank or other legally authorized Person selected by or
acceptable to Agent in its sole discretion (each, an "L/C Issuer")) for
Borrower's account and guaranteed by Agent; provided, however, that if the L/C
Issuer is a Revolving Lender, then such Letters of Credit shall not be
guaranteed by Agent but rather each Revolving Lender shall, subject to the terms
and conditions hereinafter set forth, purchase (or be deemed to have purchased)
risk participations in all such Letters of Credit issued with the written
consent of Agent, as more fully described in paragraph (b)(ii) below. The
aggregate amount of all such Letter of Credit Obligations shall not at any time
exceed the least of (i) five million dollars ($5,000,000) (the "L/C Sublimit"),
and (ii) the Maximum Amount less the aggregate outstanding principal balance of
the Revolving Credit Advances, and (iii) the Borrowing Base less the aggregate
outstanding principal balance of the Revolving Credit Advances. No such Letter
of Credit shall have an expiry date which is more than one year following the
date of issuance thereof, and neither Agent nor Revolving Lenders shall be under
any obligation to incur Letter of Credit Obligations in respect of, or purchase
risk participations in, any Letter of Credit having an expiry date which is
later than the Commitment Termination Date.
(b) (i) Advances Automatic; Participations. In the event that
Agent or any Revolving Lender shall make any payment on or pursuant to any
Letter of Credit Obligation, such payment shall then be deemed automatically to
constitute a Revolving Credit Advance under Section 1.1(a) of the Agreement
regardless of whether a Default or Event of Default shall have occurred and be
continuing and notwithstanding Borrower's failure to satisfy the conditions
precedent set forth in Section 2, and each Revolving Lender shall be obligated
to pay its Pro Rata Share thereof in accordance with the Agreement. The failure
of any Revolving Lender to make available to Agent for Agent's own account its
Pro Rata Share of any such Revolving Credit Advance or payment by Agent under or
in respect of a Letter of Credit shall not relieve any other Revolving Lender of
its obligation hereunder to make available to Agent its Pro Rata Share thereof,
but no Revolving Lender shall be responsible for the failure of any other
Revolving Lender to make available such other Revolving Lender's Pro Rata Share
of any such payment.
18
<PAGE>
(ii) If the L/C Issuer is a Revolving Lender or if it
shall be illegal or unlawful for Borrower to incur Revolving Credit Advances as
contemplated by paragraph (b)(i) above because of an Event of Default described
in Section 8.1(h) or (i) or otherwise or if it shall be illegal or unlawful for
any Revolving Lender to be deemed to have assumed a ratable share of the
reimbursement obligations owed to an L/C Issuer, then (i) immediately and
without further action whatsoever, each Revolving Lender shall be deemed to have
irrevocably and unconditionally purchased from Agent (or such L/C Issuer, as the
case may be) an undivided interest and participation equal to such Revolving
Lender's Pro Rata Share of the Letter of Credit Obligations in respect of all
Letters of Credit then outstanding and (ii) thereafter, immediately upon
issuance of any Letter of Credit, each Revolving Lender shall be deemed to have
irrevocably and unconditionally purchased from Agent (or such L/C Issuer, as the
case may be) an undivided interest and participation in such Revolving Lender's
Pro Rata Share of the Letter of Credit Obligations with respect to such Letter
of Credit on the date of such issuance. Each Revolving Lender shall fund its
participation in all payments or disbursements made under the Letters of Credit
in the same manner as provided in the Agreement with respect to Revolving Credit
Advances.
(c) Cash Collateral. If Borrower is required to provide cash
collateral for any Letter of Credit Obligations pursuant to the Agreement prior
to the Commitment Termination Date, Borrower will pay to Agent for the benefit
of Revolving Lenders cash or cash equivalents acceptable to Agent ("Cash
Equivalents") in an amount equal to 105% of the maximum amount then available to
be drawn under each applicable Letter of Credit outstanding. Such funds or Cash
Equivalents shall be held by Agent in a cash collateral account (the "Cash
Collateral Account") maintained at a bank or financial institution acceptable to
Agent. The Cash Collateral Account shall be in the name of Borrower and shall be
pledged to, and subject to the control of, Agent, for the benefit of Agent and
Lenders, in a manner satisfactory to Agent. Borrower hereby pledges and grants
to Agent, on behalf of Lenders, a security interest in all such funds and Cash
Equivalents held in the Cash Collateral Account from time to time and all
proceeds thereof, as security for the payment of all amounts due in respect of
the Letter of Credit Obligations and other Obligations, whether or not then due.
The Agreement, including this Annex B, shall constitute a security agreement
under applicable law.
If any Letter of Credit Obligations, whether or not then due
and payable, shall for any reason be outstanding on the Commitment Termination
Date, Borrower shall either (i) provide cash collateral therefor in the manner
described above, or (ii) cause all such Letters of Credit and guaranties thereof
to be canceled and returned, or (iii) deliver a stand-by letter (or letters) of
credit in guaranty of such Letter of Credit Obligations, which stand-by letter
(or letters) of credit shall be of like
19
<PAGE>
tenor and duration as, and in an amount equal to 105% of the aggregate maximum
amount then available to be drawn under, the Letters of Credit to which such
outstanding Letter of Credit Obligations relate and shall be issued by a Person,
and shall be subject to such terms and conditions, as may be satisfactory to
Agent in its sole discretion.
From time to time after funds are deposited in the Cash
Collateral Account by Borrower, whether before or after the Commitment
Termination Date, Agent may apply such funds or Cash Equivalents then held in
the Cash Collateral Account to the payment of any amounts, in such order as
Agent may elect, as shall be or shall become due and payable by Borrower to
Lenders with respect to such Letter of Credit Obligations of Borrower and, upon
the satisfaction in full of all Letter of Credit Obligations of Borrower, to any
other Obligations then due and payable.
Neither Borrower nor any Person claiming on behalf of or
through Borrower shall have any right to withdraw any of the funds or Cash
Equivalents held in the Cash Collateral Account, except that upon the
termination of all Letter of Credit Obligations and the payment of all amounts
payable by Borrower to Lenders in respect thereof, any funds remaining in the
Cash Collateral Account shall be applied to other Obligations when due and owing
and upon payment in full of such Obligations, any remaining amount shall be paid
to Borrower or as otherwise required by law.
(d) Fees and Expenses. Borrower agrees to pay to Agent for the
benefit of Revolving Lenders, as compensation to such Lenders for Letter of
Credit Obligations incurred hereunder, (x) all costs and expenses incurred by
Agent or any Lender on account of such Letter of Credit Obligations, and (y) for
each month during which any Letter of Credit Obligation shall remain
outstanding, a fee (the "Letter of Credit Fee") in an amount equal to one and
one-half percent (1.50%) per annum multiplied by the maximum amount available
from time to time to be drawn under the applicable Letter of Credit. Such fee
shall be paid to Agent for the benefit of the Revolving Lenders in arrears, on
the first day of each month. In addition, Borrower shall pay to any L/C Issuer,
on demand, such fees (including all per annum fees), charges and expenses of
such L/C Issuer in respect of the issuance, negotiation, acceptance, amendment,
transfer and payment of such Letter of Credit or otherwise payable pursuant to
the application and related documentation under which such Letter of Credit is
issued.
(e) Request for Incurrence of Letter of Credit Obligations.
Borrower shall give Agent at least two (2) Business Days prior written notice
requesting the incurrence of any Letter of Credit Obligation, specifying the
date such Letter of Credit Obligation is to be incurred, identifying the
beneficiary to which such
20
<PAGE>
Letter of Credit Obligation relates and describing the nature of the
transactions proposed to be supported thereby. The notice shall be accompanied
by the form of the Letter of Credit (which shall be acceptable to the L/C
Issuer) to be guaranteed. Notwithstanding anything contained herein to the
contrary, Letter of Credit applications by Borrower and approvals by Agent may
be made and transmitted pursuant to electronic codes and security measures
mutually agreed upon and established by and among Borrower, Agent and the L/C
Issuer.
(f) Obligation Absolute. The obligation of Borrower to
reimburse Agent and Revolving Lenders for payments made with respect to any
Letter of Credit Obligation shall be absolute, unconditional and irrevocable,
without necessity of presentment, demand, protest or other formalities, and the
obligations of each Revolving Lender to make payments to Agent or the L/C Issuer
if it is a Revolving Lender with respect to Letters of Credit shall be
unconditional and irrevocable. Such obligations of Borrower and Revolving
Lenders shall be paid strictly in accordance with the terms hereof under all
circumstances including the following circumstances:
(i) any lack of validity or enforceability of any Letter of
Credit or the Agreement or the other Loan Documents or any other
agreement;
(ii) the existence of any claim, set-off, defense or other
right which Borrower or any of its Affiliates or any Lender may at any
time have against a beneficiary or any transferee of any Letter of
Credit (or any Persons or entities for whom any such transferee may be
acting), Agent, any Lender, or any other Person, whether in connection
with the Agreement, the Letter of Credit, the transactions contemplated
herein or therein or any unrelated transaction (including any
underlying transaction between Borrower or any of its Affiliates and
the beneficiary for which the Letter of Credit was procured);
(iii) any draft, demand, certificate or any other document
presented under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect;
(iv) payment by Agent or any L/C Issuer under any Letter of
Credit or guaranty thereof against presentation of a demand, draft or
certificate or other document which does not comply with the terms of
such Letter of Credit or such guaranty;
(v) any other circumstance or happening whatsoever, which is
similar to any of the foregoing; or
21
<PAGE>
(vi) the fact that a Default or an Event of Default shall have
occurred and be continuing.
(g) Indemnification; Nature of Lenders' Duties. In addition to
amounts payable as elsewhere provided in the Agreement, Borrower hereby agrees
to pay and to protect, indemnify, and save harmless Agent and each Lender from
and against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including attorneys' fees and allocated costs of internal
counsel) which Agent or any Lender may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of any Letter of Credit or guaranty
thereof, or (ii) the failure of Agent or any Lender seeking indemnification or
of any L/C Issuer to honor a demand for payment under any Letter of Credit or
guaranty thereof as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
Governmental Authority, in each case other than to the extent solely as a result
of the gross negligence or willful misconduct of Agent or such Lender (as
finally determined by a court of competent jurisdiction).
As between Agent and any Lender and Borrower, Borrower assumes
all risks of the acts and omissions of, or misuse of any Letter of Credit by
beneficiaries of any Letter of Credit. In furtherance and not in limitation of
the foregoing, to the fullest extent permitted by law neither Agent nor any
Lender shall be responsible: (i) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document issued by any party in connection
with the application for and issuance of any Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (ii) for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (iii) for
failure of the beneficiary of any Letter of Credit to comply fully with
conditions required in order to demand payment under such Letter of Credit;
provided that, in the case of any payment by Agent or the L/C Issuer if it is a
Revolving Lender under any Letter of Credit or guaranty thereof, Agent or such
L/C Issuer shall be liable to the extent such payment was made solely as a
result of its gross negligence or willful misconduct (as finally determined by a
court of competent jurisdiction) in determining that the demand for payment
under such Letter of Credit or guaranty thereof complies on its face with any
applicable requirements for a demand for payment under such Letter of Credit or
guaranty thereof; (iv) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (v) for errors in interpretation of
technical terms; (vi) for any loss or delay in the transmission or otherwise of
any document required in order to make a payment under any Letter of Credit or
guaranty thereof or of the proceeds thereof; (vii) for the credit of the
proceeds of any drawing
22
<PAGE>
under any Letter of Credit or guaranty thereof; and (viii) for any consequences
arising from causes beyond the control of Agent or any Lender. None of the above
shall affect, impair, or prevent the vesting of any of Agent's or any Lender's
rights or powers hereunder or under the Agreement.
Nothing contained herein shall be deemed to limit or to expand
any waivers, covenants or indemnities made by Borrower in favor of any L/C
Issuer in any letter of credit application, reimbursement agreement or similar
document, instrument or agreement between Borrower and such L/C Issuer.
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Renaissance Cosmetics, Inc. for the nine months ended
December 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 4037
<SECURITIES> 9109
<RECEIVABLES> 47564
<ALLOWANCES> 0
<INVENTORY> 61978
<CURRENT-ASSETS> 133879
<PP&E> 27251
<DEPRECIATION> 0
<TOTAL-ASSETS> 361885
<CURRENT-LIABILITIES> 104173
<BONDS> 204024
115591
0
<COMMON> 8
<OTHER-SE> (65807)
<TOTAL-LIABILITY-AND-EQUITY> 361885
<SALES> 155707
<TOTAL-REVENUES> 155707
<CGS> 75237
<TOTAL-COSTS> 75237
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22922
<INCOME-PRETAX> (40817)
<INCOME-TAX> 1472
<INCOME-CONTINUING> (42289)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42289)
<EPS-PRIMARY> (70.20)
<EPS-DILUTED> (70.20)
</TABLE>
