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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
Commission file number 33-87820
RENAISSANCE COSMETICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
06-1396287
(I.R.S. Employer Identification No.)
THREE LANDMARK SQUARE, FIFTH FLOOR
STAMFORD, CONNECTICUT 06901
(Address of principal executive office)(Zip Code)
(203) 316-9800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant: (1) has 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
As of March 31, 1998, there were outstanding 826,323 shares of the
registrant's common stock, $.01 par value.
Documents Incorporated by Reference: NONE
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INDEX
PART I
Item 1. Business ................................................... 1
Item 2. Properties.................................................. 23
Item 3. Legal Proceedings........................................... 26
Item 4. Submission of Matters to a Vote of Security Holders......... 27
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................ 27
Item 6. Selected Financial Data..................................... 28
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 30
Item 8. Financial Statements and Supplementary Data................. 48
Item 9. Changes in and Disagreements with Accountants on Accounting
Financial Disclosure....................................... 48
PART III
Item 10. Directors and Executive Officers............................ 48
Item 11. Executive Compensation...................................... 53
Item 12. Security Ownership of Certain Beneficial and Management..... 60
Item 13. Certain Relationships and Related Transactions.............. 62
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K................................................... 63
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS UNDER THE CAPTIONS "BUSINESS," "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE
IN THIS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 1998
(THE "1997 FORM 10-K"), AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. CERTAIN, BUT NOT
NECESSARILY ALL, OF SUCH FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE
USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES," "EXPECTS," "MAY,"
"WILL," "SHOULD" OR "ANTICIPATES" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS
THEREON OR COMPARABLE TERMINOLOGY, OR BY DISCUSSION OF STRATEGIES THAT
INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INVOLVE
KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE
ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS OF THE
COMPANY, OR INDUSTRY RESULTS, TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED
BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE
FOLLOWING: GENERAL ECONOMIC AND BUSINESS CONDITIONS; DIFFICULTIES INCURRED BY
THE COMPANY IN IMPLEMENTING ITS NEW BUSINESS STRATEGY, INCLUDING THE ABILITY
TO SIGNIFICANTLY RESTRUCTURE THE COMPANY'S OPERATIONS TO RESPOND TO MARKET
CONDITIONS AND TO INTEGRATE RECENTLY ACQUIRED BUSINESSES INTO THE COMPANY;
THE SUCCESS OF THE COMPANY'S EFFORTS TO RESTRUCTURE ITS OBLIGATIONS TO THE
HOLDERS OF ITS 11 3/4% NOTES DUE 2004, ITS 14% SENIOR REDEEMABLE PREFERRED
STOCK AND ITS 10% CUMULATIVE PREFERRED STOCK; RESTRICTIONS ON BORROWING BASE
AVAILABILITY UNDER THE COMPANY'S REVOLVING CREDIT FACILITY; COVENANT
COMPLIANCE UNDER THE COMPANY'S REVOLVING CREDIT FACILITY; 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; CHANGES IN THE MASS MARKET COSMETICS
INDUSTRY GENERALLY AND THE FRAGRANCE AND NAIL CARE INDUSTRIES SPECIFICALLY;
CHANGES IN CONSUMER PREFERENCES; COMPETITION; AVAILABILITY OF KEY PERSONNEL;
COMPETING DEMANDS ON MANAGEMENT'S TIME; FOREIGN CURRENCY EXCHANGE RATES;
INDUSTRY CAPACITY; DEVELOPMENT AND OPERATING COSTS; ADVERTISING AND
PROMOTIONAL EFFORTS; BRAND AWARENESS; ACCEPTANCE OF NEW PRODUCT LAUNCHES; AND
CHANGES IN, OR THE FAILURE TO COMPLY WITH, GOVERNMENT REGULATIONS (ESPECIALLY
ENVIRONMENTAL LAWS AND REGULATIONS); AND OTHER FACTORS REFERENCED IN THIS
1997 FORM 10-K. 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.
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PART I
ITEM 1. BUSINESS
GENERAL
REFERENCES HEREIN TO "FISCAL 1995," "FISCAL 1996" AND "FISCAL 1997" MEAN
THE FISCAL YEARS ENDED MARCH 31, 1996, MARCH 31, 1997 AND MARCH 31, 1998,
RESPECTIVELY. REFERENCES HEREIN TO "FISCAL 1998" MEAN THE FISCAL YEAR ENDING
MARCH 31, 1999. ALSO, UNLESS CLEARLY INDICATED OTHERWISE HEREIN, ALL
REFERENCES TO THE COMPANY ARE TO RENAISSANCE COSMETICS, INC. ("RENAISSANCE"),
AND ITS SUBSIDIARIES AND ALL REFERENCES TO THE HOLDING COMPANY ARE TO
RENAISSANCE INDIVIDUALLY AND NOT TOGETHER WITH ITS SUBSIDIARIES. ALL MARKET
SHARE DATA DISCUSSED BELOW IS BASED ON DATA OBTAINED FROM INFORMATION
RESOURCES, INC. ("IRI"), AN INDEPENDENT MARKET RESEARCH FIRM, AND REFLECT
ACTUAL U.S. SALES DATA FOR THE 52 WEEK PERIOD ENDED APRIL 19, 1998, SCANNED
BY IRI'S INFOSCAN SERVICE THROUGH RETAILERS' STORE REGISTERS IN THE DRUG
STORE AND MASS MERCHANDISE SEGMENTS OF THE MASS MARKET.
Renaissance was incorporated in Delaware in 1994. The Company is a
leading manufacturer and marketer of mass market fragrances, artificial nail
care products, mid-priced lip and eye make-up, nail polish and related
products that are sold by more than 1,000 retailers in approximately 25,000
locations in the United States ("U.S.") and in more than 50 foreign
countries. The Company sells its products principally through the
mass market distribution channel which includes drug stores (such as
Walgreens, CVS, Rite Aid and Eckerd), mass merchandisers (such as Wal-Mart
and Kmart) and supermarkets and combination supermarket/drug stores (such as
Kroger and Albertson's).
Renaissance is a holding company that conducts its business operations
through its operating subsidiaries. Renaissance's principal operating
subsidiaries are Dana Perfumes Corp. ("Dana"), which conducts the Company's
fragrance business, and Cosmar Corporation ("Cosmar"), which conducts the
Company's cosmetics business (which includes artificial nail care products,
lip and eye make-up and nail polish and related products).
The Company's principal executive offices are located at Three Landmark
Square, Fifth Floor, Stamford, Connecticut 06901, and its telephone number is
(203) 316-9800.
BACKGROUND
FORMATION. The Holding Company was formed in April 1994 by Kidd Kamm &
Company ("Kidd Kamm") and Thomas V. Bonoma, the founding Chairman and Chief
Executive Officer of the Company.
Dr. Bonoma died unexpectedly on May 21, 1997. On May 28, the Board of
Directors of the Holding Company appointed Norbert Becker, President of the
Holding Company, as Chief Executive Officer and a director of the Holding
Company.
In November 1996, the partners of Kidd Kamm agreed to a division of the
firm and its operations in relation to future investments. The firm's two
founding partners, William J. Kidd and Kurt L. Kamm, formed separate entities
for future investments, including the formation of two firms,
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Kidd & Company, LLC ("Kidd & Company"), and Kamm Theodore & Company LLC
("Kamm Theodore"), in January, 1997.
ACQUISITIONS. Since 1994, the Company has completed the following
acquisitions:
In July and August 1994, the Company entered into long-term exclusive
license agreements with Houbigant, Inc. ("Houbigant"), to manufacture,
distribute, use and sell throughout the world (excluding Canada) 12 mass market
fragrances formerly marketed by Houbigant, including CHANTILLY (the "Houbigant
Acquisition").
In August 1994, the Company purchased the operations of Cosmar, the
largest manufacturer and marketer in the U.S. of artificial fingernails and
related nail care products (the "Cosmar Acquisition").
In December 1994, the Company acquired Les Parfums de Dana, Inc., and
related companies (now known as Dana), which manufactured mass market
fragrances and related products sold in the US and in 20 foreign countries
(the "Dana Acquisition").
In December 1994, the Company acquired the assets of ACB Mercantile, Inc.,
and related companies (the "ACB Acquisition") through which the Company acquired
certain rights to manufacture, distribute, use and sell the Houbigant Fragrances
in Canada which, when combined with the previous Houbigant license agreements,
gave the Company the exclusive worldwide right to manufacture and market the
Houbigant Fragrances.
In August 1996, Cosmar acquired Great American Cosmetics, Inc.
("GAC"), a company that marketed, distributed, advertised, promoted and
merchandised high-quality, mid-priced lip and eye make-up, nail polish and
related products (the "GAC Acquisition"). In Fiscal 1997, GAC merged
into Cosmar.
In December 1996, Dana acquired MEM Company, Inc. ("MEM") and its
wholly-owned subsidiaries, which manufactured mass market fragrances (the "MEM
Acquisition"). In Fiscal 1997, the Company merged all but four of MEM's
subsidiaries into MEM and consolidated all of MEM's domestic manufacturing
operations into Dana's Mountain Top, Pennsylvania, manufacturing facility (the
"Mountain Top Facility"). See Part I, Item 1. Business, "Employees" below.
In December 1996, Dana acquired from The Procter & Gamble Company
("P&G") the worldwide rights to manufacture and distribute certain mass market
fragrances (the "P&G Brands Acquisition"). In Fiscal 1997, the Company began
consolidating the manufacture of the domestic fragrances acquired from P&G at
the Company's Mountain Top Facility.
FINANCING TRANSACTIONS. Since 1994, the Company has completed a number
of financing transactions. The transactions that are currently operative are
described below.
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HOLDING COMPANY OBLIGATIONS. The following transactions relate to
equity securities of the Holding Company or debt obligations on which the
Holding Company is the sole obligor. None of the operating subsidiaries
(including Dana and Cosmar) have any direct or indirect liability for any of
these obligations.
In May 1994, Kidd Kamm Equity Partners, L.P. ("KKEP"), an affiliate of Kidd
Kamm, purchased $22.5 million of common stock of the Holding Company, par value
$.01 per share ("Common Stock"), and management and certain other investors
purchased an additional $4 million of Common Stock.
Also in May 1994, the Holding Company received $10 million of proceeds from
the issuance of 10,000 shares of 10% Cumulative Exchangeable Preferred Stock
(the "10% Preferred Stock"), with warrants.
In August 1994, the Holding Company executed four promissory notes (the
"Subordinated Seller Notes"), in the aggregate principal amount of $5 million in
favor of the selling shareholders of Cosmar. The Subordinated Seller Notes were
subsequently purchased by Triumph-Connecticut Limited Partnership.
In August and September 1996, the Holding Company completed a Rule 144A
offering of $115 million of 14% Senior Redeemable Preferred Stock, Series B
("Series B Preferred Stock"), with warrants to purchase Common Stock ("Series
B Warrants"). At the same time, the Holding Company sold shares of Common
Stock to CIBC WG Argosy Merchant Fund 2, LLC, and Bastion Capital Fund, L.P.
The Holding Company received aggregate net proceeds from these transactions
of $119.1 million. The issuance of the Series B Preferred Stock and the
concurrent sale of Common Stock are together referred to herein as the
"Series B Financing." The Holding Company used the proceeds from the Series
B Financing to finance the GAC Acquisition, the MEM Acquisition and the P&G
Brands Acquisition and to repay a portion of the Company's then outstanding
credit facility and for general corporate purposes.
In February 1997, the Holding Company completed a Rule 144A offering of
$200 million aggregate principal amount of 11-3/4% Senior Notes, due 2004
(the "Senior Notes"), issued pursuant to the Indenture, dated February 7,
1997 (the "Indenture"). The Holding Company used a portion of the proceeds
received from the sale of the Senior Notes to repay then-existing debt and to
repurchase then-existing notes.
In April 1997, the Holding Company completed the exchange of
substantially all of the issued and outstanding shares of Series B Preferred
Stock for shares of 14% Senior Redeemable Preferred Stock, Series C ("Series
C Preferred Stock" and together with the Series B Preferred Stock and the 10%
Preferred Stock, collectively the "Preferred Stock"). The terms of the
Series C Preferred Stock are substantially the same as the terms of the
Series B Preferred Stock, except that the Series C Preferred Stock is
registered under the Securities Act of 1933.
In June 1997, the Holding Company completed the exchange of all of the
outstanding principal amount of its Senior Notes for a like principal amount
of its 11-3/4% Senior Notes due 2004 which are registered under the Securities
Act (the "1997 Senior Notes").
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OPERATING SUBSIDIARY OBLIGATIONS. In March 1997, Dana, as the
borrower, entered into a new $75 million revolving credit facility with
General Electric Capital Corporation ("GECC") (the " 1997 Credit Facility").
In May 1997, GECC assigned 20% interests in the 1997 Credit Facility to each
of National City Commercial Finance, Inc., and PNC Bank, N.A. (which,
together with GECC, are collectively referred to herein as the "Revolving
Credit Lenders"). The 1997 Credit Facility is guaranteed by each of the
principal domestic operating subsidiaries and the Holding Company (which,
together with Dana, are collectively referred to herein as the "Credit
Parties"). The Credit Parties and the Revolving Credit Lenders have entered
into a number of waivers, consents and amendments to the 1997 Credit Facility
since March 1997 in order to make technical changes to various covenants,
consent to certain transactions and corporate restructuring matters, and cure
or waive certain defaults. See Part II, Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations below for more
information concerning the 1997 Credit Facility.
FISCAL 1997
FISCAL 1997 FINANCIAL RESULTS. The Company is reporting operating
income and earnings before interest, taxes, depreciation, amortization and
impairment of long-lived assets ("EBITDAI") that are significantly lower than
Fiscal 1996 results primarily as a result of four major factors.
The first factor relates to operational events, of which there are three
primary components. First, management believes, based on the Company's
Fiscal 1997 results of operations, that the mass market fragrance industry
has undergone a permanent change. Based on IRI data, the mass market
fragrance industry as a whole (excluding bath and body products) suffered a
greater than 7% (greater than 10% in the women's fragrance segment) decline
in sales for the 52 week period ended March 22, 1998. The Company's sales
reflected this industry trend. Second, profitability in the Fragrance
Division was adversely affected in Fiscal 1997 by higher than expected costs
of goods sold and freight costs due to difficulties encountered in
integrating the manufacture of the MEM and P&G brands into the Company's
Mountain Top Facility. Third, the Fiscal 1997 results also reflect lower
sales and profitability of Cosmar's COSMAR branded artificial nail products
as compared to Fiscal 1996, which the Company attributes to increased
competition from new entrants in the category which, in turn, led to a loss
of market share and higher product returns.
The second factor relates to the Company's decision to increase its
reserves in Fiscal 1997. As a result of the operational events discussed
above, during Fiscal 1997, the Company reviewed its balance sheet and
determined that it should make adjustments to estimates and reserves
reflected on its balance sheet that were based, when made, on the Company's
prior historical
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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 Fiscal 1997 includes
adjustments of approximately $23.1 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 third factor relates to management's decision to write-down certain
of its long-lived assets in Fiscal 1997. Based on the above developments
during Fiscal 1997, the Company conducted an evaluation of long-lived assets,
including goodwill, based upon the Company's estimates of its current
business plans for the Fragrance businesses within the Fragrance and
International Divisions. As a result, during Fiscal 1997, the Company
recorded an impairment loss of $85.4 million relating to the write-down of
such assets.
The fourth factor relates to costs resulting from the implementation of
the Company's new business plan. In Fiscal 1997, the Company recorded $35.1
million in costs relating to the operational restructuring component of its
new business plan, consisting of, among other things, additional sales
returns, excess inventory, severance costs, facilities consolidation costs
and professional fees. There can be no assurance that actual costs will not
be greater than estimated.
The Company expects to incur additional costs during Fiscal 1998 in
connection with the implementation of the operational restructuring component
of its new business plan for severance, facility consolidation costs,
professional fees and other costs aggregating approximately $10.0 million to
$12.0 million. The Company expects to incur additional professional fees of
approximately $4.0 million to $6.0 million in connection with the planned
financial restructuring of the Holding Company's obligations during Fiscal
1998. There can be no assurance that actual costs will not be greater than
the above estimated amounts.
See Part II, Item 7. Management's Discussion and Analysis of Financial
Condition and
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Results of Operations below for a detailed discussion of the Fiscal 1997
results of operations as compared to Fiscal 1996.
EXAMINATION OF BUSINESS STARTING IN THE THIRD QUARTER FISCAL 1997. As
evidenced by its Fiscal 1997 results of operations, the Company believes that
several significant changes have occurred in the mass market fragrance and
cosmetics industries. First, the mass market fragrance consumer has shifted
a percentage of his/her fragrance dollars to alternatives to traditional
fragrances of the type sold by the Company. The alternative products being
purchased by the mass market fragrance consumer include specialty bath
products, perfumed bubble bath, bath oils and soaps, less expensive body
sprays and splashes and "prestige" fragrances (brands that traditionally have
been sold in department and specialty stores; see Part I Item 1. Business,
"Industry Overview -- Distribution Channels" below for more information
concerning "prestige" brands as compared to brands sold in mass market
channels), which are becoming increasingly available in the mass market
segment. Second, mass market fragrance consumers are purchasing an
increasing percentage of their fragrance products from new, non-traditional
distributors, such as Victoria's Secret, The Gap and mail order distributors.
Third, gross margins have declined as large retailers have demanded greater
product promotional and advertising allowances from the manufacturers and the
cost of servicing smaller distributor accounts has increased.
In addition, new companies entered, and competition increased significantly
in, the nail care product industry, particularly in the segment in which the
COSMAR branded products compete. As a result of the increased competition, in
Fiscal 1997, Cosmar lost market share to competitors, gross margins compressed,
product returns increased significantly and inventories increased.
Increased product returns are a significant consequence of the recent
changes in both the fragrance and artificial nail care segments of the mass
market industry. Provisions for returns and allowances in Fiscal 1997 were
approximately $91.9 million (including provisions for returns and allowances
recorded in connection with the operational restructuring component of the
Company's new business plan of $19.5 million) or, 33.8% of gross sales. In
North America, the Company customarily accepts returns of its products that
are not sold by a retail customer, and then gives the retail customer a
credit for the amount it paid for the returned products. The Company
believes that its policy regarding returns is consistent with industry
practice. The amount of returns in any given period is a function of several
factors, including (without limitation) general economic conditions and their
effect on retail businesses; the popularity of the Company's products; the
magnitude and success of the Company's marketing and advertising efforts; the
Company's pricing policy; competition; and product placement by retailers.
Returns in any period may be significantly more or less than in comparable
prior periods. The Company attempts to resell returned products, although
this is not always possible. In certain instances, returns may require
re-packaging, which in turn involves labor and other expenses that reduce
profits from the resale of such products. Sometimes, it is not possible to
resell returned products either because of their promotional nature or
because of the high cost of repackaging the products.
The Company completed the MEM Acquisition and P&G Brands Acquisition in
December 1996. In 1997, the Company shifted manufacturing of these newly
acquired brands to its Mountain Top Facility. The Company experienced greater
difficulty effecting the manufacturing transition
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than it had anticipated which resulted in excess inventory buildup, increased
costs of goods sold and shipping costs.
The MEM Acquisition and P&G Brands Acquisitions were based on the
Company's then-existing strategy of acquiring underperforming brands and
restoring the acquired brand equities through a program of marketing
initiatives. The Company incurred indebtedness to acquire these brands based
on certain assumptions about their turnarounds. The assumptions, in turn,
were based on the historical performance of the mass market fragrance
industry, and on estimates of the amount of time and costs required to turn
around the sales of the acquired brands and integrate the manufacturing of
these brands into the Mountain Top Facility. The changes in the mass market
fragrance industry discussed above combined with the difficulties
encountered by the Company in completing the manufacturing shift of the new
brands has (1) significantly extended the timetable for the completion of the
turnaround of these brands and raised doubts about whether turnaround can be
achieved for certain brands, (2) significantly reduced the Company's
profitability and (3) significantly reduced the cash flows from such brands
that the Company expected in Fiscal 1997 to service the debt it incurred to
acquire these brands.
After suffering its second consecutive disappointing Christmas holiday
season in 1997, it became evident to management that results of operations
for Fiscal 1997 reflected a permanent change in the mass market fragrance
industry. As a result, the Company began a thorough review of its business,
including its business strategy, its product lines, its sales and marketing
strategies, its production and advertising, general and administrative
overhead, personnel, and capital and debt structure. The objectives of this
review were to (1) identify and quantify operational problems, (2) develop
strategies and tactics to improve the Company's performance, (3) quantify the
costs and timing to effect the necessary changes and (4) quantify the impact
of the changes on the Company's profitability and cash flow.
As part of this review process, in February 1998, the Company retained
Arthur Andersen L.L.P. to assist it in performing a comprehensive,
forward-looking review of its operations, including a review of its
operational efficiencies, working capital, overhead and administrative
structures, management structures, subsidiary structures and related
operational issues. In March 1998, the Company retained Wasserstein
Perella & Co., Inc. to (1) review and analyze the Company's capital
structure, including reviewing its outstanding indebtedness and equity
securities and (2) assist the Company in restructuring its capital structure,
including negotiating with its various senior lenders and holders of debt and
equity securities.
The Company is restructuring on two fronts. Its operating subsidiaries
are currently engaged in an operational restructuring of their respective
businesses, and the Holding Company is initiating a financial restructuring.
The two are, in certain respects, separate and
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distinct from each other.
The Company believes that its operating subsidiaries have viable core
businesses and growth brands that have the potential for improved operating
and financial performance in 1998 and beyond. However, in order to improve
their operating and financial performance, the operating subsidiaries must
implement a costly operational restructuring in 1998, which will include
numerous management and organizational changes and cost reduction programs.
The operating subsidiaries have already (1) initiated many of these changes
and (2) refocused their advertising and promotional programs to preserve and
enhance the value of their growth brands. There can be no assurance that the
operating subsidiaries will be successful in implementing their operational
restructuring.
At the same time that its operating subsidiaries are implementing their
operational restructuring, management believes that the Holding Company must
implement a financial restructuring. To this end, the Holding Company intends
to enter into negotiations with the holders of its Preferred Stock, Common
Stock and 1997 Senior Notes to restructure these obligations with the goal of
de-leveraging and strengthening its balance sheet. There can be no assurance
that the Holding Company will be successful in implementing its financial
restructuring.
BUSINESS STRATEGY
HISTORICAL BUSINESS STRATEGY. The Company's business strategy through
the end of Fiscal 1996 was to acquire mass-market brands and other related
assets that it believed were underperforming and/or undermanaged and then
restore and/or expand the acquired brand equities through a program of
focused marketing initiatives tailored to the needs of each brand. The
Company based its strategy, at least in part, on the critical assumption that
the markets in which the brands were sold, retailers who sold the Company's
products and consumers who purchased the Company's products, would all
behave similarly to the way they had behaved in the past.
In furtherance of its strategy, the Company acquired Dana, the Cosmar
business, GAC, MEM, the P&G Brands and the Houbigant Licenses. Following each
acquisition, the Company eliminated redundant overhead, closed redundant
plants, began selling the acquired brands through the Company's existing sales
force, attempted to reduce costs related to the ongoing production of the
acquired brands by using common componentry when possible and implemented
extensive and costly advertising and promotional campaigns in support of the
acquired products.
When the Company suffered its second consecutive disappointing
Christmas holiday season in 1997, it became evident to management that the
Fiscal 1997 results of operations reflected a permanent change in the mass
market fragrance industry. This change was also reflected in an overall
decline in sales of over 7% (over 10% in the women's fragrance segment)
during the 52 week period ended March 22, 1998 in the mass market fragrance
industry(excluding bath and body products). As a result, management has now
concluded that certain of the longer-term assumptions underlying its
acquisition strategy are no longer accurate and the Company may not be able
to realize fully the anticipated benefits from these acquisitions.
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In addition, over the last 18 months several new competitors entered the
segment of the artificial nail care business in which Cosmar's COSMAR branded
products compete, resulting in lower gross margins for the entire segment
and significantly increased competition. Cosmar's market share
for its COSMAR brand declined, its new product launches were adversely
affected and product returns increased. Cosmar's product returns also
increased because of sales of the NAT ROBBINS branded products, acquired in
the GAC Acquisition, which compete in a segment of the market that
historically has a higher percentage rate of returns than the artificial nail
care segment.
NEW BUSINESS STRATEGY. The principal components of the Company's
revised business strategy are set forth below.
First, as part of its operational restructuring, the Company has
re-defined its core business and re-focused its brand strategy. Dana, for
example, is focusing its marketing efforts on core brands. Other brands will
receive less costly marketing support programs. Dana intends to shift the
emphasis of its marketing efforts from promotional items to basic stock items
(i.e., items other than promotional items). There are five main promotional
programs in the industry each year --Christmas, Mother's Day, Father's Day,
Back to School and Year End Specials. The products produced for sale at these
times can be identified by special packaging and/or special pricing.
Promotional programs can be high risk due to the high costs of goods sold,
short time frame in which the products are to be sold and higher product
returns than for basic stock items. In addition, Dana intends to focus on
matching sell-in to retailers to recent historical sell-through to consumers.
Dana and Cosmar both intend to conduct market research and allocate resources
to their brands with the highest growth potential.
Second, the Company's operating subsidiaries will complete a review of
their customer relationships in order to (1) develop detailed marketing
strategies for their largest customers and (2) increase the profitability of
existing profitable customer accounts. Specifically, the operating
subsidiaries intend to continue to sell directly to their large retail
customers and transition their small customer accounts to distributors.
Additionally, Dana is attempting to negotiate a new return policy with its
retail customers on sales of promotional items that will limit the amount of
product returns it will accept, although there is no assurance that the
customers will accept such terms.
Third, the Company intends to reduce its overhead costs to reflect the
current and expected size of the Company. The Company has already taken
steps to significantly reduce infrastructure and overhead by eliminating
certain unprofitable operations, eliminating excess facilities, flattening
its management structure and eliminating personnel at all levels. The
Company intends to reduce manufacturing costs by reducing manufacturing
overhead, upgrading production lines, and reducing labor, packaging and
material costs.
Fourth, the Company will focus on cash flow. This means that working
capital management will be a top priority for the Company. As part of the
overall working capital management program, Dana and Cosmar intend to reduce
inventory by selling excess inventory and reducing inventory requirements by
eliminating
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slow moving, redundant or otherwise unprofitable SKUs.
Fifth, the Company will consolidate its international operations. Dana
will consolidate its domestic fragrance and Canadian fragrance manufacturing
operations at its Mountain Top Facility. The Company intends to (1) sell its
Argentine manufacturing facility, (2) consolidate all of its South American
operations into its Brazilian subsidiary, (3) consolidate the management of
its European operations under its United Kingdom ("UK") subsidiary and (4)
consolidate its international headquarters operations into its domestic
corporate headquarters. The Company intends to focus its international sales
efforts on those markets where product sales have been strongest,
specifically the UK, Brazil and Canada, and move to a regional export
business for sales to other countries.
The Company implemented a significant portion of its new business
strategy during the last quarter of Fiscal 1997 and the first quarter of
Fiscal 1998, including (1) eliminating a total of five (5) positions at the
Vice President level and above, including three Named Executive Officers (as
defined in Part III, Item 11. Executive Compensation, below), (2) reducing
its total employee headcount from 1,142 at March 31, 1997, to 1,019 at June
15, 1998, (3) closing its manufacturing facility in Argentina and (4)
disposing of its China Joint Venture interest to its joint venture partner.
The Company intends to implement the remainder of its new business strategy
as appropriate over the next six to twelve months.
The Company accrued $35.1 million of costs at March 31, 1998 relating to
the implementation of its new business strategy. The Company expects to
incur additional costs during Fiscal 1998 for severance, costs associated
with facility closings, and other costs aggregating approximately
$10.0 million to $12.0 million. There can be no assurance that actual
costs will not be greater than these estimates. A substantial portion of the
incremental sales return provision will reduce cash flow in Fiscal 1998. The
incremental provision for excess inventory will reduce borrowing base
availability under the 1997 Credit Facility.
Components of the new business strategy may change significantly before
it is fully implemented. There can be no assurance that the Company will be
able to achieve all or specific components of the strategy, or that the
strategy, once fully implemented, will be successful. See Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, "Liquidity and Capital Resources," below for a detailed
discussion of the impact the implementation of the new business strategy is
likely to have on (1) the operating subsidiaries' cash flow, their ability to
service their obligations under the 1997 Credit Facility and other
obligations and their ability to conduct and fund their day-to-day operations
and (2) the Holding Company's cash flow and its ability to service its
obligations.
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FINANCIAL RESTRUCTURING
Interest in the aggregate amount of $11.8 million on the 1997 Senior
Notes is due and payable on August 15, 1998. The Holding Company does not
have sufficient funds to make the payment and an Event of Default will occur
30 days after the due date. Upon the occurrence of an Event of Default,
holders of 25% of the 1997 Senior Notes can declare the entire principal
amount of the 1997 Senior Notes due and payable. As the operating
subsidiaries implement their operational restructuring, the Holding Company
intends to pursue a financial restructuring of its outstanding 1997 Senior
Notes, Preferred Stock and Common Stock, with the goal of de-leveraging and
strengthening its balance sheet. The Holding Company is estimating that it
will incur professional fees of approximately $4 million to $6 million in
connection with this financial restructuring. There can be no assurance that
the Holding Company will be successful in restructuring its 1997 Senior
Notes, Preferred Stock and Common Stock on terms acceptable to it, or at all.
Failure to successfully complete a financial restructuring could result in
the insolvency of the Holding Company and will have a direct material adverse
effect on the Holding Company's ability to service its obligations to the
holders of its debt and equity obligations and may have an indirect material
adverse effect on the financial condition, business and results of operations
of the operating subsidiaries.
INDUSTRY OVERVIEW
DISTRIBUTION CHANNELS. The fragrance and cosmetics industry relies on
two primary distribution channels, (1) mass market retailers and (2)
department and specialty stores. These two channels have materially
different sales and marketing strategies because of the different economic,
demographic, demand and usage characteristics of their consumers.
The mass market distribution channel is characterized by value-oriented
products with emphasis on price and image. Since mass market retailers
depend on self-selection of products by consumers and employ only a nominal
amount of in-store sales support personnel, the allocation and placement of
retail shelf space is one of the most important means of gaining consumer
awareness in this channel. Retailers are reluctant to allow new products to
displace proven, high-volume products without a guarantee of extensive
advertising support to generate consumer interest. As a result, the
introduction of new products into the mass market is more difficult and
relatively more expensive than in department and specialty stores. These
characteristics of the mass market limit the number of new product offerings,
enabling proven products to retain existing shelf space and creating barriers
to entry. As a result, this channel is generally characterized by greater
brand stability, consumer loyalty and repeat purchases than the department
and specialty store channel.
Fragrance and cosmetics products sold through the department and
specialty store channel are generally characterized as "prestige" brands
which are primarily sold based upon perceived "designer" image and quality at
substantially higher price points than those sold in the mass-market channel.
Consequently, product offerings in the department and specialty store channel
tend to be more sensitive to changes in fashion and popular trends than those
sold in the mass market. Such fashion consciousness results in a greater
number of product introductions in this channel than in the mass market. The
introduction of new products in department and specialty stores is
facilitated, in part, by a greater level of personal customer service during
the sales process. In addition, department and specialty retailers generally
reallocate their selling space and product mix several times per year to
accommodate changing fashion trends, whereas mass-market retailers generally
do so only once per year. As a result, manufacturers are able to introduce
new products more easily and frequently in the department and specialty store
channel, as well as depend on in-store direct selling efforts
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rather than broad-based consumer advertising to attract consumers. While
such reallocation results in greater flexibility to change product offerings,
it also reduces brand stability and consumer loyalty over time.
Fragrance products sold in the mass market typically have the following
characteristics in relation to prestige brands: (1) more frequent
purchase/use; (2) sales that are less affected by changing fashions (which
results in fewer new product introductions); (3) lower packaging costs; (4)
faster inventory turnover; and (5) lower prices. In the past, these
characteristics have enabled mass market fragrances to achieve, on average,
greater customer loyalty and more stable sales volume than prestige products.
As discussed above, the mass market fragrance distribution channel has
undergone recent change. Consumers are purchasing an increasing percentage
of their mass-market fragrances from new non-traditional distributors such as
Victoria's Secret, The Gap and mail order distributors. Consumers have also
shifted a percentage of their fragrance dollars to alternatives to
traditional fragrances, such as specialty bath products, perfumed bubble
bath, bath oils and soaps, and less expensive body sprays and splashes.
These sales are adversely impacting sales of traditional fragrance products
by traditional mass-market distributors. In addition, over the past year,
prestige fragrances recently have become more available in the mass market
segment. The Company believes that brands such as CK 1 and L'AIR DU TEMPS
have recently appeared in mass market retailers due to the greater
accessibility of these products from distributors who have become specialty
"agents" for prestige brand manufacturers.
FRAGRANCE MARKET. The market for both men's and women's fragrances is
highly fragmented, with the most popular brand in each segment commanding a
share of less than 7% of the total market (although there are large
competitors with significant aggregate market shares). The mass-market
fragrance industry is relatively recession-resistant due to its low average
price point and more frequent usage of the product. Although there is no
data to show whether consumers of such products "move up" to prestige brands
during periods when their disposable incomes increase, it may be a
contributing factor to the disappointing last two Christmas holiday seasons,
along with the increasing availability of prestige fragrances in the mass
market segment.
Dana also competes with alternative designer fragrances ("ADFs"), which
are impostors of designer and prestige fragrances. ADFs began capturing
market share from both designer and prestige fragrances and mass-market
products in 1990.
COSMETICS MARKET. Cosmar focuses on the artificial nail care, lip and
eye make-up segments of the mass market for cosmetics. Cosmar has also
entered into other segments of the cosmetics market, including the nail
polish category with the introduction of its line of PRO 10 nail lacquers.
As discussed below, Cosmar entered into the teenage cosmetics segment in
January 1998 with the introduction of its FETISH cosmetics line for teenage
girls.
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NAIL CARE MARKET. The retail nail care mass market is divided into four
major product categories: (1) nail polish; (2) artificial nail care; (3) nail
implements; and (4) nail polish removers. Although the mass-market
artificial nail care market has many participants, the top three brands
generate over 60% of total category sales. During Fiscal 1997, Cosmar's
products accounted for approximately 30% (by total sales dollars) of the
domestic artificial nail care mass market compared to approximately 33% of
the market in Fiscal 1996.
Repeat purchases by consumers, who typically purchase 10 to 15 packages
per year, as well as high inventory turnover, have resulted in increased
retail shelf space allocation and market stability for artificial nail care
products. It is expected that in the future there will be less opportunity
for niche players in the artificial nail care market, with more shelf space
being allocated to market leaders with sophisticated category management
capabilities.
The COSMAR branded products saw increased competition in Fiscal 1997.
Such increase has resulted in lower pricing, lower profit margins, increased
product choices for consumers, increased product returns and increased
promotional expenditures, markdowns and other promotional allowances.
LIP AND EYE MAKE-UP MARKETS. The domestic lip and eye make-up markets
are highly competitive and dependent upon strong brand recognition, consumer
trust in product quality, product selections aligned with current fashion and
color trends and distinct price brackets that meet particular consumer needs
and demographics. Cosmar has focused on the mid-priced segment of the
category. In general, Cosmar believes that the lip and eye make-up markets
have experienced strong growth over the past year because of enhancements in
color cosmetics technology and formulations coupled with a renewed emphasis
on fashion-conscious color selections.
TEEN MARKET. The teen market is currently the fastest growing segment
of the mass market fragrance and cosmetics market. The Company entered the
teen nail care segment with its launch of NAIL FETISH in 1995. In August
1997, the Company launched FETISH SCENT. In order to capitalize on the
success of NAIL FETISH and FETISH SCENT, the Company launched a line of
cosmetics for teenage girls under the name FETISH in January 1998. Finally,
in April 1998, the Company launched FETISH BODY, a line of bath and body
products.
PRODUCTS
FRAGRANCE. Dana and its subsidiaries manufacture and market a wide
variety of men's and women's fragrances, which include some "classic" as well
as other "established" brands. Classic brands, which generally have more
than 20 years of sales history, and established brands are typically
characterized by extensive brand name recognition and strong consumer
loyalty. Dana estimates that less than 1% of all fragrance brands introduced
each year achieve classic status. Dana currently manufactures nine classic
brands -CHANTILLY, TABU, AMBUSH, TOUJOURS MOI, RAFFINEE, HEAVEN SENT, CANOE,
ENGLISH LEATHER and BRITISH STERLING. In addition to
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Dana's classic fragrances, Dana markets its women's fragrance brands under
such names as NAVY, LE JARDIN and LOVE'S and markets its men's fragrance
brands under such names as NAVIGATOR FROM CANOE, NAVY FOR MEN, INSIGNIA,
CALIFORNIA FOR MEN and HERBISSIMO.
Following the Houbigant, Dana and ACB Acquisitions in 1994, the Company
immediately began supporting its newly-acquired product lines and brands with
increased advertising and promotional expenditures, more efficient production
scheduling and shipping, increased inventory levels and more responsive order
filling. In 1995 and 1996, Dana launched several new brands, including
CLASSIC GARDENIA, WHITE CHANTILLY, a flanker product for the core CHANTILLY
brand and DREAMS BY TABU, a focused flanker of TABU. In February 1997, Dana
relaunched AMBUSH. During Fiscal 1997, Dana received significant returns of
WHITE CHANTILLY, DREAMS BY TABU and AMBUSH, leading management to the
conclusion that these launches were not successful.
In December 1996, the Company closed the MEM Acquisition and the P&G
Brands Acquisition and acquired several more well known brands, including
NAVY FOR MEN, NAVY FOR WOMEN, ENGLISH LEATHER, BRITISH STERLING and LOVE'S.
In August 1997, Dana launched FETISH, a fragrance for teen girls, and in
March 1998, Dana launched SHADES OF NAVY, a flanker of the NAVY FOR WOMEN
brand.
In Fiscal 1997, a limited number of brands represented a majority of
Dana's sales. As part of its new business strategy, Dana has identified
these brands as its core fragrance brands, and intends to focus on these core
brands and initiate programs to increase sales, or dispose, of its other
fragrance brands. Dana will limit new fragrance launches during Fiscal 1998
and re-focus its advertising, marketing and promotional expenditures on its
core brands. Dana intends to conduct market research on all of these brands
to reassess customer profiles and determine the most cost-effective way to
reach these customers.
NAIL CARE. Cosmar has approximately a 30% share of the mass market
domestic artificial nail care category. Cosmar's nail care products include
full-length, artificial press-on or glue-on fingernails, artificial
fingernail tips, fingernail sculpturing kits, nail lacquer, natural
fingernail cuticle treatments and strengtheners and related accessories.
Cosmar markets its products under such brand names as COSMAR (formerly known
as LA JOIE) (including SCULPTURE QUIK, PRESS & GO and QUIK FIT), PRO 10
ARTIFICIAL, PRO 10 LACQUER, ULTRAGEL and NAIL FETISH. The COSMAR branded
line is an easy-to-use line of artificial fingernail products, acrylic
applications and accessories targeted at the consumer who generally does not
visit a professional nail care salon. The PRO 10 line has established itself
as a leading professional "salon-standard" nail care line sold through
retailers. This line includes artificial fingernail tips, a selection of
nail sculpturing applications, abrasive and other professional quality nail
strengtheners, nail builders, finish coats and cuticle creams. Cosmar's
PRESS & GO colored nails dominate the instant pre-colored nail care segment
of the mass market.
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Under its new business strategy, Cosmar intends to reinvigorate its
COSMAR branded products by resetting all planograms (i.e., the selling
space, usually wall or shelf space, allocated by the retailers to any given
brand or company) with a new product mix and redeploy advertising spending to
focus its resources on its high growth products.
LIP AND EYE MAKE-UP. Cosmar markets high quality, mid-priced lip and
eye make-up, make-up brushes and nail polish and related products sold
through the mass-market channel. Cosmar's lip and eye cosmetics include
lipliner pencils, lipstick, lipgloss, eyeliner pencils, eye shadow, mascara
and assorted accessories. Under previous ownership, the NAT ROBBINS line
successfully achieved a leading position in the mid-priced cosmetics market
by offering high quality, consumer-friendly products, in an assortment of
colors. Cosmar intends to invest in new in-store fixtures for its NAT
ROBBINS brand. In January 1998, Cosmar introduced a new line of cosmetics
for teenage girls under the brand name FETISH, to capitalize on the success
of the FETISH fragrance.
INTERNATIONAL OPERATIONS
The Company currently has operations in four foreign countries, Brazil,
Canada, Spain and the UK, and sells its products in more than 50 foreign
countries (as of June 1998).
As part of its new business strategy, the Company has decided to
consolidate its operations in three geographic areas, North America, South
America and Europe in order to eliminate duplicative manufacturing
facilities, systems and management structure.
The Company is in the process of consolidating its Canadian fragrance
manufacturing and distribution operation, its domestic children's cosmetics
business, its close-out sales business and its domestic fragrance operations
into one combined operation known as Dana North America. Dana North America
will be responsible for managing all North American fragrance operations as
well as the export of all fragrance products from the United States.
The Company is in the process of consolidating all of its South American
manufacturing and distribution operations into its Brazilian subsidiary
located in Sao Paolo, Brazil. As part of this consolidation, the Company
closed and plans to sell its manufacturing facilities in Argentina and move
to a regional export organization structure.
The Company is in the process of consolidating the management of its
European operations under its UK subsidiary. The Company intends to focus its
European operations on (1) its recently launched INSIGNIA, FETISH and
TINKERBELL brands in the UK and (2) export sales of INSIGNIA, FETISH,
HERBISSIMO and selected other U.S. brands throughout Europe.
Risks inherent in foreign operations include changes in social,
political and economic conditions. Changes in currency exchange rates may
affect the relative prices at which the Company and foreign competitors
purchase and sell their products in the same market. The Company does
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not hedge its exposure to foreign currency exchange rate changes. The
Company is also exposed to risks associated with changes in the laws and
policies that govern foreign investments in countries where it has operations
as well as, to a lesser extent, changes in US laws and regulations
relating to foreign trade and investment. While such changes in laws,
regulations and conditions to date have not had a material adverse effect on
the Company's business or financial condition, there can be no assurance as
to the future effect of any such changes.
See Note 20 to the Consolidated Financial Statements for additional
information concerning the Company's foreign and domestic operations and
export sales.
PRODUCT DEVELOPMENT
The Company's product development activity is primarily conducted
in-house, utilizing feedback from consumer focus groups, tests in nail care
salons for its nail care products and consumer questionnaires. The cycle of
market research, product conceptualization, product design and development,
consumer testing and package design typically requires approximately six to
nine months for the Company. The Company believes that the average cycle for
the industry is approximately 18 months.
DISTRIBUTION
The Company's products are sold principally through the mass-market
distribution channel and through its foreign subsidiaries and distributors.
The mass market distribution channel includes chain drug stores (such as CVS,
Rite Aid, Eckerd and Walgreens), mass merchandisers and discount stores (such
as Wal-Mart and Kmart), supermarkets and combination supermarket/drug stores
(such as Kroger and Albertson's) and just recently non-traditional mass
market fragrance distributors such as Victoria's Secret, The Gap and mail
order distributors, and specialty bath product stores. Cosmar also sells a
limited amount of its artificial nail care products to professional salon
owners.
The Company's fragrance and nail care products are sold
internationally through a combination of distributors, licensees and
subsidiary operations. See Part I. Item 1. Business, "International
Operations," above for a discussion of the Company's international distribution.
SALES AND MARKETING
To induce consumers' trial and repeat purchases, the Company relies
primarily on price, quality, effective product packaging and distinctive
in-store displays that are generally provided to retailers free-of-charge.
The Company also has instituted significant promotions for the Company's
products through ongoing trade advertising directed toward chain drug
retailers, mass merchandisers and supermarket chains. The Company also
advertises in many national women's magazines including COSMOPOLITAN, ELLE,
GLAMOUR, MADEMOISELLE, PEOPLE, SEVENTEEN, VOGUE, and YM and runs focused
television advertising campaigns during new product launches or relaunches of
existing brands.
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The Company's domestic fragrance and cosmetics products are sold
primarily through an in-house sales force comprised of a dedicated staff of
21 people, including 5 in sales administration, 2 account managers, 8
regional managers, 5 national account managers and 2 vice presidents of
sales. Additional sales are generated by a network of over 45 independent
sales representatives, who are compensated solely on a commission basis.
These sales representatives are supervised by the Company's internal sales
personnel.
Cosmar communicates directly with its domestic nail care product
consumers through its Consumer Assistance Hotline. Cosmar's toll-free
number for consumer assistance is displayed on each nail care product
package. Cosmar believes that its toll-free number has enhanced its
consumer loyalty.
COMPETITION
The fragrance and cosmetics businesses are characterized by vigorous
competition throughout the world. Brand recognition, together with product
quality, performance and price and the extent to which consumers are educated
about specific product attributes, have a marked influence on consumers'
choices among competing products and brands. Advertising, promotion,
merchandising, packaging and the timing of new and focused flanker product
introductions also have a significant impact on buying decisions. Further,
the structure and quality of the manufacturer's sales force affects product
reception, in-store position, permanent display space and inventory levels in
retail outlets. The Company competes in most of its product categories
against a large number of companies, some of which have substantially greater
resources than the Company. In addition to products sold in the mass-market
and department and specialty store distribution channels, the Company's
products also compete with similar products sold door-to-door or through mail
order or telemarketing by representatives of direct sales companies.
In the fragrance market, Dana competes with numerous companies
domestically and internationally, including more than 500 brands competing
for market share in the mass-market segment. Dana's principal competitors in
this market include Benckiser Coty, Revlon, P&G, Cosmair, Parfums d'Coer and
Unilever N.V.
Cosmar has approximately a 30% share of the artificial nail care market
compared to approximately 20% for the next largest participant in this
market. For the three years preceding Fiscal 1997, Cosmar had virtually
driven the category's growth via new product launches and realized
significant shelf space gains as a result of such launches, category
management expertise and strong in-store promotional support. Cosmar made
these gains against competitors such as Nailene (Pacific World Corp.), Jonel
(a division of Barristo Ltd.), Kiss Professional Fingernail Products (Dae Do,
a Korean manufacturer), Sally Hansen (Del Laboratories), Fing'rs (a division
of Entrecap Corp.), Lee (Lee Pharmaceutical) and Kristy Wells in the
mass-market distribution channel and several companies such as International
Beauty Distributors and Orly that sell their professional salon products into
the retail market. Cosmar's market share declined to approximately 30% in
Fiscal 1997 from approximately 33% in Fiscal 1996 principally because of
increased competition
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(including the entry into the segment of Revlon, and an expanded line of
products from Kiss Professional Fingernail Products carried by an increased
number of stores) and the disappointing performance of certain new product
launches. Cosmar's new business strategy is designed to enable it to
recapture market share.
Cosmar's principal competitors in the nail lacquer category include
Revlon, Del Laboratories, L'Oreal S.A., Maybelline, Inc., Estee Lauder, Inc.,
Helene Curtis Industries, Inc., Unilever N.V., Pavion and P&G.
Cosmar believes that its products occupy a leading position within the
mid-priced lipstick and eye make-up segments because they offer superior
quality, consumer-friendly products. Cosmar's competitors include Lancetti
Cosmetics, and Eco Beauty Inc., both marketers of mid-priced lipstick and eye
make-up products. Cosmar also competes with Revlon, L'Oreal S.A.,
Maybelline, Inc., P&G and Pavion, Ltd. in this category.
CATEGORY MANAGEMENT
Category management involves strategic partnering with retailers whereby
manufacturers such as the Company utilize state-of-the-art mathematical
modeling tools to understand the sales dynamics of categories, brands and
specific SKUs so that retailers can offer the best mix of products to boost
category sales, profits and customer satisfaction. Cosmar is the category
captain for five of its top ten nail care accounts and Dana is category
captain or advisor for most of its major fragrance accounts. As category
captain, Dana and Cosmar work with retailers to define optimum space
allocation for their fragrance and nail care product categories and, as
advisor, Dana validates the analysis provided by the category captain. The
Company commits significant funds each year to IRI to track weekly sales data
on all products it sells through mass-market channels.
Category management allows Dana and Cosmar to work with retailers to
assist the retailers in determining the optimal product mix for each
category, recommend the SKUs in the entire category that the retailer should
carry and monitor the sales results, both for the Company's products and its
competitors' products, on a weekly basis. Dana's and Cosmar's category
management programs also enable their marketing departments to perform a
variety of functions including real time understanding of relaunch marketing
effectiveness, gauging new product success rates for the their products and
their competitors' products and amassing competitive intelligence about
consumer buying patterns.
MANUFACTURING
FRAGRANCE. Dana's fragrance and related products sold in the US and in
selected export markets are manufactured at the Company's Mountain Top
Facility. Some of the brands acquired by Dana continue to be manufactured by
a contract packer. Additionally, Dana's facility in Brazil manufactures
fragrances and related products for local markets and for export. The
Company is
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currently evaluating whether it will upgrade its Brazilian facility to become
a regional production and export facility or outsource some or all of these
operations.
The Company closed its manufacturing facility in Argentina in March 1998
and is looking for a buyer for the facility. In Fiscal 1998, the Company
also intends to close its manufacturing facility in Canada and consolidate
its Canadian fragrance manufacturing operations into Dana North America which
manufactures all of its fragrance products at Dana's Mountain Top Facility.
The Company closed MEM's facilities in New Jersey and Boucherville, Quebec,
in February 1997.
Dana's strategy for sourcing, producing and distributing its fragrance
products consists of (1) conducting operations in-house that add significant
value to its products and that can be executed economically based upon volume
efficiencies, (2) sourcing component materials and products from outside
vendors when reliable, ongoing and multiple sources can be secured at
competitive prices and (3) least-cost sourcing for local markets whereby
international subsidiary facilities will become regional producers of
products for export to their regional markets.
Key supplies in the manufacturing and packaging of fragrances, including
bottles, scents and packages, are all sourced from a network of reliable
vendors. Final assembly of finished products, warehousing and shipping of
fragrance products to customers is performed at the Mountain Top Facility and
the Company's foreign facilities.
NAIL CARE. Cosmar currently operates manufacturing facilities in Garden
Grove, California (the "Garden Grove Facility"), and Sparks, Nevada (the
"Sparks Facility"). Under its new business strategy, Cosmar intends to
consolidate its Garden Grove assembly operations into its Sparks Facility,
leaving the distribution operations in Garden Grove. Cosmar's strategy for
contracting, producing and distributing its nail care products consists of
(1) conducting operations in-house that add significant value to Cosmar's
products and that can be executed economically based on volume efficiencies
and (2) sourcing from outside vendors component materials and products when
reliable, ongoing and multiple sources can be secured at competitive prices.
Cosmar uses an injection molding process to manufacture all artificial nails
and tips for its own COSMAR product line at its Sparks Facility. All glues,
hardeners and other chemical compounds are supplied to Cosmar by third-party
contract manufacturers. Most of the raw materials and components sourced
externally are readily available through standard industry sources and
represent small percentages of unit manufacturing costs.
LIP AND EYE MAKE-UP. Cosmar outsources substantially all of its raw
materials, manufacturing and distribution needs for its lip and eye make-up
products. By sourcing from industry-leading color cosmetics suppliers that
also service large manufacturers such as Revlon and Estee Lauder, management
believes it can purchase the latest technologically advanced components at
reasonable prices. Cosmar currently intends to continue to outsource the
production of its lip and eye make-up products.
See Part I, Item 2. Properties, below for additional information
regarding the Company's
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manufacturing facilities.
SUPPLIERS AND RAW MATERIAL
The principal raw materials for Dana's fragrance products are fragrance
oils (which are either purchased from third parties or manufactured by Dana
from individual raw materials), bottles, caps, pumps and sprayers. The
principal raw materials used by Cosmar in the manufacture of its nail care
products are common polymers, waxes, pigments, dyes and other processing
components, such as bottles and brushes, all of which are readily available.
The principal materials that Cosmar sources for its NAT ROBBINS line include
waxes, pigments and silicone commonly used to manufacture lip and eye make-up
products. While all raw materials are purchased from outside sources, the
Company is not dependent upon a single supplier in any of its operations for
any materials essential to its business that are not otherwise commercially
available to the Company. Historically, the Company has been able to obtain
an adequate supply of raw materials, and no shortage of such materials is
currently anticipated.
MANAGEMENT INFORMATION SYSTEMS
The Company has invested a significant amount of capital in its MIS
infrastructure to install new corporate information systems, sales/marketing
systems, personal computers and communication systems throughout the Company.
The MIS platform is based on an IBM AS/400 mini-computer with personal
computers on local and wide area networks. This platform allows the Company
to (1) facilitate electronic communication among its employees, (2) conduct
electronic data interchange ("EDI") with its top customers which enables
customers to place orders electronically, (3) enable sales force and accounts
receivable managers to process and track orders and returns, (4) provide
sophisticated inventory management and distribution capabilities and (5)
install corporate-wide measurement systems which yield accurate and timely
information regarding sales, costs, profits, accounting functions, customer
service and asset management.
The Company upgraded its MIS infrastructure during the first five months
of calendar 1998. The Company (1) installed new/upgraded J.D. Edwards
financial software modules including, but not limited to, inventory
management, billings and collection software and (2) began testing and using
its new software. Dana North America is now running on the new software.
The new software provides management with an additional tool to assist it in
the implementation of the Company's new business plan.
The Company also uses a sales order processing system, along with a
sales order pick management system. The integration of these two systems
allows the Company to closely manage each step of the selling process (i.e.,
from a sales order to the distribution and actual delivery of products).
The Company believes that its MIS provides adequate capacity base for
its operations in Fiscal 1998.
YEAR 2000 COMPLIANCE
Until recently, many computer programs were written using two digits
rather than four digits to define the applicable year in the twentieth
century. Such software may recognize a date using "00" as the year 1900
rather than the year 2000. Utilizing both internal and external resources,
the Company is in the process of defining, assessing and converting or
replacing various programs,
20
<PAGE>
hardware and instrumentation systems to make them Year 2000 compatible. The
Company anticipates that it will have "Year 200 Compliant" software no later
than the end of Fiscal 1998. The Company's Year 2000 project is comprised of
two components - business applications and equipment. The business
applications component consists of the Company's business computer systems,
as well as the computer systems of third-party suppliers or customers, whose
Year 2000 problems could potentially impact the Company. Equipment exposures
consist of personal computers, system servers and telephone equipment whose
Year 2000 problems could also impact the Company. The cost of the Year 2000
initiatives is not expected to be material to the Company's results of
operations or financial position.
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 in a timely
fashion, the Year 2000 problem can have a material impact on the operations
of the Company.
EMPLOYEES
As of March 31, 1998, the Company employed 1,189 people, of whom 205
were general and administrative personnel and 181 were sales and marketing
personnel. All of the Company's production employees at its Mountain Top
Facility, as well as the plants located in Spain, Argentina (which was closed
in March 1998 and is in the process of being sold) and Brazil, are covered by
collective bargaining agreements. The Company recorded $3.5 million
(including $2.4 million relating to the impairment of long-lived assets) for
costs relating to closing the plant in Argentina. The collective bargaining
agreements for the Company's production employees at its Mountain Top
Facility and Brazilian manufacturing facilities expire in February 1999 and
November 1998, respectively. There can be no assurance that the Company
will be able to negotiate extensions to such agreements on terms acceptable
to it and the failure to obtain such extensions could have a material adverse
effect on the Company. The Company considers its relations with its
employees to be good.
On February 7, 1997, the Company closed the Northvale, New Jersey, and
Boucherville, Quebec, facilities of MEM and Tom Fields (a division of MEM)
and terminated substantially all of the employees working at such facilities.
The union employees in the Northvale facilities had been covered by a
collective bargaining agreement which included participation in the local
union pension fund (the "Fund"). Closure of such plants and termination of
the employees triggered an automatic withdrawal from the Fund. In connection
with such withdrawal, the Company incurred ERISA withdrawal liability,
pursuant to which the Fund demanded that the Company pay the Fund $68,900 per
quarter for 80 calendar quarters. The Company began making such payments on
September 1, 1997. The Fund's actuary also informed the Company that for
several years the Fund has not received the minimum annual level of
contributions required by ERISA. The Fund is in the process of seeking to
obtain certain waivers under ERISA and the Internal Revenue Code so that the
participating employers will not have to pay any penalties for the Fund's
failure to receive such minimum levels of contributions. The Fund's actuary
has estimated the Company's liability, if such
21
<PAGE>
waivers are not obtained, to be approximately $1.1 million.
INTELLECTUAL PROPERTY
The Company believes that the trademarks relating to its brand and
product names and patents are important to both its fragrance, artificial
nail care and cosmetics businesses. In addition to COSMAR, an unregistered
brand name used in its artificial nail care business, the product trademarks
owned or licensed by the Company include CHANTILLY, WHITE CHANTILLY, LUTECE,
RAFFINEE, TABU, DREAMS BY TABU, AMBUSH, FETISH, FRENCH VANILLA BY DANA,
CLASSIC GARDENIA, MONSIEUR MUSK, FRENCH GARDEN FLOWERS, ENGLISH WATERLILYS,
CANOE, CANOE SPORT, HERBISSIMO, ENGLISH LEATHER, BRITISH STERLING, LOVE'S,
HEAVEN SENT, NAVY, TOUJOURS MOI, NAVY FOR MEN, INSIGNIA, CALIFORNIA FOR MEN
and LE JARDIN with respect to its fragrance products, COLOR POWER, PRESS &
GO, PETITE PRESS & GO, SPORT PRESS & GO, PRO 10, SCULPTURE QUIK, SCULPTURE
QUIK II, ULTRAGEL, NAIL FETISH, WRAP QUIK, QUIKFILE, QUIKSHINE, FILEPRO, QUIK
FIT, and LAJOIE with respect to its artificial nail care products and NAT
ROBBINS, LIP LACQUER, EVER SHEER, and COLOR INTENSE 24 with respect to its
lip and eye make-up products. The Company's other principal trademarks are
registered in the United States and several are registered in other countries.
As part of its new business strategy, the Company is re-examining all of
its licensing arrangements. In certain cases, the Company is attempting to
renegotiate its licensing arrangements under terms more beneficial to its new
business strategy. The Company will consider terminating license arrangements
that are no longer beneficial and which cannot be renegotiated with the
licensor. The termination of any licensing agreement may involve substantial
termination payments on the part of the Company.
In July and August 1994, the Company entered into two long-term license
agreements pursuant to which it obtained certain exclusive rights to
manufacture, sell, use and distribute the Houbigant fragrances worldwide
(excluding Canada). The Company acquired similar rights for the Houbigant
fragrances in Canada in December 1994 through the ACB Acquisition and the
execution of a new license agreement with Houbigant in July 1996, which
superseded and restated its prior rights acquired in the ACB Acquisition.
Each of these licenses is with Houbigant and has an initial term ending in
2001 with options for seven additional five-year terms, or a total extension
of 35 years if all of the options are exercised. Houbigant, which was the
subject of a proceeding under Chapter 11 of the Bankruptcy Code at the time,
was authorized and empowered to enter into each license by the federal
bankruptcy court.
The Company and Houbigant entered into a License Modification Agreement,
dated March 20, 1998, pursuant to which Houbigant agreed, absent any defaults
under the License Modification Agreement, to forbear, for a period of one
year from March 20, 1998, from taking any action with respect to certain
disputes and alleged defaults under the license agreements existing as of
March 20, 1998 or any defaults which might occur during the forbearance
period, with the exception of certain specified defaults. In consideration
of this forbearance, (1) the first renewal period of five (5) years was
bifurcated into two (2) sub-terms of two and one-half (2-1/2) years each, (2)
the
22
<PAGE>
Company agreed to an early renewal of the License for the first 2-1/2 year
sub-term (from July 1, 2001 through December 31, 2003), (3) the $5 million of
credits the Company was to receive against the payment of future royalties
after an aggregate of $7.6 million of royalties were paid was reduced to
$2.5 million, and (4) the Company and Houbigant agreed on the allocation of
the $2.5 million of credits. There is no assurance that Houbigant will agree
to continue to forbear from exercising its rights under the license
agreements after March 19, 1999.
During Fiscal 1997, the Company was notified by Harby's Corporation NV
("Harby's") that the Company had failed to meet certain covenants and
requirements under the license agreement assumed in August 1994 by the
Company. In April 1998, after attempts to negotiate a mutually acceptable
termination of the license failed, Harby's delivered a default notice to the
Company, pursuant to which it elected to terminate the license in accordance
with the terms provided thereunder. The termination of the Harby's license
and the discontinuation thereafter of sales of the Harby's products is not
expected to have a material adverse effect on the Company's operations and/or
its business.
The Company, through Cosmar, has various patent rights and a pending
application in connection with its nail care and cosmetics businesses,
including (1) an artificial nail sizing ring which allows for manufacturing
efficiencies and ease of measurement and application by women, (2) a clam
shell package design that displays artificial nails in a unique manner and
(3) an artificial nail file/buffer that is more comfortable for a woman to
use due to its unique cushion and plastic core. Cosmar also is the exclusive
licensee for two patented artificial nail sculpturing applications.
ITEM 2. PROPERTIES
Dana currently manufactures its fragrances at its 155,000 square-foot
Mountain Top Facility, and at its facilities in Sao Paolo, Brazil, Laval,
Quebec, Canada, and Granollers, Spain. The Company has closed and plans to
sell its manufacturing facility in Argentina. The Company is also in the
process of closing its manufacturing operations in Canada and consolidating
such operations into its Mountain Top Facility. Each of these facilities
contains production, warehouse and office facilities. Dana (or one of its
subsidiaries; see the table below) (1) owns the Mountain Top Facility and the
facilities in Argentina, Brazil and Spain, (2) leases its facility in Canada,
(3) leases a 105,000 square-foot distribution facility and two warehouse
facilities in Mountain Top, Pennsylvania, and (4) leases a facility in
Calumet City, Illinois, which it uses for its close-out business.
Cosmar occupies a 95,320 square foot facility in Garden Grove,
California that houses warehouse, distribution and production assembly
operations. Cosmar performs most of its manufacturing for its artificial nail
care business at its 44,000 square-foot facility in Sparks, Nevada, which it
leases. Cosmar intends to consolidate its California assembly operations
into its Sparks, Nevada, facility during Fiscal 1998.
The Company leases or subleases facilities in Stamford and Greenwich,
Connecticut, New York City, Cypress, California, and London, England, at
which it conducts executive, marketing and
23
<PAGE>
administrative activities. The Company is in the process of trying to
sub-let the offices in Greenwich and New York City.
As a result of the MEM Acquisition, the Company acquired two facilities
in Northvale, New Jersey, which it sold in October 1997 and May 1998. MEM's
Canadian subsidiary, MEM (Canada) Ltd., (which was merged into Houbigant
(1995) Ltd. during Fiscal 1997) owns a 32,000 square-foot plant in
Boucherville, Quebec, which was closed on February 7, 1997. The Company is
seeking to sell the facility.
The following table provides information on the Company's operating
facilities (not including facilities used only for office or warehouse
purposes):
24
<PAGE>
<TABLE>
<CAPTION>
APPROX.
YEAR LAST SIZE LEASED/
SUBSIDIARY LOCATION OPENED EXPANSION (SQ. FT.) OWNED
---------- -------- ------ --------- --------- -----
<S> <C> <C> <C> <C> <C>
Dana Mountain Top, PA 1963 1996 155,000 Owned
Dana Mountain Top, PA 1996 1996 105,000 Leased
Houbigant Laval, Canada(1) 1994 -- 43,087 Leased
(1995) Ltd.
Houbigant Laval, Canada(1) 1997 __ 93,156 Leased
(1995) Ltd.
Dana S.A. Granollers, Spain 1971 -- 67,500 Owned
Perfumes Sao Paolo, Brazil 1954 1984 20,810 Owned
Dana do
Brasil
Perfumes Buenos Aires, 1955 -- 24,600 Owned
Dana Argentina(2)
S.A.I.C.
Dana Calumet City, IL(3) 1997 -- 42,000 Leased
Cosmar Sparks, NV 1987 -- 43,859 Leased
Cosmar Garden Grove, CA(4) 1996 -- 95,320 Leased
Tinkerbell U.K. Ltd. Folkestone, England(5) -- -- 9,500 Leased
--------
699,832
</TABLE>
- ----------
(1) The Company is in the process of consolidating all of its Canadian
fragrance manufacturing operations into Dana North America at its
Mountain Top Facility.
(2) The Company has closed and is in the process of selling its manufacturing
facility in Argentina.
(3) The Company intends to close this facility.
(4) Cosmar intends to consolidate the assembly operations located at this
facility into the Sparks Facility.
25
<PAGE>
during Fiscal 1998.
(5) The Company intends to close this facility during Fiscal 1998.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
PREMIER SALES GROUP LITIGATION. Renaissance, GAC and Cosmar were sued
in the District Court of Jefferson County, Texas, in August 1997 by Premier
Sales Group, Inc. and David Gosdin (together, "PSG"), a former sales
representative for the NAT ROBBINS brand. The complaint alleged breach of
contract, unjust enrichment, failure to provide an accounting, fraud,
interference with business relations and prospective advantage, breach of
duty of good faith and fair dealing and violation of certain provisions of
the Texas Business and Commerce Code, and sought actual, statutory, special,
punitive and exemplary damages in amounts to be proven at trial.
Renaissance, Cosmar and GAC denied all the material allegations of the
complaint, and filed a third party complaint against the sellers of GAC (the
"Sellers") in November 1997 seeking damages for breach of representations and
warranties in the Stock Purchase Agreement and indemnification pursuant to
the terms of the Stock Purchase Agreement. In March 1998, PSG, Renaissance,
Cosmar, GAC and the Sellers entered into settlement agreements pursuant to
which (1) $299,999.99 of the $500,000 held in an escrow account set up under
the Stock Purchase Agreement was released from the escrow account and
delivered to PSG, (2) $30,000 of the amount remaining in the escrow account
was delivered to Renaissance, Cosmar and GAC to be applied against
outstanding attorneys' fees for the litigation, (3) the balance of the escrow
account was delivered to the Sellers, and (4) all parties signed mutual
releases (except that Renaissance, GAC and Cosmar did not release any claims
arising under the existing consulting agreements with the Sellers). The
litigation was dismissed with prejudice by order entered on March 13, 1998.
ORIGINAL ADDITIONS. 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 UK, 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
Renaissance, Cosmar and Dana U.K. Limited ("Dana U.K."), the Company's UK
subsidiary. The complaint alleges breach of contract, interference with and
conspiracy to interfere with contract, unfair competition and conspiracy to
unfairly compete and fraud. Original Additions is seeking reformation of the
original distribution agreement, declaratory relief with respect to its
alleged right of set-off and compensatory and punitive damages in amounts to
be proven. In April 1998, the parties executed an Agreement pursuant to
which (1) they agreed to submit their claims to binding arbitration before a
retired judge from the Los Angeles or Orange County Superior Court or the
United States District Court for the Central District of California, (2)
Cosmar agreed to withdraw its arbitration demand without
26
<PAGE>
prejudice and (3) Original Additions agreed to dismiss the litigation without
prejudice. The parties have thirty days after the execution of the Agreement
to serve their claims on each other and the arbitrator. The arbitration is
to be commenced on or before December 31, 1998, unless extended by mutual
agreement of the parties.
OTHER LITIGATION. The Company is involved from time to time in various
legal proceedings arising from the ordinary course of business. The Company
believes that the outcome of all pending legal proceedings in the aggregate
will not have a material effect on the financial condition or results of
operations of the Company.
ENVIRONMENTAL AND OTHER REGULATION
Due to the nature of the Company's business, its operations are subject
to a variety of environmental laws relating to the storage, discharge,
handling, emission, generation, manufacture, use and disposal of chemicals,
solid and hazardous waste and other toxic and hazardous materials used to
manufacture the Company's products. The Company believes that it has been
operating its facilities in substantial compliance in all material respects
with existing laws and regulations.
Compliance with federal, state and local laws and regulations pertaining
to the discharge of materials into the environment, or otherwise relating to
the protection of the environment, is not anticipated to have a material
effect upon the operations of the Company.
The Company is subject to regulation by the US Food and Drug
Administration. The Company's advertising and sales practices are subject to
the jurisdiction of the Federal Trade Commission. In addition, the Company
is subject to numerous federal, state and local laws relating to marketing
and to the content, labeling, packaging and shipping of its products.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An amendment to the Holding Company's Stock Option Plan (the "Plan")
increasing the number of shares of Common Stock eligible for stock option
grants under the Plan was approved as of February 6, 1998 by written consent
of a majority of the holders of the Common Stock.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Holding Company's
Common Stock. As of March 31, 1998, there were 23 holders of the Holding
Company's Common Stock. The Holding Company does not anticipate declaring cash
dividends in the foreseeable future because the Holding Company intends to
27
<PAGE>
retain its earnings to finance the implementation its business restructuring
and for general corporate purposes. Any payment of future dividends will be
at the discretion of the Holding Company's Board of Directors and will depend
upon, among other things, the Holding Company's earnings, financial condition,
capital requirements, level of indebtedness, contractual restrictions with
respect to the payment of dividends and other relevant factors. The 1997
Credit Facility prohibits the distribution of dividends on the Holding
Company's Common Stock without the prior consent of the Revolving Credit
Lenders. In addition, the 1997 Senior Notes and the Indenture governing the
1997 Senior Notes prohibit the Holding Company from paying a dividend which
would cause the Holding Company to fail to comply with certain financial
covenants therein.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical financial data of Cosmar (Predecessor) and the
Company set forth below has been derived from and should be read in
conjunction with the Company's (and its predecessor's) consolidated financial
statements and the notes thereto included elsewhere herein and Part II, Item
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations, below.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
28
<PAGE>
<TABLE>
<CAPTION>
COSMAR (PREDECESSOR) COMPANY
-------------------- -----------------------------------------------------------------------
JANUARY 1
YEAR ENDED TO
DECEMBER 31, AUGUST 17, FISCAL FISCAL FISCAL FISCAL
1993 1994 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
STATEMENT OF OPERATIONS
DATA:
Net sales $25,844 $18,301 $57,714 $131,286 $174,612 $179,696
Operating income (loss) 5,063 3,326 2,744 8,451 4,524 (169,347)
Interest expense 132 61 8,694 19,458 24,417 31,143
Income (loss) before
extraordinary item 4,801 3,364 (5,459) (12,057) (19,380) (197,446)
Net income (loss) 4,801 3,364 (5,459) (12,057) (41,818) (197,446)
Net income (loss) applicable
to common stockholders(a) 4,801 3,364 (6,174) (13,390) (55,886) $(221,783)
Income (loss) applicable to
common stockholders per
common share -- -- $(8.50) $(18.62) $(71.63) $ (268.58)
BALANCE SHEET DATA (END
OF PERIOD):
Total assets $8,489 -- $162,253 $184,619 $361,383 $240,484
Intangible assets - net -- -- 82,499 76,895 174,177 88,414
Long-term debt, excluding
current maturities (b) 294 -- 97,032(a) 67,323(a) 203,877(a) 4,072(a)
Series B and C Preferred Stock (c) -- -- -- -- 86,660 109,925
10% Preferred Stock(c) -- -- 10,365 11,698 13,167 14,333
Common stockholders'
equity (deficiency)(d) 5,390 -- 20,189 6,451 (8,181) (230,734)
__________
</TABLE>
(a) Represents net loss less preferred stock dividends.
(b) Excludes (i) outstanding indebtedness under the 1997 Senior Notes of
$200,000 and outstanding indebtedness under the 1997 Credit Facility
of $55,554, both of which are classified within current liabilities at
March 31, 1998, (ii) outstanding indebtedness under the Old Credit
Facility of $57,000 at March 31, 1996 which is classified within
current liabilities, and (iii) long-term minimum royalty obligations
and other long term liabilities of $8,229, $3,768 and $4,686 at March
31, 1998, 1997 and 1996, respectively.
(c) The carrying values of the Series B and Series C Preferred Stock and
the 10% Preferred Stock have been reduced by an allocation of
proceeds to the respective common stock warrants and have been
increased by the accumulated dividends and accretion through the
respective balance sheet date.
(d) No cash dividends have been paid since April 15, 1994 (Inception).
29
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This discussion and analysis relates to the consolidated results of
operations of the Company, which for purposes of this Item 7 are discussed
separately for each of the Company's major operating divisions (the
"Fragrance Division," consisting of Dana and its subsidiaries, the "Cosmetics
Division" consisting of Cosmar, and the "International Division," which
includes both fragrance and cosmetics sales). See Part I, Item 1. Business,
"Background," below for a discussion of the acquisitions completed by the
Company since July 1994.
The Company is reporting Operating Income and EBITDAI (as defined below)
for Fiscal 1997 that are significantly lower than for Fiscal 1996, primarily
as a result of four major factors.
The first factor relates to operational events, of which there are three
primary components. First, management believes, based on the Company's
Fiscal 1997 results of operations, that the mass market fragrance industry
has undergone a permanent change. Based on IRI data, the mass market
fragrance industry as a whole (excluding bath and body products) suffered a
greater than 7% (greater than 10% in the women's fragrance segment) decline
in sales during the 52 week period ended March 22, 1998. The Company's sales
reflected this industry trend. Second, profitability in the Fragrance
Division was adversely affected in Fiscal 1997 by higher costs of goods sold
and freight costs than during Fiscal 1996 due to difficulties encountered in
integrating the manufacturing of new brand products acquired
30
<PAGE>
in the MEM Acquisition and the P&G Brands Acquisition into the Mountain Top
Facility. Third, the Fiscal 1997 results reflect lower sales and
profitability of Cosmar's COSMAR branded artificial nail products as compared
to Fiscal 1996, which the Company attributes to increased competition from
new entrants into the category resulting in loss of market share and higher
product returns as compared to Fiscal 1996.
The second factor relates to the Company's decision to increase its
reserves in Fiscal 1997. As a result of the operational events discussed
above, during Fiscal 1997, the Company reviewed its balance sheet and
determined that it 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 Fiscal 1997 include
adjustments of approximately $23.1 million to reflect actual costs that
exceeded estimates and other changes to estimates that had been used in
recording the prior years' results.
The third factor relates to management's decision to write-down certain
of its long-lived assets in Fiscal 1997. Based on the above developments
during Fiscal 1997, the Company conducted an evaluation of long-lived assets,
including goodwill, based upon the Company's estimates of its current
business plans for the fragrance businesses within the Fragrance and
International Divisions. As a result, during Fiscal 1997, the Company
recorded an impairment loss of $85.4 million relating to the write-down of
such assets.
The fourth factor relates to costs resulting from the implementation of
the Company's new business plan. In Fiscal 1997, the Company recorded $35.1
million in estimated costs relating to its new business plan, consisting of,
among other things, additional sales returns, excess inventory, severance
costs, facilities consolidation costs and professional fees. There can be no
assurance that actual costs will not be greater than estimated. See the
table below for a description of the costs recorded in Fiscal 1997:
<TABLE>
<S> <C>
(dollars in millions)
Sales returns and markdown provisions $ 19.5
Incremental excess inventory provisions 11.3
Severance, relocation and recruiting 1.8
Severance and additional asset write-offs 1.1
relating to closing businesses
Professional fees 1.4
-------
Total $ 35.1
-------
-------
</TABLE>
The provisions for sales returns and markdowns are included in net
sales, and provisions for excess inventory are included in costs of goods
sold in the accompanying statement of operations as required under generally
accepted accounting principles ("GAAP").
31
<PAGE>
The Company expects to incur additional costs to implement the operational
restructuring component of its new business plan during Fiscal 1998 for
severance, facility consolidation costs, professional fees and other costs
aggregating approximately $10.0 million to $12.0 million. The Company
expects to incur additional professional fees of approximately $4.0 million to
$6.0 million in connection with the planned financial restructuring of the
Holding Company's obligations during Fiscal 1998. There can be no assurances
that actual costs will not be greater than the above estimated amounts.
During the fourth quarter of Fiscal 1997, the Company began a thorough
review of its business, including its business strategy, its product lines,
its sales and marketing strategies, its general and administrative overhead,
personnel, capital and debt structure, production and advertising. The
objectives of this review were to (1) identify and quantify operational
problems, (2) develop strategies and tactics to improve the Company's
performance , (3) quantify the costs and timing to effect the necessary
changes and (4) quantify the impact of the changes on the Company's
profitability and cash flow. The Company has now developed a revised
business plan that de-emphasizes increasing sales volume in favor of a
greater emphasis on long-term profitability. Elements of the business plan
include:
Fragrance Division:
- Focus on core and growth brands, the highest turning SKU's and core
customers; and
- Integrate into one domestic US operation, headquartered on the east
coast of the US, all of the domestic fragrance operations,
the Canadian fragrance business, the domestic children's cosmetic
business, and the close-out sales business (referred to elsewhere
herein as "Dana North America") along with the international and
corporate headquarters.
Cosmetics Division:
- Focus on growth brands, the highest turning SKUs and core
customers; and
- Consolidate assembly and manufacturing operations into one location
International Division:
- Consolidate the South American operations into the Brazilian
subsidiary and the management of the European operations under the
UK subsidiary;
- Consolidate the UK children's cosmetics business into the UK
fragrance operations; and
- Grow sales in other countries through regional export business.
32
<PAGE>
The Company is restructuring on two fronts. Its operating subsidiaries
are currently engaged in an operational restructuring of their respective
businesses. The Holding Company is about to begin a financial restructuring
of its capital structure. The two are, in certain respects, separate and
distinct from each other.
The Company believes that its operating subsidiaries have viable core
businesses and growth brands that have the potential for improved operating
and financial performance in 1998 and beyond. However, in order to improve
their operating and financial performance, the operating subsidiaries must
implement a costly operational restructuring in 1998, which will include
numerous management and organizational changes and cost reduction programs.
The operating subsidiaries have already (1) initiated many of these changes
and (2) refocused their advertising and promotional programs to preserve and
enhance the value of their growth brands. There can be no assurances that
the operating subsidiaries will be successful in implementing their
operational restructuring.
At the same time that its operating subsidiaries are implementing their
operational restructuring, management believes that the Holding Company must
implement a financial restructuring. To this end, the Holding Company intends
to enter into negotiations with the holders of its Preferred Stock, Common
Stock and 1997 Senior Notes to restructure these obligations with the goal
of de-leveraging and strengthening its balance sheet. There can be no
assurances that the Holding Company will be successful in implementing its
financial restructuring.
In late June 1998, the Revolving Credit Lenders agreed to extend their
financing commitments to June 1999 and increase the amount available to be
borrowed under the 1997 Credit Facility. The Company believes that it will
now have sufficient liquidity to enable it to implement the operational
restructuring of the operating subsidiaries, consummate the Holding Company's
financial restructuring, and execute the Company's new business plan.
OPERATIONS FOR FISCAL 1997 COMPARED TO OPERATIONS FOR FISCAL 1996
NET SALES. The Company's net sales in Fiscal 1997 and Fiscal 1996 were
as follows (dollars in million):
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
----------------------- ----------------------
DIVISION NET SALES % OF TOTAL NET SALES % OF TOTAL
------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Fragrance $80.8 45.0% $74.9 42.9%
Cosmetics 50.6 28.1% 59.2 33.9
International 48.3 26.9% 40.5 23.2%
------- ---- ------ -----
Total $ 179.7 100% $174.6 100.0%
------- ---- ------ -----
------- ---- ------ -----
</TABLE>
33
<PAGE>
Total net sales increased in Fiscal 1997 compared to Fiscal 1996 by 2.9%
to $179.7 million.
Fragrance Division net sales increased in Fiscal 1997 compared to Fiscal
1996 by 7.9% to $80.8 million which includes approximately $12.1 million of
adjustments to reflect actual returns and allowances related to prior year
activities that exceeded estimated accruals at March 31, 1997. These
adjustments reflect the impact of product returns during Fiscal 1997 of
Fiscal 1996 new product launches and promotional items. Fragrance Division
net sales were also affected by approximately $12.2 million of additional
provisions for sales returns and allowances that were recorded in connection
with the Company's new business plan. Without giving effect to these
adjustments and returns and allowances recorded in connection with the
Company's new business plan, adjusted net sales for the Fragrance Division
would have been $105.1 million for Fiscal 1997, or an increase of 40.3% over
Fiscal 1996. The increase in Fiscal 1997 net sales was due principally to
net sales of brands acquired in the MEM Acquisition and P&G Brands
Acquisition and new brands launched during the current year (e.g., FETISH
SCENT and SHADES OF NAVY). Additionally, Fragrance Division net sales were
negatively affected by higher than expected returns and markdowns accruals.
Cosmetics Division net sales decreased in Fiscal 1997 compared to Fiscal
1996 by 14.5% to $50.6 million, which includes additional adjustments of $5.3
million to reflect actual returns and allowances related to prior year
activities that exceeded estimated accruals at March 31, 1997. These
adjustments reflect the impact of product returns of calendar year 1997
planogram changes and 1996 promotional items during Fiscal 1997. Cosmetics
Division net sales were also affected by approximately $4.6 million of
additional provisions for sales returns that were recorded in connection with
the Company's new business plan. Without giving effect to these adjustments
and returns, adjusted net sales for the Cosmetic Division in Fiscal 1997
would have been $60.5 million, or an increase of 2.2% over Fiscal 1996 sales.
The increase in Fiscal 1997 adjusted net sales was due principally to
increased sales of the NAT ROBBINS brand of cosmetics acquired in the GAC
Acquisition and the FETISH brand of cosmetics launched in Fiscal 1997, offset
by the declines in the sales of the Company's COSMAR branded products.
Fiscal 1997 net sales of the NAT ROBBINS and FETISH brands of cosmetics were
approximately $8.9 million higher than Fiscal 1996 sales of NAT ROBBINS
cosmetics. Fiscal 1997 net sales of the COSMAR branded products were
approximately $14.0 million lower than Fiscal 1996 sales.
International Division net sales increased in Fiscal 1997 compared to
Fiscal 1996 by 19.3% to $48.3 million which includes additional adjustments
of $1.4 million to reflect actual returns and allowances related to prior
year activities that exceeded estimated accruals at March 31, 1997.
International Division net sales were also affected by $2.7 million of
additional provisions for sales returns that were recorded in connection with
the Company's new business plan. Without giving effect to these adjustments
and returns, adjusted net sales for Fiscal 1997 would have been $52.4 million
or an increase of 29.4% over Fiscal 1996. The increase in adjusted net sales
is attributable principally to sales from the Company's UK subsidiary that
began operations in December 1996, offset, in part, by a decrease in export
sales.
34
<PAGE>
GROSS PROFIT. The Company's gross profit in Fiscal 1997 and Fiscal
1996 was as follows (dollars in millions):
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
-------------------------- ---------------------------
DIVISION GROSS PROFIT % OF NET GROSS PROFIT % OF NET
SALES SALES
- -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Fragrance $22.4 27.7% $ 46.6 62.2%
Cosmetics 20.9 41.3% 35.0 59.1%
International 20.7 42.9% 23.3 57.5%
------------ -------- ------------ --------
Total $64.0 35.6% $104.9 60.1%
</TABLE>
Fragrance Division gross profit margin declined to 27.7% in Fiscal 1997
from 62.2 % in Fiscal 1996 due in part to $12.1 million of adjustments to net
sales described in NET SALES above and approximately $0.8 million of
adjustments to cost of goods sold that reflected actual costs related to
prior year activities that exceeded estimated accruals at March 31, 1997.
Fragrance Division gross profit in Fiscal 1997 also included $12.2 million of
adjustments to net sales and $7.7 million of adjustments to cost of goods
sold, to reflect additional provisions for sales returns, markdowns and
excess inventories recorded in connection with the Company's new business
plan. Without such adjustments and additional costs, gross profit for Fiscal
1997 for the Fragrance Division would have been $55.2 million or 52.5% of
adjusted net sales compared to 62.2% in Fiscal 1996. This decline is due to
higher levels of close-out sales and higher sales of children's cosmetics
products, which, in each case, generate lower gross margins. Nonetheless, the
gross margin on fragrance products sold through normal channels declined to
56.9% of adjusted net sales in Fiscal 1997 from 62.2% in Fiscal 1996. This
decline is principally due to difficulties encountered in integrating the
manufacturing of new brand products acquired in the MEM Acquisition and P&G
Brands Acquisition into the Company's Mountain Top Facility, which resulted
in delays in production and required the Company to out-source a large
portion of 1997 Christmas holiday season production. Higher labor and
overhead costs at the Mountain Top Facility caused by increased levels of
overtime and lower through-put also contributed to the decline in Fiscal 1997
gross margins on fragrance products. Gross profit in Fiscal 1997 was further
reduced by additional depreciation incurred in connection with the expansion
of the Mountain Top Facility.
Cosmetics Division gross profit margin declined to 41.3% in Fiscal 1997
from 59.1 % in Fiscal 1996 due in part to $5.3 million of adjustments to net
sales described in NET SALES above and approximately $1.4 million of
adjustments to cost of goods sold that reflected actual costs related to
prior year activities that exceeded estimated accruals at March 31, 1997.
Cosmetics Division gross profit in Fiscal 1997 also included approximately
$4.6 million of adjustments to net sales and $2.1 million of adjustments to
cost of goods sold to reflect additional provisions for sales returns and
excess inventories recorded in connection with the Company's restructuring
plan. Without such
35
<PAGE>
adjustments and additional provisions for returns and costs recorded in
connection with the Company's restructuring plan, gross profit for the
Cosmetics Division in Fiscal 1997 would have been 56.7% of adjusted net sales
compared to 59.1% in Fiscal 1996. The remaining decrease is due to changes
in product mix.
International Division gross profit margin declined to 42.9% in Fiscal
1997 from 57.5% in Fiscal 1996 principally due to $1.4 million of
adjustments to net sales described in NET SALES above that reflected actual
returns and allowances related to prior year activities that exceeded
estimated accruals at March 31, 1997. International Division gross profit in
Fiscal 1997 also included $2.7 million of adjustments to net sales and $1.6
million of adjustments to cost of goods sold to reflect additional provisions
for sales returns and excess inventories recorded in connection with the
Company's new business plan. Without such adjustments and returns, gross
profit for the International Division in Fiscal 1997 would have been 50.4% of
adjusted net sales compared to 57.5% in Fiscal 1996. The decline in gross
margin percentage is due principally to higher than anticipated costs of
production experienced by the Company during Fiscal 1997 in its overseas
operations compared to Fiscal 1996.
SELLING EXPENSES. The Company's selling expenses in Fiscal 1997 and
Fiscal 1996 were $92.2 million (51.3% of net sales) and $64.8 million (37.1%
of net sales), respectively. Selling expenses in Fiscal 1997 also included
$0.4 million of additional trade promotion costs that reflected actual costs
related to prior year activities that exceeded estimated accruals at March
31, 1997. Without giving effect to these additional trade promotion costs
incurred in connection with the Company's restructuring plan, selling
expenses would have been $91.8 million, or 42.1% of Fiscal 1997 adjusted net
sales. Selling expenses increased in Fiscal 1997 due to higher advertising
and promotion expenditures during the first half of Fiscal 1997, primarily to
support the brands acquired in the MEM Acquisition and P&G Brands
Acquisition, and due to the additional selling costs related to larger
selling organizations required by the Company's expanded product offerings.
The increase in selling expenses as a percentage of net sales is attributable
to the combination of the aforementioned increased costs and lower than
expected net sales in Fiscal 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. The Company's general and
administrative expenses in Fiscal 1997 and Fiscal 1996 were $39.0 million
(21.7% of net sales) and $25.7 million (14.7% of net sales), respectively.
General and administrative expenses in Fiscal 1997 include $1.6 million of
adjustments which reflect actual costs related to prior year activities that
exceeded estimated accruals at March 31, 1997. Excluding these adjustments,
general and administrative expenses were $37.4 million (17.1% of adjusted net
sales). The increase in general and administrative expenses was attributable
to the additional costs for the infrastructure necessary to run a larger
organization, primarily resulting from increased expenses related to the GAC
Acquisition, MEM Acquisition, P&G Brands Acquisition, the corporate
headquarters office, the children's cosmetics business and the Company's U.K.
subsidiary that began operations in December 1996. The increase in general
and administrative expenses as a percentage of net sales reflects the
additional costs discussed above and lower than expected net sales in Fiscal
1997.
36
<PAGE>
RESTRUCTURING COSTS. Restructuring costs were $0.6 million (.3% of net
sales). Restructuring costs consist of costs related to the closing of the
Company's Argentina operations.
OTHER SEVERANCE COSTS AND PROFESSIONAL FEES. Other severance costs and
professional fees in Fiscal 1997 were $3.2 million (1.8% of net sales)
compared to $0 in Fiscal 1996. These costs include severance, relocation
and recruiting costs incurred during Fiscal 1997 by the Company to reorganize
its management team, and fees incurred by the Company for the professional
services of its outside advisors to assist in the development and
implementation of the Company's new business plan and planned financial
restructuring.
AMORTIZATION OF INTANGIBLES AND OTHER ASSETS. Amortization of intangibles
and other assets were $13.0 million (7.2 % of net sales) and $9.8 million (5.6%
of net sales) in Fiscal 1997 and 1996, respectively. This increase in Fiscal
1997 compared to Fiscal 1996 is principally due to an increase in intangible
assets resulting from the GAC Acquisition, MEM Acquisition and P&G Brands
Acquisition.
IMPAIRMENT OF LONG-LIVED ASSETS. The asset impairment charge during
Fiscal 1997 reflects the Company's evaluation of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for Impairment of Long Lived Assets and for Lived Assets to be
Disposed of" ("SFAS 121"). Based on the Company's evaluation of such
long-lived assets, an impairment charge of $85.4 million (47.5% of net sales)
was recorded to reflect declines in value of long lived assets used in the
fragrance business within the Fragrance and International Divisions.
Approximately $3.8 million of these charges relate to assets of foreign
operations that the Company intends to close or sell. The remainder relates
to fixed and intangible assets, including goodwill, that were deemed to be
impaired based upon the future expected cash flows of the Fragrance and
International Divisions.
The Fiscal 1997 asset impairment charge had no impact on the Company's
Fiscal 1997 cash flow and will not impact its ability to generate cash flow in
the future. As a result of the SFAS 121 charge, depreciation and amortization
expenses related to certain assets will be reduced in future periods. In
conjunction with the review for impairment, the estimated useful lives of
certain assets were reviewed. This review resulted in the acceleration of
amortization expense for certain intangible assets.
Management believes that, as an additional operational measurement,
earnings (loss) before interest, taxes, depreciation, amortization and
impairment of long-lived assets ("EBITDAI") is useful and meaningful
37
<PAGE>
to an understanding of the operating performance of the Company. EBITDAI
should not be considered in isolation or as a substitute for net income
(loss), cash flow from operations or other consolidated income (loss) or cash
flow data or as a measure of the Company's profitability or liquidity. Items
excluded for EBITDAI, such as depreciation and amortization, are significant
components in understanding and assessing the Company's financial
performance. Management uses EBITDAI as one means of analyzing its ability
to service its debt. Management believes that lenders use it for purposes of
analyzing a company's performance with respect to its credit facilities and
certain investors use it as one measure of a company's historical ability to
service its debt. All companies do not calculate EBITDAI the same way.
The computation of Fiscal 1997 and Fiscal 1996 EBITDAI is set forth in
the table below (in millions):
<TABLE>
FISCAL FISCAL
1997 1996
---- ----
<S> <C> <C>
Operating income (loss) $(169.3) $ 4.5
Plus amortization of intangibles and other assets 13.0 9.8
Plus impairment of long-lived assets 85.4 --
Plus depreciation 8.2 4.9
------- -----
EBITDAI $ (62.7) $19.2
</TABLE>
Without giving effect to the adjustments to reflect actual costs that
exceed estimates that had been used in recording prior years' results and the
additional costs recorded in connection with the operational component of the
Company's new business plan discussed above, EBITDAI for Fiscal 1997 would
have been $(4.5) million.
INTEREST EXPENSE. The Company's interest expense was $31.1 million and
$24.4 million in Fiscal 1997 and Fiscal 1996, respectively. Interest expense
consisted of the following (in millions):
38
<PAGE>
<TABLE>
FISCAL FISCAL
1997 1996
---- ----
<S> <C> <C>
Interest on 1997 Senior Notes (a) $23.5 $ 3.4
Interest on 1997 Credit Facility 3.6 --
Interest on Old Senior Notes -- 7.6
Interest on Subordinated Seller Notes
(payable in 2002) 0.5 0.5
Interest on Old Credit Facility -- 4.9
Interest on Old Senior Secured Credit Facility -- 2.4
Other Interest 0.2 0.4
Amortization of deferred financing costs 2.1 3.2
Accretion of Subordinated Seller Notes
(and Old Senior Notes in Fiscal 1996) 0.2 0.3
Accretion of interest on obligations for
minimum royalty payment 1.0 1.7
----- -----
Total Interest Expense $31.1 $24.4
</TABLE>
- ---------------
(a) See "Liquidity and Capital Resources," below for additional
information in connection with the February 15, 1998 interest payment.
OTHER EXPENSE (INCOME) - NET. Other expense (income) - net was ($2.5)
million for Fiscal 1997 compared to $0.1 million for Fiscal 1996 and consists
primarily of the proceeds from a key man life insurance policy covering the 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 his death. Other expense (income) - net also includes other fees
payable to the Company's majority stockholder during Fiscal 1997 of $0.7
million. As of March 31, 1998, $0.4 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 Series C Preferred Stock. No fees were paid or accrued
during Fiscal 1996, because the Company was prohibited from making such payments
pursuant to the terms of the Company's Old Credit Facility. Other expenses
(income) - net also includes $0.8 million of foreign currency losses primarily
from short-term intercompany transactions.
INCOME TAX PROVISION. Income tax provision was $.9 million and $1.3
million for Fiscal 1997 and Fiscal 1996, respectively. The Company's 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
39
<PAGE>
income tax benefits. The decrease in income taxes during Fiscal 1997 compared
to Fiscal 1996 is due to lower income in certain foreign jurisdictions.
OPERATIONS FOR FISCAL 1996 COMPARED TO OPERATIONS FOR FISCAL 1995
NET SALES. The Company's net sales in Fiscal 1996 and Fiscal 1995 were as
follows (dollars in millions):
<TABLE>
FISCAL 1996 FISCAL 1995
---------------------- ---------------------
% OF % OF
DIVISION NET SALES TOTAL NET SALES TOTAL
- -------- --------- ----- --------- -----
<S> <C> <C> <C> <C>
Fragrance $ 74.9 42.9% $ 63.9 48.6%
Cosmetics 59.2 33.9 44.5 33.9
International 40.5 23.2 22.9 17.5
------ ----- ------ -----
$174.6 100.0% $131.3 100.0%
</TABLE>
Total net sales increased in Fiscal 1996 compared to Fiscal 1995 by 33.0%
to $174.6 million.
Fragrance Division net sales increased in Fiscal 1996 compared to Fiscal
1995 by 17.2% to $74.9 million. Approximately three-quarters of this increase
resulted from new launches, primarily NAVIGATOR and AMBUSH, and the
revitalization of existing brands. The remaining increase in Fiscal 1996 net
sales was attributable to the brands acquired during Fiscal 1996.
Cosmetics Division net sales increased in Fiscal 1996 compared to Fiscal
1995 by 33.0% to $59.2 million. Approximately two-thirds of this increase was
attributable to sales of the NAT ROBBINS brand, which was acquired in the GAC
Acquisition. The remaining increase in Fiscal 1996 net sales was attributable
to NAIL FETISH and other new product introductions.
International Division net sales increased in Fiscal 1996 compared to
Fiscal 1995 by 76.9% to $40.5 million. Approximately two-thirds of this
increase was attributable to sales by the Company's Brazilian subsidiary which
was acquired in December 1995. The remaining increase in Fiscal 1996 net sales
was equally attributable to existing brands, new launches and brands acquired
during Fiscal 1996.
GROSS PROFIT. The Company's gross profit in Fiscal 1996 and Fiscal 1995
was as follows (dollars in millions):
40
<PAGE>
<TABLE>
FISCAL 1996 FISCAL 1995
------------------ -------------------
GROSS % OF NET GROSS % OF NET
DIVISION PROFIT SALES PROFIT SALES
- -------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
Fragrance $ 46.6 62.1% $39.3 61.6%
Cosmetics 35.0 59.2 28.5 64.0
International 23.3 57.7 12.1 52.9
------ ---- ----- ----
$104.9 60.1% $79.9 60.9%
</TABLE>
The overall gross profit margin decreased from 60.9% in Fiscal 1995 to
60.1% in Fiscal 1996 due primarily to the changing sales mix among the
Fragrance, Cosmetics and International Divisions.
The Fragrance Division gross profit margin increased from 61.6% in Fiscal
1995 to 62.1% in Fiscal 1996 due primarily to a change in sales mix between
men's and women's brands.
The Cosmetics Division gross profit margin decreased from 64.0% in
Fiscal 1995 to 59.2% in Fiscal 1996 due primarily to the lower gross profit
margin carried by the NAT ROBBINS brand which was acquired in the GAC
Acquisition in 1996.
The International Division gross profit margin increased from 52.9% in
Fiscal 1995 to 57.7% in Fiscal 1996 primarily due to changes in product mix.
SELLING EXPENSES. The Company's selling expenses for Fiscal 1996 and
Fiscal 1995 were $64.8 million (37.1% of net sales) and $52.3 million (39.8% of
net sales), respectively. The increase in Fiscal 1996 selling expenses was
principally attributable to increased advertising and promotional expenses,
reflecting the Company's strategy of reinvigorating existing brand equities. As
discussed above, net sales increased during Fiscal 1996 compared to Fiscal 1995
due to new launches, revitalizing existing brands and new brand acquisitions.
The decrease in selling expenses as a percentage of net sales in Fiscal 1996
compared to Fiscal 1995 is principally attributable to net sales increasing at a
faster rate than selling expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. The Company's general and
administrative expenses for Fiscal 1996 and Fiscal 1995 were $25.7 million
(14.7% of net sales) and $14.0 million (10.7% of net sales), respectively. The
increase in general and administrative expenses in Fiscal 1996 compared to 1995
was attributable to the addition of key personnel at both the Company's
corporate and operating levels in connection with the GAC Acquisition, MEM
Acquisition and P&G Brands Acquisition.
AMORTIZATION OF INTANGIBLE AND OTHER ASSETS. Amortization of intangible
and other assets for Fiscal 1996 and Fiscal 1995 was $9.8 million (5.6% of net
sales) and $5.2 million (4.0% of net
41
<PAGE>
sales), respectively. The increase in amortization in Fiscal 1996 compared
to Fiscal 1995 is principally due to an increase in intangible assets
resulting from the GAC Acquisition, MEM Acquisition and P&G Brands
Acquisition.
The computation of Fiscal 1996 and Fiscal 1995 EBITDA (i.e., EBITDAI,
without taking into account impairment of long-lived assets) is set forth in
the table below (in millions):
<TABLE>
FISCAL 1996 FISCAL 1995
----------- -----------
<S> <C> <C>
Operating Income $ 4.5 $ 8.5
Plus Amortization of Intangibles 9.8 5.2
and Other Assets
Plus Depreciation 4.9 2.8
----- -----
EBITDA $19.2 $16.5
</TABLE>
INTEREST EXPENSE. The Company's total interest expense for Fiscal 1996 and
Fiscal 1995 was $24.4 million and $19.5 million, respectively. Interest expense
consisted of (in millions):
<TABLE>
FISCAL 1996 FISCAL 1995
----------- -----------
<S> <C> <C>
Interest on Senior Notes $ 3.4 $ --
Interest on Old Senior Notes 7.6 9.0
Interest on Subordinated Seller Notes
(payable in 2002) 0.5 0.4
Interest on Old Senior Secured Credit
Facility 2.4 --
Interest on Old Credit Facility 4.9 6.0
Other Interest 0.4 0.2
Accretion of Interest on Old 0.3 0.3
Senior Notes and Subordinated Seller Notes
Amortization of deferred financing costs 3.2 2.6
Accretion of interest on obligations for
minimum royalty payment 1.7 1.0
----- -----
Total Interest Expense $24.4 $19.5
----- -----
----- -----
</TABLE>
INCOME TAX PROVISION. Income tax provision for Fiscal 1996 and Fiscal 1995
was $1.3 million and $1.3 million, respectively. The effective tax rates differ
from the United States federal income tax rate due to the effects of filing
separate income tax returns in certain state and foreign jurisdictions, and
limitations on utilization of federal income tax benefits.
42
<PAGE>
INFLATION
The impact of inflation on the reported periods has not been significant to
date. There can be no assurances that a high rate of inflation in the future
would not have an adverse impact on the Company's results.
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. 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.
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-5, Reporting on the Costs
of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires that entities expense
start-up costs and organization costs as they are incurred. In March 1998, the
AICPA issued SOP No. 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 was issued to
remedy the diversity in the approaches to accounting for internal-use software
by providing guidance on expensing versus capitalization of costs, accounting
for the costs incurred in the upgrading and amortization of capitalized cost
software costs. These statements are effective for fiscal years beginning after
December 15, 1998. Management is currently evaluating the impact such statements
will have on its future financial position and results of operations.
OTHER
Until recently, many computer programs were written using two digits rather
than four digits to define the applicable year in the twentieth century. Such
software may recognize a date using "00" as the year 1900 rather than the year
2000. Utilizing both internal and external resources, the Company is in the
process of defining, assessing and converting or replacing various programs,
hardware and instrumentation systems to make them Year 2000 compatible. The
Company anticipates that it will have "Year 2000 Compliant" software no later
than the end of Fiscal 1998. The Company's Year 2000 project is comprised of
two components - business applications and equipment. The business applications
component consists of the Company's business computer systems, as well as the
computer systems of third-party suppliers or customers, whose Year 2000 problems
could potentially impact the Company. Equipment exposures consist of personal
computers, system servers and telephone equipment whose Year 2000 problems could
also impact
43
<PAGE>
the Company. The cost of the Year 2000 initiatives is not expected to be
material to the Company's results of operations or financial position.
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 in a timely fashion,
the Year 2000 problem can 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 Fiscal
1997 was $55.1 million, consisting primarily of a net loss of $197.4
million, less (1) non-cash items of $109.7 million, (2) increases in
inventories of $1.5 million, offset by (3) decreases in accounts receivable
and prepaid expenses and other assets, increases in accounts payable and
increases in accrued expenses and other current liabilities, and increases in
other of $16.4 million, $1.0 million, $11.2 million, $3.3 million and $2.2
million, respectively.
Net cash provided by investing activities was $10.5 million, consisting
primarily of net proceeds from the sale of marketable securities of $21.6
million and proceeds from the sale of one of the properties acquired in the
MEM Acquisition of $1.8 million, offset by capital expenditures of $11.4
million, other investing activities of $0.9 million and an investment in a
joint venture of $0.6 million, net of cash acquired.
Net cash provided by financing activities was $51.6 million, consisting
primarily of borrowings on the 1997 Credit Facility (which is discussed
below) of $73.5 million offset by repayments on the 1997 Credit Facility of
$17.9 million, the payment of minimum royalty obligations of $3.1 million and
financing fees of $0.9 million.
OUTSTANDING INDEBTEDNESS AND LIQUIDITY REQUIREMENTS. As of March 31,
1998, the Holding Company had total outstanding indebtedness on which it is
the sole obligor of $204.1 million, consisting of (1) $200.0 million of
Senior Notes and (2) $4.1 million of Subordinated Seller Notes. At March 31,
1998, the Credit Parties had total outstanding indebtedness of $55.6 million
under the 1997 Credit Facility, including an overadvance of $0.6 million.
Additionally, the Credit Parties had outstanding letters of credit of $1.7
million
44
<PAGE>
against its 1997 Credit Facility.
1997 CREDIT FACILITY. The maximum borrowing amount under the 1997
Credit Facility, as amended, is (1) $75 million, subject to a borrowing base
calculation based upon eligible inventory and accounts receivable, plus (2)
as part of the $75 million, an overadvance component in the amount of $30
million. The $30 million overadvance component is to be reduced to $15
million at December 31, 1998 and to zero at June 30, 1999. As of June 19,
1998, (1) $56.8 million was outstanding under the 1997 Credit Facility
(including $14.9 million of overadvances) and (3) $2.6 million of letters of
credit were outstanding.
The Credit Parties have agreed to pay to the Revolving Credit Lenders
$500,000 on the earliest to occur of (a) receipt by the Credit Parties of
proceeds in excess of $5 million from the sale of assets or stock of any
subsidiary of a Credit Party (a "Disposition"), (b) payment in full of all
obligations under the 1997 Credit Facility and (c) December 31, 1998. If the
obligations under the 1997 Revolving Credit Facility have not been paid in
full by December 31, 1998, the Credit Parties have agreed to pay the
Revolving Credit Lenders an additional fee of $1 million, payable on the
earliest to occur of (i) receipt of proceeds in excess of $5 million from a
Disposition, (ii) payment in full of all obligations under the 1997 Credit
Facility and (iii) June 30, 1999.
Loans drawn under the 1997 Credit Facility bear interest at the Index
Rate plus 2.00%. Overadvances bear interest at (i) the Index Rate (i.e.,
the higher of the prime rate or the overnight Federal Funds rate plus 0.5%)
plus 4.00% through June 26, 1998, (ii) the Index Rate plus 5.5% through
45
<PAGE>
December 31,1998 and (iii) the Index Rate plus 6.5% through June 30, 1999.
The 1997 Credit Facility is secured by all of the assets of the Credit
Parties. In addition, the Credit Parties pledged 66% of the stock of their
principal first-tier operating foreign subsidiaries and 100% of the stock of
their principal first-tier operating domestic subsidiaries as additional
collateral for the loans under the 1997 Credit Facility.
The 1997 Credit Facility, as amended, contains a number of covenants
that restrict the operation of the Company, including restrictions on, among
other things, (1) certain mergers, acquisitions or sales of the Company's
assets or stock (other than stock of the Holding Company), (2) cash dividends
and other distributions to equity holders of the Company, (3) interest
payments with respect to the Company's indebtedness, (4) payments in respect
of subordinated debt, (5) certain transactions with affiliates, (6)
indebtedness and liens and (7) Restricted Payments. The 1997 Credit Facility
also contains several financial covenants. The Revolving Credit Lenders have
agreed to waive compliance with the Maximum Leverage Ratio and Minimum
Interest Coverage Ratio through June 30, 1999, and the parties have revised
the Minimum EBITDA covenant. The Credit Parties have covenanted not to
permit the outstanding amount of overadvances to exceed certain monthly set
amounts.
The Revolving Credit Lenders have waived or consented to all of the
Company's covenant violations since the inception of the 1997 Credit Facility
for all purposes thereunder except for purposes of the Restricted Payments
covenant. As a result, the Holding Company is prohibited from making the
following payments: (1) scheduled interest payments on the 1997 Senior Notes
and Subordinated Seller Notes, (2) fees due and payable to Kidd Kamm pursuant
to the Management Agreement between Kidd Kamm and the Holding Company, (3)
payments to purchase, redeem or otherwise acquire the Common Stock of the
Holding Company (or options to acquire shares of Common Stock) held by former
employees or their estates and (4) cash dividends on the Holding Company's
10% Preferred Stock.
1997 SENIOR NOTES. Interest in the aggregate amount of $11.8 million on
the Holding Company's 1997 Senior Notes is due and payable on August 15,
1998. The Holding Company does not have sufficient funds to make this
payment and an Event of Default will occur 30 days after such due date. Upon
the occurrence of an Event of Default, holders of 25% of the 1997 Senior
Notes can declare the entire principal amount of the 1997 Senior Notes due
and payable. As discussed above, the 1997 Senior Notes are obligations of
just the Holding Company and are not guaranteed by any of the Holding
Company's operating subsidiaries. At the time the Senior Notes were issued
(prior to the exchange for the 1997 Senior Notes), a special purpose
subsidiary of the Company (the "Guarantor") established an escrow account to
secure certain payments of interest due on the Senior Notes. On February 13,
1998, the Company announced that, in order to maximize its available
liquidity for marketing, product launch and trade related efforts, it had, on
February 12, 1998, advised the trustee under the Indenture, that neither the
Company nor the Guarantor would pay the portion of the interest payment due
on the 1997 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
46
<PAGE>
of the interest due to the holders of the 1997 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. As of
March 31, 1998, this escrow account held approximately $1.8 million. Based
on the Holding Company's current and expected level of operations, the
Holding Company does not expect to be able to pay the installment of interest
due on August 15, 1998. Additionally, under the terms of the 1997 Credit
Facility, the Holding Company is prohibited from making the interest payments
on the 1997 Senior Notes.
OPERATIONAL AND FINANCIAL RESTRUCTURING. As previously discussed,
management has re-evaluated the mass-market fragrance and cosmetics markets
and has developed a new business plan that emphasizes profitability and cash
flow through an operational restructuring, and focusing on the operating
subsidiaries' core and growth brands. There can be no assurance that the
operating subsidiaries will be successful in restructuring their operations.
Failure to successfully implement the operational restructuring of the
operating subsidiaries will have a material adverse effect on the Company's
overall financial condition, business and results of operations.
In addition to the aforementioned operational restructuring, the Holding
Company intends to pursue a financial restructuring of its outstanding 1997
Senior Notes, Preferred Stock and Common Stock, with the goal of de-leveraging
and strengthening its own balance sheet. There can be no assurance that the
Holding Company will be successful in restructuring its 1997 Senior Notes,
Preferred Stock and Common Stock on terms acceptable to it, or at all. Failure
to successfully complete a financial restructuring will have a direct material
adverse effect on the Holding Company's ability to service its obligations to
the holders of its debt and equity obligations and may have an indirect material
adverse effect on the financial condition, business and results of operations of
the operating subsidiaries.
FISCAL 1998. In Fiscal 1998, the Company anticipates that, in addition
to its ordinary operating needs, its cash needs will include: (1)
approximately $10 million to $12 million for costs associated with the
implementation of the operational restructuring component of its new business
plan, (2) approximately $4 million to $6 million for additional professional
fees in connection with the planned financial restructuring of the Holding
Company's obligations, and (3) approximately $10 million for capital
expenditures. The Company is a seasonal business and its operating cash
requirements vary depending on the season. The Company believes that it will
have sufficient liquidity over the next 12 months to enable it to implement
the operational restructuring of the operating subsidiaries, consummate the
Holding Company's financial restructuring, and execute the Company's new
business plan.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial data required by
this Item 8 are set forth in Item 14 of this Form 10-K. All information
which has been omitted is either inapplicable or not required.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS, OFFICERS AND CERTAIN KEY EMPLOYEES
The following table sets forth certain information concerning the
executive officers, directors and certain key employees of the Company as of
May 31, 1998, and those persons who were Named Executive Officers during
Fiscal 1997 (as defined in Part III Item 11. Executive Compensation below).
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas V. Bonoma(1) -- Former Chairman, Chief Executive Officer and Director
Norbert Becker 50 President, Chief Executive Officer and Director
Ronald D. Bowen(2) 54 Group Vice President, Corporate Production and Operations
Robert J. Corso 42 Group Vice President and Chief Financial Officer
Albert E. DeChellis(3) 48 Group Vice President and President, International
Sean E. Greene 57 Group Vice President, President Renaissance Sales, Vice Chairman and Director
John R. Jackson 40 Group Vice President, Corporate Development and Human Resources, and Secretary
Anne E. Leets 46 General Manager, Cosmar
Nicholas Longano 32 Group Vice President, Marketing
Marc L. Rovner(4) 46 Group Vice President and President, Fragrance
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<PAGE>
Anthony J. Wesley 41 Vice President, Treasurer, and Chief Financial Officer, International
Kurt L. Kamm 55 Director
William J. Kidd 56 Director
Richard Nevins 51 Director
Terry M. Theodore 34 Director
</TABLE>
(1) Dr. Bonoma died unexpectedly on May 21, 1998. Mr. Becker was appointed
Chief Executive Officer and a director effective May 28, 1998.
(2) Mr. Bowen left the employment of the Company effective May 15, 1998 as part
of the Company's management restructuring. Effective May 15, 1998, Mr.
Bowen began providing consulting services to the Company pursuant to a
consulting agreement with a two month term.
(3) Mr. DeChellis left the employment of the Company effective May 15, 1998 as
part of the Company's management restructuring.
(4) Mr. Rovner left the employment of the Company effective May 15, 1998 as
part of the Company's management restructuring.
- ---------------------
Officers of the Company are appointed by and serve at the discretion of
the Board of Directors of the Holding Company. Directors of the Holding
Company are elected annually and hold office until the next annual meeting of
shareholders or until their successors are duly elected and qualified.
BUSINESS EXPERIENCE OF DIRECTORS, OFFICERS AND CERTAIN KEY EMPLOYEES
NORBERT BECKER, President and Chief Executive Officer and Director,
joined the Company in July 1996. At a special meeting of the Board of
Directors of the Holding Company held on May 28, 1997, Mr. Becker was
appointed as Chief Executive Officer and a director effective May 28, 1997.
Prior to that, Mr. Becker served as Chief Operating Officer of the Company.
From April 1981 to 1996, Mr. Becker held a number of positions with
Benckiser, GmbH in different countries. His last position was as President
and Chief Executive Officer of Lancaster Group USA, the American subsidiary
of Benckiser, GmbH, selling and marketing prestige fragrances in the United
States. Previously, Mr. Becker was Chief Operating Officer of Lancaster
Group USA and Executive Vice President for Finance and Administration for
Lancaster Worldwide, a division of Benckiser, GmbH. Mr. Becker is a graduate
of Frankfurt University, in Frankfurt, Germany.
ROBERT J. CORSO, Group Vice President and Chief Financial Officer,
joined the Company on October 1, 1997. Prior to joining the Company, Mr.
Corso spent nineteen years with the accounting firm of Arthur Andersen. He
joined Arthur Andersen in 1978, was promoted to manager in 1983,
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<PAGE>
and admitted to the partnership in 1989. He was the audit partner with major
multinational companies and also was the partner in charge of Arthur
Anderson's outsourcing service in metro New York. He has a Bachelor's degree
from Fairfield University and is a Certified Public Accountant.
SEAN E. GREENE, Group Vice President, President, Renaissance Sales, Vice
Chairman and Director, joined the Company in June 1994. From 1991 to 1994,
Mr. Greene served as Vice President of Sales of Quintessence, Inc., which was
acquired by Benckiser, GmbH in 1991. In 1994, Mr. Greene became Senior Vice
President of Sales for Coty, Inc., another Benckiser, GmbH subsidiary. Prior
to joining Benckiser, GmbH, Mr. Greene was Senior Vice President of the Fine
Fragrance Division of Faberge, Inc. and a Vice President of Mary Quant
Cosmetics, an international cosmetics and fragrance company. Mr. Greene is a
graduate of Belvedere College in Dublin, Ireland.
JOHN R. JACKSON, Group Vice President, Corporate Development and Human
Resources, and Secretary, joined the Company in June 1995. From 1994 to
1995, Mr. Jackson was the Vice President of Acquisitions, General Counsel and
Secretary of Brothers Gourmet Coffees, Inc. From 1983 to 1988, he was
engaged in the practice of law at the Denver office of Kirkland and Ellis.
From 1988 to 1994, Mr. Jackson was engaged in the practice of law at the
Denver office of the firm of Ballard Spahr Andrews & Ingersoll, where he
became a partner in 1990. While engaged in private practice, Mr. Jackson
focused on merger and acquisition transactions and private and public
financing. Mr. Jackson taught Business Planning as an adjunct professor of
law at the University of Denver Law School. He holds a B.A. degree from
Davidson College and a J.D. degree from Vanderbilt Law School.
ANNE E. LEETS, General Manager, Cosmar Corporation, joined the Company
in October 1995 as Vice President, Sales of Cosmar. Previously, she held
senior sales and marketing positions with Revlon, L'Oreal, Almay and
1-800-FLOWERS. These positions included Vice President, Retail Sales and
Marketing at 1-800-FLOWERS (from 1994 to 1995), Vice President, National
Account Sales at Revlon (from 1992 to 1994), Director, National Account Sales
at L'Oreal (from 1986 to 1987) and Director, New Product Marketing at Almay
(from 1982 to 1984).
NICHOLAS LONGANO, Group Vice President, Marketing, joined the Company in
April 1997 as the Vice President of Marketing for Cosmar Corporation. He was
promoted to Group Vice President, Marketing, effective March 1, 1998. Prior
to joining the Company, Mr. Longano was Director of Marketing for Revlon for
three years, working on cosmetics and fragrances. From 1990-1994, Mr.
Longano worked for L'Oreal marketing hair care products. He began his career
with Cadbury Schweppes in Melbourne, Australia.
ANTHONY J. WESLEY, Vice President, Treasurer, and Chief Financial
Officer, International, joined the Company in February 1997. From 1990 to
1997, Mr. Wesley was a founder and shareholder in Wesley Mills and Company,
an accountancy practice in Cleveland, Ohio. Prior thereto, he spent six
years as the Manager, Tax Planning, of Cole National Corporation, a leading
specialty retailer. Mr. Wesley holds a B.B.A. from the University of Notre
Dame and is a Certified Public Accountant.
50
<PAGE>
KURT L. KAMM, Director, was elected a director in October 1994. In
1979, Mr. Kamm joined Lineberger Kidd Kamm & Company. He helped to establish
Kidd, Kamm & Company in 1987. Mr. Kamm is a director of Wright Medical
Technology, Inc., a manufacturer and marketer of orthopedic implant devices.
In January 1997, Mr. Kamm formed a separate entity for future investments,
Kamm Theodore, LLC.
WILLIAM J. KIDD, Director, was elected a director in May 1994. In 1974,
Mr. Kidd helped to form and became a principal of Lineberger, Kidd & Company
which, in turn, became Lineberger Kidd Kamm & Company in 1979. In 1987, Mr.
Kidd helped to establish Kidd, Kamm & Company. Mr. Kidd is a director of
Wright Medical Technology, Inc., a manufacturer and marketer of orthopedic
implant devices. In January 1997, Mr. Kidd formed a separate entity for
future investments, Kidd & Company, LLC.
RICHARD NEVINS, Director, was elected a director in March 1998. Since
1992, Mr. Nevins has served as the President of Richard Nevins & Associates,
a financial advisory firm. Mr. Nevins was elected a director of Fruehauf
Trailer Corporation ("Fruehauf") in 1995, and was elected as Chairman of
Fruehauf's executive committee in August 1996. On October 7, 1996, Fruehauf
filed for relief under Chapter 11 of the Bankruptcy Code. Together with the
other members of the Fruehauf board who had been elected by the shareholders,
Mr. Nevins resigned his positions with Fruehauf effective October 9, 1996.
During 1996, Mr. Nevins served as acting Chief Operating Officer and Chief
Restructuring Officer for Sun World International, a California agricultural
firm, following the filing of a petition in bankruptcy by Sun World
International. Since November 1996, Mr. Nevins has been a director of Kevco,
Inc. From December 1997 to June 1998, Mr. Nevins served as a director of
ERLY Industries; from 1995 to 1996, he served as a director of Ampex
Corporation; and from 1993 to 1995, he served as a director of The Actava
Group (now Metromedia International Group). Mr. Nevins is the designee of the
holders of the Holding Company's 10% Preferred Stock pursuant to the right
granted to such holders under the Company's Restated Certificate of
Incorporation to elect one director.
TERRY M. THEODORE, Chairman and Director, was elected a director in May
1994 and was appointed Chairman in July 1997. Mr. Theodore is a principal in
Kamm Theodore & Company, L.L.C., which was formed in January 1997. Prior to
that time, Mr. Theodore was a partner at Kidd Kamm & Company, and served in
the Financial Institutions Group of Bear, Stearns & Co. from 1988 to 1989.
VOTING ARRANGEMENTS WITH RESPECT TO DIRECTORS
Under the Company's Restated Certificate of Incorporation, the holders
of the outstanding shares of the Holding Company's 10% Preferred Stock have
the right to elect one member of the Company's Board of Directors. Mr. Nevins
was elected pursuant to this right.
Holders of the Series C Preferred Stock (acting together with the
holders of the Series B Preferred Stock, as a single class) have the right to
nominate three candidates for consideration for the Holding Company's Board
of Directors. The Holding Company is obligated to use all reasonable
commercial efforts to cause the election of one of such nominees selected by
the holders of the Series C Preferred Stock (the "Series C Preferred
Nominee"). No Series C Preferred Nominee has been elected to
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<PAGE>
replace the last Series C Preferred Nominee, who resigned from the Board in
March, 1998. Pursuant to the Securities Purchase Agreement, dated as of
September 27, 1996, between the Holding Company and Bastion Capital Fund,
L.P. ("Bastion"), the Holding Company has agreed that, in the event Bastion
is not entitled to designate the Series C Preferred Nominee, the Holding
Company will include one person selected by Bastion in its nominations for
the Holding Company's Board of Directors and to use all reasonable commercial
efforts to cause the election of such person to the Board, so long as Bastion
owns 75% (in value) of (1) the shares of common stock purchased by Bastion
and (2) the units purchased by Bastion pursuant to the Series B Preferred
Stock offering (the "Minimum Share Amount"). Pursuant to a Voting Agreement
dated September 27, 1996, KKEP agreed that, in the event Bastion is not
entitled to designate the Series C Preferred Nominee, it will vote its shares
of common stock in favor of a nominee designated by Bastion for election to
the Holding Company's Board of Directors provided that Bastion has the
Minimum Share Amount.
Pursuant to two Shareholder Acknowledgments, KKEP, as the owner of the
majority of the issued and outstanding shares of the Company's Common Stock,
agreed to vote (or give a written consent with respect to) all of the KKEP
shares in favor of the election of Norbert Becker and Sean Greene to the
Board of Directors. Such Acknowledgments were executed in connection with
the execution of employment agreements by Messrs. Becker and Greene. See
Part III, Item 11. Executive Compensation, "Employment Agreements" below.
COMPENSATION OF DIRECTORS
In November 1997, the Board approved the payment of $12,500 per month
(starting in October, 1997) to Mr. Theodore for rendering services to the
Company as Chairman of the Board. Kidd Kam agreed that the accrual of annual
fees owed to it under the Management Agreement entered into between the
Company and Kidd Kamm August 16, 1994 would be reduced by the fees to be paid
to Mr. Theodore. See Part III, Item 13. Certain Relationships and Related
Transactions, "Management Agreement" below.
With the exception of the compensation to Mr. Theodore for his role as
Chairman, directors of the Company are not compensated for their services as
directors. All non-employee directors of the Company are reimbursed for
ordinary and necessary expenses incurred in attending Board or committee
meetings.
COMMITTEES OF THE BOARD
There are three committees of the Board.
The Audit Committee consists of Messrs. Theodore, Kidd and Becker. The
Audit Committee held five meetings during Fiscal 1997. The Audit Committee
recommends selection of the Company's independent auditors and is primarily
responsible for reviewing recommendations made by the Company's independent
auditors, evaluating the Company's adoption of such recommendations and
evaluating, and making recommendations with respect to, the Company's
internal audit functions.
52
<PAGE>
The Compensation Committee consists of Messrs. Theodore, Kidd and
Becker. The Compensation Committee held three meetings during Fiscal 1997.
The purpose of the Compensation Committee is to review and make
recommendations to the Board on officer and employee compensation issues.
The Financial Affairs Committee consists of Messrs. Theodore and Kidd.
The Financial Affairs Committee held two meetings during Fiscal 1997. The
purpose of the Financial Affairs Committee is to evaluate and make
recommendations regarding the Company's debt and equity structure.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation for services rendered in all capacities
earned by the Company's Chief Executive Officer and the four other most
highly compensated executive officers (collectively, the "Named Executive
Officers") during Fiscal 1995, Fiscal 1996 and Fiscal 1997.
53
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
LONG-TERM
COMPENSATION
SHARES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION PERIOD SALARY BONUS COMPENSATION OPTIONS GRANTED COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
Thomas V. Bonoma, 1997 $125,000 $ (1) - - -
former Chairman and 1996 470,592 150,000 - - -
Chief Executive 1995 400,000 - - - -
Officer
Norbert Becker, 1997 $398,798 $ - - (3) -
President and Chief 1996 N/A N/A N/A N/A N/A
Executive Officer(2) 1995 N/A N/A N/A N/A N/A
Sean E. Greene, Group 1997 $305,250 $ - - - -
Vice President 1996 275,000 125,000 - - -
President, Renaissance 1995 250,000 - - - -
Sales and Vice
Chairman
Albert E. DeChellis, 1997 $250,008 $ - - - -
former Group Vice 1996 244,094 80,000 - - -
President and 1995 225,000 - - - -
President,
International
Marc Rovner former 1997 $190,000 $194,981 - - -
Group Vice President 1996 N/A N/A N/A N/A N/A
and President, 1995 N/A N/A N/A N/A N/A
Fragrance(4)
Ronald D. Bowen, 1997 $214,871 $ - - - -
former Group Vice 1996 206,960 120,000 - - -
President, Corporate 1995 166,667 - - - -
Production and
Operations
</TABLE>
(1) Pursuant to the Employment Agreement between the Company and Dr. Bonoma,
the Company is obligated to pay to Dr. Bonoma's estate a bonus equal to
$93,750 (75% of his Base Salary pro rated for the part of Fiscal 1997 to
the date of his death). The Board anticipates making this payment during
the quarter ending September 30, 1998.
(2) Mr. Becker was appointed Chief Executive Officer effective May 28, 1997.
He was not a Named Executive Officer prior to that date.
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<PAGE>
(3) The Board approved a grant of options to purchase 40,682 shares of
Common Stock to Mr. Becker in August 1997; however, the grant date
was dependent on the Board setting a new exercise price for options,
which, in the case of incentive options, shall not to be less than the
fair market value of the Common Stock on the grant date. No new
exercise price has been set.
(4) Mr. Rovner was not a Named Executive Officer prior to Fiscal 1997.
STOCK OPTION GRANTS
No stock options were exercised during Fiscal 1997 by the Named
Executive Officers. See note 3 under the Summary Compensation Table above
regarding stock option grants to Named Executive Officers.
STOCK OPTION PLAN
The Holding Company's Stock Option Plan (together with all amendments,
the "Plan") was approved by the Board and stockholders in January 1995. In
February 1997, the Board approved an amendment to the Plan increasing the
number of shares of Common Stock eligible for stock option grants under the
Plan (and the number of shares of Common Stock reserved for issuance upon the
exercise of stock options granted under the Plan) to 136,320. The amendment
was approved as of February 6, 1998, by the written consent of a majority of
the holders of the Common Stock. Options granted under the Plan may include
those qualified as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended, and non-qualified stock options. The Plan
is administered by the Board which has wide latitude in determining the
recipients of options and numerous other terms and conditions of the Options.
All of the Company's regular employees and all directors are eligible to
receive Option grants under the Plan. Non-employees may receive only
nonqualified options. Options become exercisable in such amounts and at such
intervals as the Board provides for in the applicable Option agreement(s). As
of March 31, 1998, there were outstanding Options under the Plan with respect
to 86,260 shares of Common Stock, 1,237 Options had been exercised and 48,823
shares were available for Option grants. The majority of the options become
exercisable with respect to 25% of their shares in each of the four years
1995 through 1998, and expire in January 2005.
The exercise price for the shares purchased upon exercise of all Options
granted under the Plan is determined by the Board. The exercise price of an
incentive stock option must be at least equal to the fair market value of the
Common Stock on the date such option is granted (110% of the fair market
value for stockholders who, at the time the option is granted, own more than
10% of the total combined classes of stock of the Holding Company or any
subsidiary).
No option may have a term of more than ten years (five years for
incentive stock options granted to 10% or greater stockholders). Options
generally may be exercised only if the option holder remains continuously
associated with the Holding Company or a subsidiary from the date of grant to
the date of exercise. However, Options may be exercised within certain
specified periods following
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<PAGE>
termination of employment or ceasing to be a director by reason of death,
disability or retirement of the optionee or any reason other than termination
of employment for cause or without the consent of the Company. The Board may
cancel, by giving an optionee written notice, any Option that remains
unexercised upon the date of the consummation of a merger, consolidated
reorganization, liquidation or dissolution in which the Company does not
survive or a sale, lease exchange or other disposition of all or
substantially all of the property and assets of the Company.
EMPLOYMENT AGREEMENTS
DR. BONOMA. The Company entered into an employment agreement, dated as
of August 6, 1996, with Dr. Bonoma, pursuant to which Dr. Bonoma was employed
as the Chief Executive Officer of the Holding Company and each of its present
and future subsidiaries. Dr. Bonoma received a base salary of $500,000 per
year. Upon Dr. Bonoma's death, his estate became entitled to receive his
unpaid salary through the date of his death and a bonus of 75% of his base
salary pro rated for the part of the year to the date of his death.
MR. BECKER. The Company entered into an employment agreement, dated as
of August 27, 1997, with Norbert Becker (his "Employment Agreement") pursuant
to which the Company agreed to continue to employ Mr. Becker as President
and Chief Executive Officer of the Holding Company and each of its present
and future subsidiaries for the period commencing on July 1, 1997 and ending
on June 30, 2000, unless terminated earlier in accordance with its terms.
Pursuant to his Employment Agreement, Mr. Becker's base salary for the
fiscal year ended March 31, 1998, was $360,000 (on an annualized basis), and
his base salary for the fiscal years ending March 31, 1999 and March 31, 2000
(and the portion of the following fiscal year to the expiration of the
Employment Agreement) will be $390,000 and $450,000, respectively. In
addition, Mr. Becker is eligible to receive an annual bonus of 100% (or
greater, if applicable) of his base salary based on certain objectives
(including factors such as annual EBITDA targets and targets related to
return on assets and return on capital) to be established by the Board.
Mr. Becker's Employment Agreement provides for other fringe benefits,
including participation in retirement and other employee welfare and benefit
(both pre- and post- retirement) plans available to the Company's executives
generally, and use of a car leased by the Company. In addition, the Company
purchased for Mr. Becker (who is the owner) a $5 million life insurance
policy and a disability policy.
The Company has the right to terminate Mr. Becker's employment at any
time for "cause," as defined in his Employment Agreement. Upon the
occurrence of any such termination, and upon termination by Mr. Becker of his
employment with the Company for any reason other than "good reason," as
defined in his Employment Agreement, Mr. Becker will be entitled to receive
only accrued but unpaid base salary and other benefits to which he is
entitled to the date of termination, plus unreimbursed expenses incurred
through the date of termination.
In the event the Company terminates Mr. Becker's employment without
"cause" or Mr. Becker terminates his employment with "good reason," Mr.
Becker (or his estate, in the event of his death) will be entitled to receive
(1) the amount of any accrued but unpaid base salary and other
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<PAGE>
benefits to which Mr. Becker is entitled through the date of termination,
plus (2) the greater of (a) the applicable base salary for each year (pro
rated for any part thereof) through the end of the term of his Employment
Agreement or (b) one year's base salary (as in effect in the year of
termination) (in each case, net of any severance payments paid to Mr. Becker
under any severance policy then in effect), plus (3) a bonus amount as
defined in the his Employment Agreement ((2) and (3) together are referred to
as the "Severance Payments"). The Severance Payments are to be made monthly.
During the period he is receiving Severance Payments, Mr. Becker (or his
estate) will also be entitled to receive the full fringe benefits he was
receiving immediately prior to termination.
At all times while he is employed by the Company, Mr. Becker is
prohibited from competing with the Company in the mass market fragrance,
color cosmetics, or artificial or natural nail products business. The scope
of the non-compete is worldwide. Upon expiration of Mr. Becker's Employment
Agreement or termination of Mr. Becker's employment for any reason, the
Company may elect to require Mr. Becker to comply with the non-compete for a
period of one or two years from the date of termination. In the event Mr.
Becker's Employment Agreement expires or Mr. Becker's employment is
terminated (1) by the Company without cause or (2) by Mr. Becker for any
reason, and the Company elects to enforce the non-compete provision, the
Company is obligated to pay Mr. Becker $500,000 per year for each year (one
or two) that the non-compete will be enforced.
MR. GREENE. The Company entered into an employment agreement, dated as
of November 1, 1997, with Sean Greene (his "Employment Agreement") pursuant
to which the Company agreed to continue to employ Mr. Greene as Group Vice
President and President, Renaissance Sales, for the period commencing on
November 1, 1997 and ending on October 31, 2000, unless terminated earlier in
accordance with its terms.
Pursuant to his Employment Agreement, Mr. Greene receives an annual base
salary of $350,000, subject to annual review, and possible increase, in the
discretion of the Board of Directors. In addition, Mr. Greene is entitled to
participate in the Company's senior executive annual bonus program, on terms
to be determined by the Board.
Mr. Greene's Employment Agreement provides for other fringe benefits,
including insurance and retirement benefits, use of a car leased by the
Company and all other benefits generally available to the Company's executive
employees as in effect from time to time. In addition, his Employment
Agreement provides that Mr. Greene shall be entitled to participate in any
retention program adopted by the Board of Directors at the same level as the
Chief Executive Officer. See Part III, Item 11. Executive Compensation,
"Retention Programs" below.
The Company has the right to terminate Mr. Greene's employment at any
time for "cause," as defined in his Employment Agreement. Upon the
occurrence of any such termination, and upon termination by Mr. Greene of his
employment with the Company for any reason other than "good reason," as
defined in his Employment Agreement, Mr. Greene will be entitled to receive
only accrued but unpaid base salary and other benefits to which he is
entitled to the date of termination, plus unreimbursed expenses incurred
through the date of termination.
In the event the Company terminates Mr. Greene's employment without
"cause," or Mr. Greene terminates his employment with "good reason," Mr.
Greene (or his estate, in the event of his
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<PAGE>
death) will be entitled to receive (1) the amount of any accrued by unpaid
base salary and other benefits to which he is entitled through the date of
termination, and unreimbursed expenses incurred through the date of
termination, plus (2) one year's base salary (net of any severance benefits
paid to him 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 his employment is terminated, Mr. Greene will receive
the full amount of the bonus he would have been entitled to receive but for
the termination of his employment without "cause " or for "good reason." The
Severance Payments are payable monthly. During the time he is receiving
Severance Payments, Mr. Greene is also entitled to receive all fringe
benefits he was receiving immediately prior to his termination.
At all times while he is employed by the Company, and, if applicable,
for so long as he is receiving Severance Payments as described above, Mr.
Greene is prohibited from engaging in any business, or directly or indirectly
owning, managing controlling, participating in, consulting with or rendering
any services to, any enterprise competing with any business of the Company
conducted or proposed (during the term of his Employment Agreement or on the
termination date) to be conducted within any geographical are in which the
Company engages or plans (during the term of his Employment Agreement or on
the termination date) to engage in such business.
SEVERANCE AGREEMENTS
Three of the Named Executive Officers of the Company, Ron Bowen, Al
DeChellis and Marc Rovner, received substantially similar severance
arrangements in connection with the termination of their employment with the
Company during May 1998. Each will be paid his normal salary for a period of
twelve (12) months following his termination. These payments will be made
monthly. During the period they are receiving such payments, they will be
entitled to continue to participate in the medical and dental insurance
programs and the 401K plan offered by the Company to its employees during
such period. Ownership of the cars that each was using as of the termination
dates was transferred to them as of the termination dates (the Company has
the option of continuing to make the lease payments on the cars and
transferring title at the end of the term of the leases). In exchange for
the benefits described above, each of the executives waived and released all
statutory and common law claims against the Company, to the fullest extent
permitted by law.
CONSULTING AGREEMENTS
The Company entered into a consulting agreement with Mr. Bowen for a
two-month consulting term commencing on May 15, 1998. Mr. Bowen will receive
a monthly fee in the same amount as his monthly salary prior to the
termination of his employment for his consulting services. The severance
payments payable to Mr. Bowen under the severance agreement discussed above
will commence after the termination of the consulting term.
BONUS PLANS
INCENTIVE BONUS PLANS. The Company adopted an incentive bonus plan for
Fiscal 1997 (the "1997 Bonus Plan") under which eligible employees of the
Company (including the Named Executive Officers) who are actively employed on
the day the bonus is paid would be entitled to
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receive cash bonuses as a percentage of their base salaries depending upon
whether a combination of EBITDA and working capital management targets
(established by the Board) were achieved in Fiscal 1997. The amount of the
bonus varied from 10% to 100% of an employee's Fiscal 1997 base salary,
depending on the employee's position with the Company. The base target level
would be earned if the Company achieved the base targets. Thereafter,
increasing percentages of the target award would be payable until 100% of the
established EBITDA and working capital management targets were achieved.
Final award payments are subject to the approval of the Chairman.
In connection with the MEM Acquisition, the Company established the MEM
Employee Stay Bonus Program for twenty-nine employees of MEM in order to
encourage them to remain in the employ of the Company following the closing.
On the closing date of the MEM Acquisition, $207,932 was deposited in an
escrow account. As of March 31, 1998, all amounts owed pursuant to the MEM
Employee Stay Bonus Program have been paid and the escrow account has been
closed.
RETENTION PROGRAMS
The Company has adopted two management retention programs, one for
senior management and another for middle management.
SENIOR MANAGEMENT PROGRAM. At its October 22, 1997 meeting, the Board
approved a retention program for senior management personnel (the "Senior
Management Program"). The purpose of the Senior Management Program is to
foster the continuous employment of key management personnel of the Company
and to alleviate concerns of management that may arise as a result of the
Company's current restructuring. Each of the Named Executive Officers
participates in the Senior Management Program. Under the Senior Management
Program, the Named Executive Officers are eligible to receive the following
amounts (or such greater amounts as the Company, in its sole discretion,
determines) (the "Retention Payments"): (1) Mr. Becker may receive $379,620,
(2) Mr. Greene may receive $379,620, (3) Mr. DeChellis may receive $206,400,
(4) Mr. Bowen may receive $206,400, and (5) Mr. Rovner may receive $316,350.
Retention Payments will be made under the Senior Management Program only if a
"significant transaction," as defined in the letter agreements executed in
connection with the Senior Management Program (the "Senior Management
Program Agreements"), is consummated by December 31, 2004 (or a definitive
agreement to consummate a significant transaction is entered into on or prior
to December 31, 2004 and such transaction is ultimately consummated) and the
executive is still employed on the date of the consummation of the
transaction, or ceased to be employed prior to such date due to the
executive's death or disability (as defined in the Senior Management Program
Agreement) or termination by the Company without "cause," as defined in the
Senior Management Program Agreement. Messrs. DeChellis, Bowen, and Rovner
were terminated in May 1998 "without cause" for this purpose. In addition to
the Named Executive Officers, five other executive officers of the Company
participate in the Senior Management Program under substantially the same
terms as the Named Executive Officers. If paid in full, the payments to
these five officers would aggregate approximately $1.4 million.
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MIDDLE MANAGEMENT PROGRAM. At its February 12, 1998 meeting, the Board
approved a retention program for middle management personnel (the "Middle
Management Program"), designed for the same purpose as the Senior Management
Program. As of June 15 1998, approximately 30 personnel participate in the
Middle Management Program, with individual payments ranging from $5,000 to
$50,000, which, if paid in full, would aggregate approximately $620,000.
The right to receive payments under the Middle Management Program vests on
two dates, the "First Payment Date" and the "Second Payment Date," as defined
in the letter agreements executed in connection with the Middle Management
Program (the "Agreements"), provided that the participant is either still
employed by the Company as of such date or ceases to be employed due to a
Qualifying Termination (as defined in the Agreements).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during Fiscal 1997 were
Messrs. Theodore, Kidd and Becker. None of the executive officers of the
Company serves or served on the compensation committee of another entity or
on any other committee of the board of directors of another entity performing
similar functions during Fiscal 1997, and no executive officer of the Company
serves or served as a director of another entity who has or had an executive
officer serving on the Board.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1998, information with
respect to the beneficial ownership of shares of the Company's Common Stock
by (1) each stockholder known by the Company to be the beneficial owner of
more than 5% of such shares, (2) each director of the Company, the Company's
Chief Executive Officer and each of the other Named Executive Officers in the
Summary Compensation Table contained herein and (3) directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Name of Stockholder Number of Shares Percent*
------------------- ---------------- --------
<S> <C> <C>
Terry M. Theodore(1) 605,286 73.4%
Kurt L. Kamm(1) 605,286 73.4%
William J. Kidd(1) 605,286 73.4%
KKEP(1) 605,286 73.4%
c/o Kidd, Kamm & Company
Three Pickwick Plaza
Greenwich, CT 06830
Norbert Becker 0 **
Ronald D. Bowen 3,632 **
Albert E. DeChellis 6,053 **
Sean E. Greene 8,070 1.0%
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<CAPTION>
Name of Stockholder Number of Shares Percent*
------------------- ---------------- --------
<S> <C> <C>
Marc Rovner 0 **
Richard Nevins 0 **
Triumph-Connecticut Limited 59,825 6.8%
Partnership(2)
60 State Street, 21st Flr
Boston, AM 02109
Bastion(3) 95,766 11.0%
Suite 2960
1999 Avenue of the Stars
Los Angeles, CA 90067
CIBC WG Argosy Merchant Fund 51,959 6.3%
2, L.L.C.(4)
c/o CIBC Wood Gundy Securities
Corp.
425 Lexington Avenue
New York, NY 10017
All Directors and Executive 810,914 87.3%
Officers as a group
</TABLE>
- ------------
* The percentages in this column have been calculated pursuant to Rule
13d-3(d)(1) of the Exchange Act and do not give effect to options and
warrants, except for options and warrants of the person for whom the
percentage is being calculated that are exercisable within 60 days.
** Less than 1%.
(1) William J. Kidd, Kurt L. Kamm, and Terry M. Theodore are affiliates of KKEP
and for purposes of this report may be deemed to beneficially own the
shares owned of record by KKEP.
(2) Represents shares issuable upon exercise of Common Stock purchase
warrants acquired by Triumph-Connecticut Limited Partnership
("Triumph-Connecticut") in connection with the purchase by that entity
of shares of the Holding Company's 10% Preferred Stock. Does not include
175 shares issuable upon exercise of warrants held by Jeffrey Lane and
Meri Lane (collectively, the "Lanes"), as trustees of a trust that is
not affiliated with Triumph-Connecticut. Jeffrey Lane is affiliated with
Triumph-Connecticut. As of March 31, 1998, Triumph-Connecticut and the
Lanes also held approximately 14,516 shares and approximately 51 shares,
respectively, of the 10% Preferred Stock.
(3) Represents 51,959 shares of Common Stock acquired by Bastion in the Equity
Financing in August and September 1996 and includes 43,807 shares of Common
Stock issuable upon
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exercise of Common Stock warrants acquired by Bastion in the Series B
Preferred Stock Offering.
(4) The Initial Purchaser (as defined below under the caption "Financing
Fees"), an affiliate of the CIBC Fund, may from time to time hold a
position in the Company's Series B Warrants.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT
On August 16, 1994 the Company entered into a Management Agreement (the
"Management Agreement") with Kidd Kamm. Pursuant to the Management Agreement,
Kidd Kamm received a fee of $675,000 upon the closing of the Cosmar
Acquisition and, subject to certain restrictions contained in the Indenture
governing the Company's 1997 Senior Notes and in the 1997 Credit Facility, is
entitled to receive an annual management fee of $675,000 subject to increases
as determined by the Board, plus out-of-pocket expenses incurred for
management, consulting and related services to be rendered to the Company.
Kidd Kamm agreed that the accrual of annual fees owed under the Management
Agreement would be reduced by the $12,500 per month payments received by Mr.
Theodore for his services to the Company as Chairman of the Board. At the
closing of the offering of the 1997 Senior Notes, Kidd Kamm received fees
equal to $1.35 million. Principals of Kidd Kamm organized KKEP which is the
owner of 73.4% of the currently outstanding Common Stock.
In November 1996, the partners of Kidd Kamm agreed to a division of the
firm and its operations in relation to future investments. The firm's two
founding partners, William J. Kidd and Kurt L. Kamm, formed separate entities
for future investments. The ongoing support and management provided to the
Company under the Management Agreement will not be affected by the
aforementioned changes in Kidd Kamm. Members of the investment firms formed
by the founding partners of Kidd Kamm who were primarily responsible for
providing support and assistance to the Company as employees of Kidd Kamm
will continue to provide such services throughout the term of the Management
Agreement.
STOCKHOLDERS AGREEMENT
Management, Kidd Kamm and certain other equity holders have entered into
a stockholders agreement dated August 18, 1994 with the Holding Company (the
"Stockholders Agreement"), whereby such equity holders of the Company are
restricted in the transfer of their shares of Common Stock for a period of
eight years from that date unless such transfer is made in accordance with
the Stockholders Agreement. In addition, each person granted options under
the Plan enters into a stockholders agreement with substantially the same
terms and conditions as the Stockholders Agreement.
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CONSULTING AGREEMENT
Prior to the effective date of the termination of Ron Bowen's employment
with the Company, the Company and Mr. Bowen entered into a two-month
consulting agreement, commencing on May 15, 1998. See Part III, Item 11.
Executive Compensation, "Consulting Agreement" above.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) AND (d) FINANCIAL STATEMENTS AND SCHEDULE
Information called for by this item is set forth in the financial
statements on pages F-1 through F-32 hereof.
(b) REPORTS ON FORM 8-K
Form 8-K with respect to operating results for the third fiscal quarter
ended December 31, 1997, filed with the SEC on February 3, 1998.
Form 8-K with respect to certain 1997 Credit Agreement and 1997 Senior
Notes issues, filed with the SEC on February 13, 1998.
Form 8-K with respect to retaining Wasserstein, Perella & Co., Inc., as
financial advisor, filed with the SEC on March 31, 1998.
(c) EXHIBITS
See the Exhibit Index on pages 64 through 73 hereof.
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EXHIBIT INDEX
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<S> <C> <C>
2.1 (6) Stock Purchase Agreement among Cosmar Corporation,
a Delaware corporation ("Cosmar Corporation"),
Larry Pallini, Vincent Carbone and Great American
Cosmetics, Inc., a New York corporation ("GAC"),
entered into on June 27, 1996, providing for the
acquisition by Cosmar Corporation of all of the
capital stock of GAC.
2.2 (6) Agreement and Plan of Merger, among Renaissance
Cosmetics, Inc., a Delaware corporation ("RCI" or
the "Company"), Renaissance Acquisition, Inc., a
New York corporation ("RAI") and MEM Company,
Inc., a New York corporation ("MEM"), dated as of
August 6, 1996.
2.3 (13) Asset Sale and Purchase by and among the Procter
& Gamble Company (as Seller) and Dana Perfumes
Corp. ("Dana") (as Buyer) and solely for purposes
of Sections 4.6, 6.6 and 6.12 hereof of
Renaissance Cosmetics, Inc. and Cosmar Corporation
dated as of October 25, 1996.
2.4 (13) Form of Asset Sale and Purchase Agreement among
P&G foreign affiliate sellers and Dana, dated as
of October 29, 1996.
3.1 (1) Restated certificate of incorporation of RCI filed
with the Secretary of State of the State of
Delaware on August 17, 1994.
3.1.2 (8) Certificate of Designation of Preferences and
Rights of Senior Exchangeable Redeemable Preferred
stock, Series A, of RCI, filed with the Secretary
of State of the State of Delaware on May 29, 1996.
3.1.3 (7) Certificate of Designation of Preferences and
Rights of Senior Redeemable Preferred Stock,
Series B, of RCI, filed with the Secretary of
State of the State of Delaware on August 15, 1996.
3.1.4 (14) Certificate of Increase of Certificate of
Designation of Preferences and Rights of Senior
Redeemable Preferred Stock, Series B, of RCI,
filed with the Secretary of State of the State of
Delaware on September 27, 1996.
3.1.5 (14) Certificate of Designation of Preferences and
Rights of Senior Redeemable Preferred Stock,
Series C, par value $.01 per share, of RCI, filed
with the Secretary of State of the State of
Delaware on August 15, 1996.
3.1.6 (14) Certificate of Increase of Certificate of
Designation of Preferences and Rights of Senior
Redeemable Preferred Stock, Series C, of RCI,
filed with the Secretary of State of the State of
Delaware on September 27, 1996.
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3.2 Amended and Restated By-laws of RCI
3.3 (16) 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 (16) By-laws of RGI.
4.1 (15) Indenture, dated February 7, 1997, among RCI, as
issuer, RGI, as guarantor, and United States Trust
Company of New York, as trustee.
4.2 (15) Escrow and Disbursement Agreement, dated
February 7, 1997, among RCI, as issuer, RGI, as
guarantor, United States Trust Company of New
York, as trustee, and United States Trust Company
of New York, as escrow agent.
4.3 (15) Notes Registration Rights Agreement, dated
February 7, 1997, between RCI, as issuer, and CIBC
Wood Gundy Securities Corp., as initial purchaser.
10.1 (1) License agreement (the "Houbigant U.S. License
Agreement"), dated May 1994, between Houbigant
Inc., a Delaware corporation ("Houbigant") and
Parfums Parquet Incorporated (f.k.a. New Fragrance
License Corp.) ("Parfums Parquet").
10.2 (2) Amendment to the Houbigant U.S. License Agreement,
dated May 12, 1994.
10.3 (2) Amendment to the Houbigant U.S. License Agreement,
dated June 1, 1994.
10.4 (1) Amendment to the Houbigant U.S. License Agreement,
dated June 24, 1994.
10.5 (1) Three letter agreements relating to the Houbigant
U.S. License Agreement, each dated July 1, 1994.
10.6 (1) Letter of Agreement dated July 1, 1994, between
Houbigant and Parfums Parquet relating to the
Houbigant U.S. License Agreement.
10.7 (10) Right of Last Refusal Agreement dated July 1, 1994
among Houbigant, Luigi Massironi, Michael Sherman
and Parfums Parquet relating to the Houbigant U.S.
License Agreement.
10.8 (1) Guaranty, dated July 1, 1994, by Cosmar in favor
of Houbigant of all obligations of Parfums Parquet
under the Houbigant U.S. License Agreement.
10.9 (10) Security Agreement - Trademarks, dated July 1,
1994, among Houbigant, Parfums Parquet, Chemical
Bank New Jersey N.A. and National Westminster
Bank, U.S.A.
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10.10 (10) Assignment for Security, dated July 1, 1994,
between Houbigant and Parfums Parquet.
10.11 (1) Letter agreement, dated August 18, 1994, between
Parfums Parquet and Houbigant, with respect to
Assumption and Assignment Agreement.
10.12 (2) Restated and Amended License Agreement (the
"Harby's License Agreement"), dated August 16,
1994, between Harby's Corporation NV ("Harby's")
and Houbigant.
10.13 (1) Assumption and Assignment Agreement (the
"Assumption and Assignment Agreement"), dated
August 18, 1994, among Houbigant, Harby's and
Parfums Parquet.
10.14 (1) Amendment, dated September 19, 1994, to the
Assumption and Assignment Agreement.
10.15 (1) Letter Agreement, dated August 18, 1994, among
Harby's, Houbigant and Parfums Parquet, regarding
certain rights under the Harby's License
Agreement.
10.16 (2) License Agreement (the "Worldwide License
Agreement"), dated August 10, 1994, by and between
Houbigant, Houbigant GmbH and Parfums Parquet.
10.17 (2) Amendment dated August 16, 1994 to the License
Agreement dated August 10, 1994 between Houbigant,
Houbigant GmbH and Parfums Parquet.
10.18 (2) Amendment dated September 16, 1994 to the License
Agreement dated August 10, 1994, between
Houbigant, Houbigant GmbH and Parfums Parquet
Incorporated.
10.19 (10) Letter Agreement, dated February 14, 1995,
relating to the License Agreement dated August 10,
1994 between Houbigant and Parfums Parquet.
10.20 (10) Right of Last Refusal Agreement, dated February
14, 1995, among Houbigant, Luigi Massironi,
Michael Sherman and Parfums Parquet relating to
the Worldwide License Agreement.
10.21 (10) Guaranty, dated February 28, 1995, by Cosmar in
favor of Houbigant of all obligations of Parfums
Parquet under the License Agreement dated
August 10, 1994 between Houbigant, Houbigant GmbH
and Parfums Parquet.
10.22 (10) Security Agreement - Trademarks, dated February
28, 1995, among Houbigant, Parfums Parquet,
Chemical Bank New Jersey N.A. and National
Westminster Bank, USA.
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10.22.1 (10) Assignment for Security Agreement, dated February 14,
1995, between Houbigant and Parfums Parquet.
10.23 (2) Letter Agreement dated September 21, 1994 amending the
Worldwide License Agreement, the Houbigant U.S. License
Agreement and the Harby's License Agreement by and
between Parfums Parquet Incorporated, Harby's,
Houbigant, and Houbigant GmbH.
10.24 (11) Amendment, Modification and Settlement Agreement, dated
July 31, 1996, among Houbigant, Dana Perfumes Corp.
(f.k.a. Parfums Parquet) ("Dana") and Houbigant (1995)
Limitee amending the Worldwide License Agreement and
the Houbigant U.S. License Agreement and providing for
the execution of a new license agreement for Canada.
10.25 (11) License Agreement (the "Canadian License"), dated July
31, 1996, between Houbigant and Houbigant (1995)
Limitee.
10.26 (11) Letter Agreement, dated July 1996, among Houbigant,
Dana and Houbigant (1995) Limitee, amending the
provisions for royalty payments under the Worldwide
License Agreement, the Houbigant U.S. License Agreement
and the Canadian License Agreement.
10.27 (11) Amendment No. I to License Agreements, dated July 31,
1996, among Houbigant, Dana and Houbigant (1995)
Limitee, amending the Worldwide License Agreement, the
Houbigant U.S. License Agreement and the Canadian
License Agreement.
10.28 (14) Amendment No. I to Security Agreement - Trademarks,
dated July 31, 1996, among Houbigant, Parfums Parquet,
Chemical Bank New Jersey N.A. and NatWest Bank NA.
10.29(1) Letter agreement, dated August 18, 1994, between RCI
and Dr. Thomas V. Bonoma, granting Dr. Bonoma stock
options.
10.30 (6) Employment agreement, dated August 6, 1996, between RCI
and Dr. Thomas V. Bonoma.
10.31 (1) Stockholders agreement, dated August 18, 1994, among
RCI and the stockholders listed in schedule 1 thereto.
10.32 (10) Management Services Agreement, dated August 16, 1994,
between Kidd, Kamm & Company and RCI.
10.33 (1) Industrial building lease between Sparks Industrial
Joint Venture and Precision Molded Plastics, Inc.,
dated November 20, 1991, and a consent to assignment of
that lease, dated June 7, 1994, executed by Precision
Molded Plastics, Inc. and Sparks Industrial Joint
Venture.
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10.34 (10) Agreement of Lease between Groupe Gestion Luger as
Lessor and Houbigant Ltee as Lessee (the "Lessee"),
relating to the immovable property situated at 1593 to
1645 Cunard Street, City of Chomedey (Laval), Province
of Quebec, dated June 25, 1979 and assignment of that
lease, dated December 12, 1994, by the Lessee in favor
of 3088766 Canada Limited.
10.35 (8) Securities Purchase Agreement between the Company and
CIBC WG Argosy Merchant Fund 2, L.L.C. (the "Fund"),
dated as of May 29, 1996. Amendment No. 1, dated as of
June 21, 1996, to Securities Purchase Agreement, dated
as of May 29, 1996, between Renaissance Cosmetics, Inc.
and CIBC WG Argosy Merchant Fund 2, L.L.C.
10.36 (8) Common Stock Registration Rights Agreement between RCI
and the Fund, dated as of May 29, 1996.
10.37 (7) Securities Purchase Agreement, dated as of August 8,
1996, between RCI and CIBC Wood Gundy Securities Corp.
10.38 (7) Registration Rights Agreement, dated as of August 15,
1996, between RCI and CIBC Wood Gundy Securities Corp.
10.40 (7) Common Stock Registration Rights Agreement, dated as of
August 15, 1996, between RCI and CIBC Wood Gundy
Securities Corp.
10.41 (10) Subscription Agreement, dated August 15, 1996, between
RCI and CIBC WG Argosy Merchant Fund 2, L.L.C.
10.42 (10) Warrant Agreement, dated as of August 18, 1994, between
RCI and American Bank National Association.
10.43 (7) Warrant Agreement, dated as of August 15 1996, between
RCI and Firstar Trust Company.
10.44 (10) Letter Agreement, dated September 6, 1996, amending the
Securities Purchase Agreement, dated as of August 8,
1996, between CIBC Wood Gundy Securities Corp. and RCI.
10.45 (10) First Amendment to the Warrant Agreement, dated as of
September 27, 1996, between RCI and Firstar Trust
Company as warrant agent.
10.46 (10) First Amendment to the Registration Rights Agreement,
dated as of September 27, 1996, between RCI and CIBC
Wood Gundy Securities Corp.
10.47 (10) First Amendment to the Common Stock Registration Rights
Agreement, dated as of September 27, 1996, between RCI
and CIBC Wood Gundy Securities Corp.
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10.48 (14) Securities Purchase Agreement, dated as of September
27, 1996, between RCI and Bastion Capital Fund, L.P.
10.49 (14) Common Stock Registration Rights Agreement, dated as of
September 27, 1996, between RCI and Bastion Capital
Fund, L.P.
10.50 (14) Voting Agreement, dated as of September 27, 1996,
between Kidd, Kamm Equity Partners, L.P. and Bastion
Capital Fund, L.P.
10.51 (14) Collective Bargaining Agreement between Dana Perfumes
Corp. and Oil, Chemical & Atomic Workers International
Union AFL-CIO and its Local Union No. 8-782
10.52 (16) Collective Labor Agreement of the Union of Workers in
the Chemical, Pharmaceutical, Plastic and Related
Industries of Sao Paulo and the Region and other Unions
of Workers and the Federation of Industries of the
State of Sao Paulo and Industry Unions affiliated
therewith (English translation) (with Officer's
Certificate certifying accuracy of translation from
Portuguese into English).
10.53 (15) Purchase Agreement, dated February 3, 1997, between
Renaissance Cosmetics, Inc., as issuer, and CIBC Wood
Gundy Securities Corp., as initial purchaser.
10.54 (16) Credit Agreement, dated as of March 12, 1997, among
Dana Perfumes Corp., as borrower, the other credit
parties signatory thereto, as credit parties, the
lenders signatory thereto from time to time, as
lenders, and General Electric Capital Corporation, as
agent and lender.
10.55 (16) Pledge Agreement, dated as of March 12, 1997, between
General Electric Capital Corporation, as agent and
lender, and the pledgors thereto.
10.56 (16) Security Agreement, dated as of March 12, 1997, among
General Electric Capital Corporation, as agent and
lender, and the grantors thereto.
10.57 (16) Guaranty, dated as of March 12, 1997, between General
Electric Capital Corporation, as agent and lender, and
the guarantors thereto.
10.58(17) First Amended and Restated Stock Option Plan of RCI.
10.59(17) Form of Indemnification Agreement.
10.60(17) Form of Stockholder Agreement, as amended.
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10.61(17) Waiver and Amendment, dated as of June 27, 1997, among
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 party to the Credit Agreement.
10.62(17) Letter Agreement, dated as of June 27, 1997, among Dana
Perfumes Corp., as borrower, General Electric Capital
Corporation, as agent and lender, and the other Lenders
party to the Credit Agreement.
10.63(18) Waiver and Amendment, dated as of June 27, 1997, among
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 party to the Credit Agreement.
10.64(18) Letter Agreement, dated as of June 27, 1997, among Dana
Perfumes Corp., as borrower, General Electric Capital
Corporation, as agent and lender, and the other Lenders
party to the Credit Agreement.
10.65(18) Letter Agreement, dated as of July 25, 1997, among Dana
Perfumes Corp., as borrower, General Electric Capital
Corporation, as agent and lender, and the other lenders
party to the Credit Agreement.
10.66(19) Consent and Amendment, dated September 3, 1997, among
RCI China, 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 party to the Credit Agreement.
10.67(19) Pledge Amendment, dated September 3, 1997, executed by
Dana Perfumes Corp. and RCI China, Inc., in favor of
General Electric Capital Corporation, as agent.
10.68(20) Employment Agreement, dated as of August 26, 1997 and
approved by the board of Directors on October 22, 1997,
between RCI and Norbert Becker
10.69(20) 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
10.70(20) Shareholder Acknowledgment, dated as of November 1,
1997, executed by Kidd Kamm Equity Partners, L.P., with
respect to Norbert Becker
10.71(20) Employment Letter Agreement, dated as of November 1,
1997, between RCI and Sean Greene
70
<PAGE>
LOCATION OF
EXHIBIT IN
SEQUENTIAL
NUMBERING
EXHIBIT NO. DESCRIPTION OF DOCUMENT SYSTEM
- ----------- ----------------------- ----------
10.72(20) Shareholder Acknowledgment, dated as of November 1,
1997, executed by Kidd Kamm Equity Partners, L.P., with
respect to Sean Greene
10.73(20) 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
10.74 Form of Retention Bonus Agreement - Middle Managment
10.75 Form of Retention Bonus Agreement - Senior Management
10.76 Form of Severance Agreement with Addendum - Senior
Management
10.77 Consulting Letter Agreement, dated May 12, 1998, by and
between Ron Bowen and RCI
10.78 Employment Agreement, dated May 15, 1998, by and
between John Jackson and RCI
10.79 Waiver, Amendment and Consent, dated as of February 17,
1998, among Dana Perfumes Corp., as Borrower, the other
Credit Parties party to the Credit Agreement, General
Electric Capital Corporation, as Agent and Lender, and
the other Lenders party to the Credit Agreement
10.80 Waiver and Amendment, dated as of March 31, 1998, among
Dana Perfumes Corp., as Borrower, the other Credit
Parties party to the Credit Agreement, General Electric
Capital Corporation, as Agent and Lender, and the other
Lenders party to the Credit Agreement
10.81 Consent and Amendment, dated as of May 13, 1998, among
Dana Perfumes Corp., as Borrower, the other Credit
Parties party to the Credit Agreement, General Electric
Capital Corporation, as Agent and Lender, and the other
Lenders party to the Credit Agreement
10.82 Subordinated Promissory Note, dated August 18, 1994,
executed by RCI in favor of Triumph-Connecticut Limited
Partnership.
10.83 Amendment, Waiver and Consent, dated as of June 26,
1998, among Dana Perfumes Corp., as Borrower, the other
Credit Parties party to the Credit Agreement, General
Electric Capital Corp., as Agent and Lender, and the
other Lenders party to the Credit Agreement.
21.1 List of Subsidiaries.
27.1 Financial Data Schedule.
</TABLE>
71
<PAGE>
- -------------
Notes to Exhibit Index:
(1) Filed with RCI's Registration Statement on Form S-4 filed with the
Securities and Exchange Commission ("SEC") on December 12, 1994,
Registration No. 33-87280, and incorporated herein by reference thereto.
(2) Filed with Amendment No. I to RCI's Registration Statement on Form S-4
filed with the SEC on January 27, 1995, Registration No. 33-87280, and
incorporated herein by reference thereto.
(3) Filed with Amendment No. 2 to RCI's Registration Statement on Form S-4
filed with the SEC on February 9, 1995, Registration No. 33-87280, and
incorporated herein by reference thereto.
(4) Filed with RCI's Quarterly Report on Form 10-Q filed with the SEC on March
27, 1995, and incorporated herein by reference thereto.
(5) Intentionally omitted.
(6) Filed with RCI's Quarterly Report on Form 10-Q filed with the SEC on August
14, 1996, and incorporated herein by reference thereto.
(7) Filed with RCI's Form 8-K filed with the SEC on August 8, 1996, and
incorporated herein by reference thereto.
(8) Filed with RCI's Annual Report on Form 10-K filed with the SEC for the
fiscal year ended March 3 1, 1996, and incorporated herein by reference
thereto.
(9) Intentionally omitted.
(10) Filed with RCI's Registration Statement on Form S-4 filed with the SEC on
October 1, 1996, Registration No. 333-13171, and incorporated herein by
reference thereto.
(11) Filed with RCI's Quarterly Report on Form 10-Q filed with the SEC on
November 14, 1996, and incorporated herein by reference thereto.
(12) Intentionally omitted.
(13) Filed with RCI's Form 8-K filed with the SEC on December 20, 1996, and
incorporated herein by reference thereto.
(14) Filed with Amendment No. 1 to RCI's Registration Statement on Form S4 filed
with the SEC on January 31, 1997, Registration No. 333-13171, and
incorporated herein by reference thereto.
(15) Filed with RCI's Form 8-K filed with the SEC on February 20, 1997 and
incorporated herein by reference thereto.
72
<PAGE>
(16) Filed with RCI's Registration Statement on Form S4 filed with the SEC on
March 24, 1997, Registration No. 333-23847, and with Amendment No. 1
thereto, as filed with the SEC on May 2, 1997, and incorporated herein by
reference thereto.
(17) 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.
(18) Filed with RCI's Quarterly Report on Form 10-Q on August 14, 1997, and
incorporate herein by reference thereto.
(19) Filed with RCI's Quarterly Report on Form 10-Q on November 14, 1997, and
incorporated herein by reference thereto.
(20) Filed with RCI's Quarterly Report on Form 10-Q on February 17, 1998, and
incorporated herein by reference thereto.
73
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereto duly authorized.
RENAISSANCE COSMETICS, INC.
By: /s/Norbert Becker
------------------------------
Norbert Becker
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date(s) indicated below.
Signature Title Date
--------- ----- ----
/s/Norbert Becker
- -------------------------- Chief Executive Officer June 29, 1998
NORBERT BECKER (principal executive
officer) and Director
/s/Robert J. Corso
- -------------------------- Group Vice President June 29, 1998
ROBERT J. CORSO and Chief Financial
Officer (principal
financial officer and
principal accounting
officer)
/s/Terry Theodore
- -------------------------- Director June 29, 1998
TERRY THEODORE
/s/Kurt L. Kamm
- -------------------------- Director June 29, 1998
KURT L. KAMM
/s/William J. Kidd
- -------------------------- Director June 29, 1998
WILLIAM J. KIDD
/s/Sean Greene
- -------------------------- Director June 29, 1998
SEAN GREENE
/s/Richard Nevins
- -------------------------- Director June 29, 1998
RICHARD NEVINS
74
<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
PAGE
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1998 AND 1997 AND FOR
EACH OF THE THREE YEARS IN THE PERIOD THEN ENDED;
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity (Deficiency) F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-32
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Renaissance Cosmetics, Inc.
We have audited the accompanying consolidated balance sheets of Renaissance
Cosmetics, Inc. and subsidiaries as of March 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' deficiency, and
cash flows for each of the three years in the period ended March 31, 1998.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Renaissance Cosmetics, Inc., and
subsidiaries as of March 31, 1998 and 1997, and the results of its
operations, and its cash flows for each of the three years in the period
ended March 31, 1998 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements for the year ended March
31, 1998 have been prepared assuming that the Company will continue as a
going concern. As discussed in Note 1 to the financial statements, the
Company has been experiencing recurring net losses for the three years ended
March 31, 1998, negative cash flows from operations, negative working capital
and stockholders' deficiency. In addition, the Company is experiencing
difficulty in generating sufficient cash flows to meet its obligations under
its Senior Notes as discussed Note 1. Such conditions raise substantial doubt
about its ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
Deloitte and Touche LLP
June 26, 1998
New York, New York
F-2
<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
- --------------------------------------------------------------------------------------------------
MARCH 31, MARCH 31,
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,698 $ 719
Marketable securities 1,934 14,331
Accounts receivable - net 32,995 48,837
Inventories - net 54,820 55,554
Prepaid expenses and other current assets 6,638 7,827
--------- ---------
Total current assets 104,085 127,268
PROPERTY, PLANT AND EQUIPMENT - Net 24,410 26,581
DEFERRED FINANCING COSTS - Net 11,525 12,748
MARKETABLE SECURITIES - 8,468
OTHER ASSETS - Net 12,050 12,141
INTANGIBLE ASSETS - Net 88,414 174,177
--------- ---------
TOTAL ASSETS $ 240,484 $ 361,383
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable $ 33,099 $ 21,612
Accrued expenses and other current liabilities 46,006 40,322
1997 Senior Notes 200,000 -
Revolving Credit Facility 55,554 -
--------- ---------
Total current liabilities 334,659 61,934
LONG-TERM LIABILITIES:
1997 Senior Notes - 200,000
Subordinated Seller Notes 4,072 3,877
Minimum royalty obligation and other long term liabilities 8,229 3,926
--------- ---------
Total long-term liabilities 12,301 207,803
TOTAL LIABILITIES 346,960 269,737
COMMITMENTS AND CONTINGENCIES
SERIES B AND C PREFERRED STOCK
Par value $.01-authorized 350,000 shares; issued
141,763 shares at March 31, 1998 and
123,381 shares at March 31, 1997
(Liquidation value-$144,344 at March 31, 1998 and
$127,041 at March 31, 1997) 109,925 86,660
10% PREFERRED STOCK
Par value $.01-authorized 40,000 shares; issued
14,567 shares at March 31, 1998 and 12,798 shares
at March 31, 1997
(Liquidation value-$14,390 at March 31, 1998 and
$13,517 at March 31, 1997) 14,333 13,167
COMMON STOCKHOLDERS' DEFICIENCY :
Common stock, par value $.01-authorized 3,000,000
shares; issued 830,736 shares at
March 31, 1998 and 1997 8 8
Notes receivable from sale of common stock (518) (518)
Additional paid-in capital 69,403 69,403
Treasury stock, at cost (4,413 shares at March 31,
1998 and 5,650 shares at March 31, 1997) (164) (210)
Accumulated deficit (297,233) (75,450)
Cumulative translation adjustment (2,230) (1,414)
--------- ---------
Total common stockholders' deficiency (230,734) (8,181)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 240,484 $ 361,383
--------- ---------
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
- --------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
1998 1997 1996
<S> <C> <C> <C>
NET SALES $ 179,696 $174,612 $131,286
COST OF GOODS SOLD 115,724 69,723 51,317
--------- -------- --------
GROSS PROFIT 63,972 104,889 79,969
--------- -------- --------
OPERATING EXPENSES:
Selling 92,209 64,847 52,302
General and administrative 38,981 25,705 14,009
Restructuring costs 567 - -
Other severance costs and professional fees 3,152 - -
Amortization of intangible and other assets 12,991 9,813 5,207
Impairment of long lived assets 85,419 - -
--------- -------- --------
Total operating expenses 233,319 100,365 71,518
--------- -------- --------
OPERATING INCOME (LOSS) (169,347) 4,524 8,451
OTHER EXPENSE (INCOME):
Interest expense 31,143 24,417 19,458
Interest income (1,464) (1,928) (255)
Other expense (income)-net (2,492) 93 -
--------- -------- --------
Total other expense-net 27,187 22,582 19,203
--------- -------- --------
LOSS BEFORE INCOME TAX PROVISION (196,534) (18,058) (10,752)
INCOME TAX PROVISION 912 1,322 1,305
--------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEM (197,446) (19,380) (12,057)
EXTRAORDINARY ITEM - 22,438 -
--------- -------- --------
NET LOSS (197,446) (41,818) (12,057)
PREFERRED STOCK DIVIDENDS 24,337 14,068 1,333
--------- -------- --------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS $(221,783) $(55,886) $(13,390)
--------- -------- --------
--------- -------- --------
BASIC LOSS PER COMMON SHARE $ (268.58) $ (71.63) $ (18.62)
--------- -------- --------
--------- -------- --------
WEIGHTED AVERAGE SHARES OUTSTANDING 825,755 780,203 719,138
--------- -------- --------
--------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
NOTES TOTAL
RECEIVABLE COMMON
COMMON FROM SALE ADDITIONAL TREASURY CUMULATIVE STOCKHOLDERS'
STOCK OF COMMON PAID-IN STOCK ACCUMULATED TRANSLATION EQUITY
SHARES AMOUNT STOCK CAPITAL SHARES AMOUNT DEFICIT ADJUSTMENT (DEFICIENCY)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, APRIL 1, 1996 726,818 7 $(518) $26,787 6,725 $(250) $(6,174) $ 337 $20,189
Accrued dividends and
accretion on redeemable
preferred stock - - - - - - (1,333) - (1,333)
Purchase of treasury stock - - - - 3,632 (135) - - (135)
Sale of treasury stock - - - - (4,707) 175 - - 175
Cumulative translation
adjustment - - - - - - - (388) (388)
Net loss - - - - - - (12,057) - (12,057)
------- --- ----- ------- ----- ----- --------- ------- ---------
BALANCE, MARCH 31, 1996 726,818 7 (518) 26,787 5,650 (210) (19,564) (51) 6,451
Issuance of Common Stock 103,918 1 9,749 9,750
Issuance of warrants in
conjunction with redeemable
preferred stock 32,867 32,867
Accrued dividends and
accretion on redeemable
preferred stocks (14,068) (14,068)
Cumulative translation
adjustment (1,363) (1,363)
Net loss - - - - - - (41,818) - (41,818)
------- --- ----- ------- ----- ----- --------- ------- ---------
BALANCE, MARCH 31, 1997 830,736 8 (518) 69,403 5,650 (210) (75,450) (1,414) (8,181)
Sale of treasury stock (1,237) 46 46
Accrued dividends and
accretion on redeemable
preferred stocks (24,337) (24,337)
Cumulative translation
adjustment (816) (816)
Net loss - - - - - - (197,446) - (197,446)
------- --- ----- ------- ----- ----- --------- ------- ---------
BALANCE, MARCH 31, 1998 830,736 8 $(518) $69,403 4,413 $(164) $(297,233) $(2,230) $(230,734)
------- --- ----- ------- ----- ----- --------- ------- ---------
------- --- ----- ------- ----- ----- --------- ------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(197,446) $ (41,818) $(12,057)
Adjustments to reconcile net loss to net cash used in
operating activities:
Extraordinary Item - 22,438 -
Deferred Taxes (4) (86) 41
Depreciation 8,213 4,896 2,844
Amortization of intangible assets 8,627 5,528 3,208
Amortization of minimum royalty and other assets 4,364 4,285 1,999
Impairment of long-lived assets 85,419 - -
Amortization of deferred financing fees 2,124 3,202 2,616
Other non-cash interest expense 1,190 1,820 1,312
Non-cash interest income (209) - -
Changes in operating assets and liabilities,
net of effects of investments and acquisitions:
Accounts receivable 16,380 (8,655) (16,636)
Inventories (1,482) (11,070) (7,561)
Prepaid expenses and other assets 951 (4,209) (2,550)
Accounts payable 11,220 (1,663) 6,284
Accrued expenses and other current liabilities 3,284 (6,240) (3,288)
Other 2,228 (3,871) (388)
-------- --------- --------
Net cash used in operating activities (55,141) (35,443) (24,176)
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (11,410) (9,330) (8,166)
Proceeds from sale of property 1,823 - -
Acquisition of businesses, net of cash acquired - (95,392) 1,384
Investment in joint venture, net of cash acquired (546) - -
Purchase of marketable securities - (22,625) -
Sale of marketable securities 21,598 - 641
Other investing activities (919) (1,208) -
-------- --------- --------
Net cash provided by / (used in) investing
activities 10,546 (128,555) (6,141)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Senior Secured Credit Facility - 117,500 -
Repayment of Senior Secured Credit Facility - (117,500) -
Issuance of Senior Notes - 200,000 -
Proceeds from 1997 Credit Facility 73,470 - -
Repayments on 1997 Credit Facility (17,916) - -
Payment of minimum royalty obligations (3,125) (2,148) (1,259)
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 - 75,451 -
Issuance of warrants - 32,867 -
Net proceeds from issuance of common stock - 9,750 -
Net redemption of Old Senior Notes - (65,000) -
Early retirement of debt - (10,725) -
Net proceeds (repayment) of Old Credit Facility - (57,000) 27,000
Proceeds from sale of treasury stock 46 - 175
Purchase of treasury stock - - (135)
Payment of financing costs (901) (18,431) (1,033)
-------- --------- --------
Net cash provided by financing activities 51,574 163,285 24,748
-------- --------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,979 (713) (5,569)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 719 1,432 7,001
-------- --------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,698 $ 719 $ 1,432
-------- --------- --------
-------- --------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 27,197 $ 12,800 $ 14,604
-------- --------- --------
-------- --------- --------
Income taxes $ 1,021 $ 1,825 $ 880
-------- --------- --------
-------- --------- --------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
TRANSACTIONS:
Accrued dividends and accretion on redeemable
preferred stocks 24,337 14,068 1,333
Other liability - present value of minimum royalties 4,342 1,348 1,398
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
RENAISSANCE COSMETICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. CURRENT OPERATING ENVIRONMENT
Renaissance Cosmetics, Inc. (sometimes referred to herein as "Renaissance" or
the "Holding Company") and its subsidiaries (sometimes referred to herein as
the "operating subsidiaries") (collectively, the "Company") is reporting
operating income for the year ended March 31, 1998 that is significantly lower
than for the year ended March 31, 1997, primarily as a result of four factors.
The first factor relates to operational events, of which there are three
primary components. First, management believes, based on the results of
operations for the year ended March 31, 1998, that the mass market fragrance
industry has undergone a permanent change. Second, profitability in the
Fragrance Division was adversely affected in the year ended March 31, 1998 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 MEM Acquisition (as defined in Note 3) and the P&G Brands Acquisition
(as defined in Note 3) into the Company's manufacturing facility located in
Mountain Top, Pennsylvania (the "Mountain Top Facility"). Third, the year
ended March 31, 1998 results reflect lower sales and profitability of the
Company's Cosmar branded artificial nail products as compared to the year
ended March 31, 1997, which the Company attributes to increased competition
from new entrants into the category resulting in loss of market share and
higher product returns.
The second factor relates to the Company's decision to increase its reserves
for the year ended March 31, 1998. As a result of the operational events
discussed above, during the year ended March 31, 1998, the Company reviewed
its balance sheet and determined that it 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 year ended March 31, 1998 includes adjustments of approximately $23.1
million to reflect actual costs that exceeded estimates and other changes to
estimates that had been used in recording the prior years' results.
The third factor relates to the Company's decision to write-down certain of
its long-lived assets. Based on the above developments during the year ended
March 31, 1998, the Company conducted an evaluation of long-lived assets,
including goodwill, based upon the Company's estimates of its current
business plans for the Fragrance businesses within the Fragrance and
International Divisions. As a result, during the year ended March 31, 1998,
the Company recorded an impairment loss of $85.4 million relating to the
write-down of such assets. (see Note 7)
The fourth factor relates to costs resulting from the Company's new business
plan. In the year ended March 31, 1998, the Company recorded $35.1 million in
costs relating to its new business plan, consisting of, among other things,
additional sales returns, excess inventory, severance costs, facilities
consolidation costs and professional fees. There can be no assurance that
actual costs will not be greater than estimated. See the table below for a
description of the costs recorded in the year ended March 31, 1998.
F-7
<PAGE>
<TABLE>
(dollars in millions)
<S> <C>
Sales Returns and Markdown Provisions included
in Net Sales $ 19.5
Incremental excess inventory provisions included
in Cost of Goods Sold 11.3
Severance, Relocation and Recruiting 1.8
Severance and asset write-offs relating to closing 1.1
businesses
Professional fees 1.4
--------------
Total $ 35.1
--------------
</TABLE>
The Company is restructuring on two fronts. Its operating subsidiaries are
currently engaged in an operational restructuring of their respective
businesses. Renaissance is about to begin a financial
restructuring of its capital structure. The two are, in certain respects,
separate and distinct from each other.
The Company believes that its operating subsidiaries have viable core
businesses and growth brands that have the potential for improved operating
and financial performance in 1998 and beyond. However, in order to improve
their operating and financial performance, the operating subsidiaries must
implement a costly operational restructuring in 1998, which will include
numerous management and organizational changes and cost reduction programs.
The operating subsidiaries have already (1) initiated many of these changes
and (2) refocused their advertising and promotional programs to preserve and
enhance the value of their growth brands. There can be no assurances that
the operating subsidiaries will be successful in implementing their
operational restructuring.
At the same time that its operating subsidiaries are implementing their
operational restructuring, management believes that the Holding Company must
implement a financial restructuring. To this end, the Holding Company
intends to enter into negotiations with the holders of its Preferred Stock,
Common Stock and 1997 Senior Notes to restructure these obligations with the
goal of de-leveraging and strengthening its balance sheet. There can be no
assurances that the Holding Company will be successful in implementing its
financial restructuring.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company incurred recurring net losses and as of March 31,
1998 has negative cash flows from operations, negative working capital, and a
stockholders' deficiency. As discussed in Note 9, the Revolving Credit
Lenders have agreed to waive compliance with the Maximum Leverage Ratio and
the Minimum Interest Coverage Ratio through June 30, 1999 and the parties
have revised the Minimum EBITDA covenant. As discussed in Note 9, the Company
has an $11,750,000 interest payment due on the 1997 Senior Notes and has
approximately $1,815,000 remaining in the Escrow Account toward such payment.
These factors, among other things, may indicate that the Company will be
unable to continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments to the recoverability
and classification of liabilities that might be necessary should the Company
be unable to continue as a going concern. The Holding Company does not
believe that it will be able to fund the interest payment from cash flows
from operations. Additionally, the terms of the 1997 Credit Facility prohibit
the payment of such interest payment. There can be no assurance that the
Holding Company will be successful in negotiating a financial restructuring
on terms that it will consider acceptable, or at all, or that the terms of
such financial restructuring will not impair the Holding Company's ability to
conduct its business in accordance with its current business plan.
Additionally, the Holding Company's ability to continue as a going concern is
dependent on the Holding Company's ability to achieve its business plan.
F-8
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS-The Company manufactures and sells its fragrance and
cosmetic products principally through the mass-market or self-select
distribution channel which includes drug stores, mass merchandisers, discount
stores, supermarkets and combination supermarket/drug stores, primarily in
the United States, Canada, Latin America and Europe.
PRINCIPLES OF CONSOLIDATION-The consolidated financial statements of the
Company include the accounts of Renaissance and its subsidiaries from their
respective dates of acquisition. All significant intercompany balances and
transactions have been eliminated. Certain reclassifications were made to the
March 31, 1997 and 1996 financial statements to conform to the current year's
presentation.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and the disclosures of contingent assets and liabilities at the
date of the financial statements. Estimates are used for allowances for
doubtful accounts, sales returns, markdowns and other allowances, excess
inventory, trade promotion and other accruals. Actual results could
differ from those estimates.
The Company's re-examination of its business and the change in business
strategy discussed in Note 1 have caused the Company to use significant
estimates when calculating the appropriate provisions for sales returns and
excess inventory. There can be no assurance that actual results will not
exceed those estimates.
CASH AND CASH EQUIVALENTS - For the purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES - The Company classifies its investments in debt and
equity securities as available for sale. Unrealized holding gains and losses
were not material in any period presented.
INVENTORIES - Inventories, as of March 31, 1998, are stated at the lower of
cost on the first-in, first-out (FIFO) method or market. As of March 31,
1997, a portion of the inventory was stated at the lower of cost on the
last-in, first-out (LIFO) method or market (See Note 5).
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is stated at
cost, and depreciation is computed primarily by the straight-line method over
estimated service lives. Property, plant and equipment acquired through
business combinations is stated at the estimated fair value at the date of
purchase.
LONG-LIVED ASSETS -- During the year ended March 31, 1997, the Company
adopted SFAS No. 121, "Accounting for Impairment of Long Lived Assets and for
Long Lived Assets to be Disposed Of". Under the provisions of this statement,
the Company has evaluated its long-lived assets for financial impairment, and
will continue to evaluate them as events or changes in circumstances indicate
that the carrying amount of such assets may not be fully recoverable (See
Note 7).
DEFERRED FINANCING COSTS - Deferred financing costs represent direct costs
relating to closing on outstanding debt. These costs are being amortized over
the life of the related debt.
F-9
<PAGE>
FOREIGN CURRENCY TRANSLATION - For the Company's international operations,
assets and liabilities are translated at year-end exchange rates and income
statement amounts are translated at average exchange rates prevailing during the
year. The cumulative translation adjustment represents principally the
cumulative effect of changes during the year in the rate of exchange at the
beginning and end of each month in translating net assets excluding certain
intercompany liabilities. Foreign currency transaction gains and losses are
included in other expense (income)-net.
REVENUE RECOGNITION - The Company recognizes revenue upon shipment to third
parties. Net sales are gross sales less estimates for returns, markdowns and
other allowances relating to shipments through the balance sheet date. These
estimates are based upon historical experience and current estimates of
products sold through to consumers.
INCOME TAXES - The Company uses an asset and liability approach to the
computation of income taxes. Under the asset and liability method, deferred
tax assets and liabilities are recognized for the estimated future tax
consequences of temporary differences between the financial reporting and tax
bases of assets and liabilities based upon enacted tax rates in effect when
such amounts are expected to be realized or settled. The effects of changes
in tax laws or rates on deferred tax assets and liabilities are recognized in
the period that includes the enactment date.
EARNINGS PER COMMON SHARE - Basic earnings per common share is based on the
weighted average number of common shares outstanding during the year. The
effect of shares issuable upon exercise of warrants and stock options is
anti-dilutive, therefore diluted earnings per share is not presented. The
Company adopted the provisions of Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS 128") during the fiscal year ended March
31, 1998. Adoption of such statement did not have a material effect on the
calculation of earnings per common share.
NEW ACCOUNTING PRONOUNCEMENTS- SFAS No. 129, "Disclosure of Information about
Capital Structure" issued in February 1997 is effective for periods ending
after December 15, 1997 and establishes standards for disclosing information
about an entity's capital structure by superceding and consolidating
previously issued accounting standards. The financial statements of the
Company are prepared in accordance with the requirements of SFAS No. 129.
SFAS No. 130, "Reporting Comprehensive Income" issued in June 1997, is
effective for fiscal years beginning after December 15, 1997 and requires
presentation of total non-owner changes in equity for all periods displayed.
The Company does not believe adoption of this statement will have a material
impact on financial position or results of operations.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" is required to be adopted for fiscal years beginning after
December 15, 1997. SFAS No. 131 requires, among other things, that financial
and descriptive information be provided about its reportable operating
segments. Under this statement, operating segments are components of an
enterprise about which separate financial information is available that is
regularly evaluated by the enterprise chief operating decision maker in
deciding how to allocate resources and assess performance. The Company is
evaluating the effects of adoption of this standard but does not believe that
adoption of this standard will have a material effect on financial condition
or results of operations.
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-5, Reporting on the
Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires that entities
expense start-up costs and organization costs as they are incurred. In March
1998, the AICPA
F-10
<PAGE>
issued SOP No. 98-1, Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 was issued to remedy the
diversity in the approaches to accounting for internal-use software by
providing guidance on expensing versus capitalization of costs, accounting
for the costs incurred in the upgrading and amortization of capitalized cost
software costs. These statements are effective for fiscal years beginning
after December 15, 1998. The Company is currently evaluating the effect such
accounting pronouncements will have on financial condition and results of
operations.
3. ACQUISITIONS-
A.-DANA BRAZIL-On December 31, 1995, Dana Perfumes Corp. ("Dana") a wholly
owned subsidiary of Cosmar Corporation ("Cosmar"), exercised its option to
purchase the assets and liabilities of Perfumes Dana do Brasil for $100,000.
For the year ended March 31, 1996, pro forma net sales, pro forma net loss,
and pro forma net loss per share was $140,741,000, $(12,645,000), and
$(17.58), respectively, assuming that the acquisition of Dana Brazil occurred
on April 1, 1995. Such pro forma results are not necessarily indicative of
the operating results that would have occurred had the acquisition taken
place as of the beginning of the period presented, nor necessarily indicative
of results that may be achieved in the future.
B--GREAT AMERICAN COSMETICS COMPANY.- On August 21, 1996, Cosmar, a
wholly-owned subsidiary of Renaissance, completed its acquisition of all of
the issued and outstanding capital stock of Great American Cosmetics Company
("GAC") (the "GAC Acquisition"). Through the purchase of GAC, Cosmar acquired
the Nat Robbins brand name of cosmetics products. During the year ended March
31, 1997, the operations of GAC were integrated into Cosmar. The cash
consideration for the GAC acquisition was $15,250,000. Concurrent with the
closing, Cosmar repaid $808,000 of GAC indebtedness.
C-MEM COMPANY, INC.- On December 4, 1996, Renaissance, through its
wholly-owned subsidiary, Renaissance Acquisition, Inc. ("RAI"), completed its
acquisition (the "MEM Acquisition") of MEM Company, Inc ("MEM"). The
aggregate cash consideration paid to the equity holders of MEM in connection
with the MEM Acquisition was $19,787,000. In addition, in connection with the
MEM Acquisition, the Company repaid all of MEM's outstanding indebtedness in
an amount equal to $17,975,000. The brand names acquired from MEM include
such names as English Leather, British Sterling, Love's Baby Soft and other
well known brands. The Company also acquired the Tinkerbell brand name for
children's cosmetics. The domestic operations of MEM were integrated into
Dana during the year ended March 31, 1997.
D- ACQUISITION OF P&G BRANDS -On December 6, 1996, Dana completed its
acquisition from The Procter & Gamble Company ("P&G") of the worldwide rights
to manufacture and market certain mass-market fragrances (the "P&G Brands
Acquisition"). The cash consideration paid was $43,263,000. In addition, Dana
assumed certain specified trade-related obligations of the P&G Brands,
including liability for returns of products under the P&G Brands sold prior
to the closing and liabilities under certain advertising and business
development commitments. Concurrent with the P&G Brands Acquisition, Dana
entered into transition service agreements under which P&G continued the
foreign marketing of the P&G Brands through June 30, 1997. Such transition
agreements expired on June 30, 1997, and Dana, through its UK subsidiary,
began marketing the P&G Brands in the UK and in parts of Europe. The domestic
sales of the P&G Brands were integrated into Dana.
F-11
<PAGE>
The above acquisitions have been accounted for by the purchase method. The
consolidated financial statements include the results of operations of these
acquisitions subsequent to their respective dates of acquisition.
The GAC, MEM and P&G Brands acquisitions, if they had occurred at the
beginning of each period, would have pro forma results as follows:
<TABLE>
PRO FORMA
-------------------------------------
YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31,
1997 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C>
Net sales $ 245,796 $ 240,774
---------- ----------
---------- ----------
Loss before extraordinary item applicable to
common stockholders $ (42,620) $ (36,318)
---------- ----------
---------- ----------
Loss before extraordinary item applicable to
common stockholders per common share $ (51.66) $ (44.13)
---------- ----------
---------- ----------
</TABLE>
The above pro forma results are not necessarily indicative of the operating
results that would have occurred had the acquisitions taken place as of the
beginning of each period, nor necessarily indicative of results that may be
achieved in the future.
4. MARKETABLE SECURITIES
Marketable securities consist of the following:
<TABLE>
MARCH 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Short term:
U.S. Treasury Notes $1,815 $ 9,331
Certificate of deposit - 5,000
Other 119 -
------ -------
Total Short-Term Marketable Securities $1,934 $14,331
------ -------
------ -------
Long Term:
US Treasury Notes $ - $ 8,468
------ -------
------ -------
</TABLE>
As discussed in Note 9, marketable securities of $1,815,000 and $17,799,000
at March 31, 1998 and 1997, respectively were held in an escrow account for
interest payments on the Senior Notes.
F-12
<PAGE>
5. INVENTORIES
The components of inventories are as follows:
<TABLE>
MARCH 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Raw materials and components $27,231 $30,453
Work in process 1,287 2,413
Finished goods 26,302 22,688
------- -------
$54,820 $55,554
------- -------
------- -------
</TABLE>
At March 31, 1997 approximately 61.8% of the Company's inventories were stated
at the lower of LIFO cost or market. At March 31, 1997, the excess of current
replacement cost over the stated LIFO value was $0. Effective April 1, 1997, the
Company's inventories that were on the LIFO method of accounting converted to
the FIFO method of accounting. Adoption of this method of accounting did not
have a material effect on financial condition or results of operations.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
MARCH 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Land $ 477 $ 531
Buildings 13,632 15,571
Machinery and equipment 16,593 10,170
Computer equipment 9,795 7,484
Leasehold improvements 1,300 1,352
------- -------
41,797 35,108
Accumulated depreciation 17,387 8,527
------- -------
$24,410 $26,581
------- -------
------- -------
</TABLE>
F-13
<PAGE>
7. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
MARCH 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Trademarks $53,255 $ 60,817
Goodwill 44,969 123,957
------- --------
98,224 184,774
------- --------
Accumulated amortization 9,810 10,597
------- --------
$88,414 $174,177
------- --------
------- --------
</TABLE>
Trademarks, which consist primarily of those acquired through business
combinations, are being amortized on a straight-line basis, over their estimated
useful lives, which ranged from 20 to 40 years at March 31, 1997. Goodwill,
which represents the excess of the cost of purchased businesses over the fair
value of their net assets at date of their acquisition, is being amortized on a
straight-line basis, over various periods ranging from 5 to 25 years.
The Company evaluates the recoverability of long-lived assets not held for
sale by measuring the carrying amount of the assets against the estimated
undiscounted future cash flows associated with them. At the time such
evaluations indicate that the future undiscounted cash flows of certain
long-lived assets are not sufficient to recover the carrying value of such
assets, the assets are adjusted to their fair values. Based on these
evaluations there were no adjustments to the carrying value of long-lived
assets during the year ended March 31, 1997. However, certain assets that
were still in use, primarily intangible assets, including goodwill, met the
test for impairment during the year ended March 31, 1998. The revised
carrying values of such assets were calculated based on discounted estimated
future cash flow and resulted in a pre-tax non-cash charge of $81,609,000
(which included a write-down of the minimum royalty asset and other assets
included in other assets of $2,837,000 and a write-down of fixed assets of
$510,000). The write-off of such intangible assets was net of accumulated
amortization of $9,383,000.
The Company evaluates the recoverability of long-lived assets held for sale by
comparing the asset's carrying amount with its fair value less cost to sell. In
March 1998, the Company recorded a charge of $3,810,000 relating to assets
(including fixed assets of $136,000) of certain foreign subsidiaries that the
Company intends to sell or close.
As a result of the SFAS 121 charge, depreciation and amortization expenses
related to certain assets will be reduced in future periods. In conjunction with
the review for impairment, the estimated useful lives of certain assets were
reviewed. This review resulted in the acceleration of amortization expense for
certain trademarks, thus changing the range of useful lives for trademarks to
19-25 years at March 31, 1998.
F-14
<PAGE>
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
MARCH 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Accrued costs relating to Company's business restructuring plan $12,090 $ ---
Accrued trade promotion 8,905 6,129
Accrued interest payable 5,055 4,562
Accrued pension termination liability 4,693 4,900
Other liabilities from purchased businesses 4,078 9,993
Current portion of minimum royalty obligation 2,569 4,006
Accrued salaries and other employee benefits 1,616 1,592
Other 7,000 9,140
------- -------
$46,006 $40,322
------- -------
------- -------
</TABLE>
9. DEBT
a. 1997 SENIOR NOTES: On February 7, 1997, the Holding Company completed the
sale of $200,000,000 aggregate principal amount of its 11 3/4% Senior Notes
due 2004 (the "Senior Notes"). Interest is payable semi-annually on August 15
and February 15. The Senior Notes may be redeemed at the option of the Company
on or after February 15, 2002, initially at 103.358, declining to 101.679 on
or after February 15, 2003, together with accrued interest. Under certain
circumstances as defined in the indenture agreement (the "Indenture"), the
Senior Notes may be redeemed earlier at the option of the Holding Company.
These Senior Notes were issued in an offering not registered or required to
be registered under the Securities Act of 1933 (the "Act"). On March 24,
1997, the Holding Company filed a Registration Statement on Form S-4 (which
became effective on May 8, 1997) in order to register new notes (the "1997
Senior Notes") under the provisions of the Act, to be issued in exchange for
the Senior Notes. On June 8, 1997, the Holding Company completed the exchange
of its entire outstanding principal amount of Senior Notes for a like amount
of its 1997 Senior Notes which were registered under the Act. The proceeds
from the Senior Notes were used to repay then outstanding indebtedness.
The 1997 Senior Notes are obligations exclusively of the Holding Company and
are not guaranteed by any of the Holding Company's operating subsidiaries. In
connection with the sale of the Senior Notes (prior to the exchange for the
1997 Senior Notes), the Holding Company transferred $17,500,000 to a
newly-formed, single-purpose wholly-owned subsidiary, Renaissance Guarantor,
Inc., a Delaware corporation ("RGI"), in exchange for a limited guarantee by
RGI of the Holding Company's obligations under the Senior Notes. RGI
placed such amount into an escrow account (the "Escrow Account") which will
be used for interest payments. The 1997 Senior Notes are general unsecured
obligations of the Holding Company except to the extent that they are
collateralized by a first priority security interest in the Escrow Account.
There are no sinking fund requirements relating to the 1997 Senior Notes.
Interest in the aggregate amount of $11,750,000 was due and payable on
February 17, 1998. On February 13, 1998, the Holding Company 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 holders of the
1997 Senior Notes. On February 17, 1998, pursuant to the request of the
trustee, the escrow agent released funds held in the escrow account and paid
the interest payment in full. As of March 31, 1998, $1,815,000 remains in the
Escrow Account that can be used for the interest payment. Based on the
Holding Company's current and expected level of operations, the Holding
Company does not
m
F-15
<PAGE>
expect to be able to pay the installment of interest due on August 15, 1998
from cash generated from operations. Additionally, the Holding Company is
restricted from paying such interest payment by the terms of its 1997 Credit
Facility. Therefore, the 1997 Senior Notes are classified as current
liabilities at March 31, 1998. See discussion in Note 1 -Current operating
environment for a discussion of the Holding Company's financial restructuring
plans.
b. 1997 CREDIT FACILITY:
On March 12, 1997, Dana entered into its Revolving Credit Facility with
General Electric Capital Corporation ("GECC") and the other lenders party
thereto (collectively, the "Revolving Credit Lenders") (the "1997 Credit
Facility"). The 1997 Credit Facility is guaranteed by each of the principal
domestic operating subsidiaries and the Holding Company (which, together with
Dana, are collectively referred to as the "Credit Parties").
The maximum borrowing amount under the 1997 Credit Facility, as amended on
June 26, 1998, is (1) $75 million, subject to a borrowing base calculation
based upon eligible inventory and accounts receivable, plus (2) as part of the
$75 million, an overadvance component in the amount of $30 million. The $30
million overadvance component, which is a demand loan, is to be reduced to $15
million at December 31, 1998 and to zero at June 30, 1999. As of March 31, 1998,
(1) $55.6 million was outstanding under the 1997 Credit Facility (including
an overadvance of $0.6 million) and (3) $1.7 million of letters of credit
were outstanding.
Loans drawn under the 1997 Credit Facility bear interest at the Index Rate
plus 2.00%. Overadvances bear interest at (i) the Index Rate (i.e., the
higher of the prime rate as the overnight Federal Funds rate plus 0.5%) plus
4.00% through June 26, 1998, (ii) the Index Rate plus 5.5% through December
31, 1998 and (iii) the Index Rate plus 6.5% through June 30, 1999. For the
year ended March 31, 1998, the Company's weighted average borrowing rate on
the 1997 Credit Facility was 8.5%.
The 1997 Credit Facility is secured by all of the assets of the Credit
Parties. In addition, the Credit Parties pledged 66% of the stock of their
principal first-tier operating foreign subsidiaries and 100% of the stock of
their principal first-tier operating domestic subsidiaries as additional
collateral for the loans under the 1997 Credit Facility.
The 1997 Credit Facility, as amended, contains a number of convenants that
restrict the operation of the Company, including restrictions on, among other
things, (1) certain mergers, acquisitions or sales of the Company's assets or
stock (other than stock of the Holding Company), (2) cash dividends and other
distributions to equity holders of the Company, (3) interest payments with
respect to the Company's indebtedness, (4) payments in respect of
subordinated debt, (5) certain transactions with affiliates, (6) indebtedness
and liens and (7) Restricted Payments. The 1997 Credit Facility also
contains several financial covenants. The Revolving Credit Lenders have
agreed to waive compliance with the Maximum Leverage Ratio and Minimum
Interest Coverage Ratio through June 30, 1999, and the parties have revised
the minimum EBITDA covenant. The Credit Parties have covenanted not to
permit the outstanding amount of overadvances to exceed certain monthly set
amounts.
The Revolving Credit Lenders have waived or consented to all of the Company's
covenant violations since inception of the 1997 Credit Facility for all
purposes thereunder except for purposes of the Restricted Payments covenant.
As a result, the Holding Company is prohibited from making the following
payments: (1) scheduled interest payments on the 1997 Senior Notes and
Subordinated Seller Notes, (2) fees due and payable to Kidd Kamm pursuant to
the Management Agreement between Kidd Kamm and the Holding Company, (3)
payments to purchase, redeem or otherwise acquire the Common Stock (or
options to acquire shares of Common Stock) held by former employees or their
estates and (4) cash dividends on the Holding Company's 10% Preferred
Stock.
F-16
<PAGE>
The Credit Parties have agreed to pay up to $1,000,000 in fees, of which
$500,000 was paid on June 26, 1998. The amount and timing of payment of the
balance will vary depending on certain circumstances. In addition, if there
is a loan balance outstanding at December 31, 1998, the Credit Parties will
pay an additional fee of $1,000,000, the timing of which is subject to
certain circumstances.
The Company has classified its 1997 Credit Facility as current since the
overadvances are demand loans and continued funding is dependent on the Company
being able to meet its business plan. There can be no assurance that the Company
will be able to meet its business plan. See Note 1 for a discussion of the
Company's current operating environment.
c. SUBORDINATED SELLER NOTES:
The Subordinated Seller Notes are subordinated promissory notes of the
Holding Company with an aggregate principal amount of $5,000,000 and accruing
interest at 8% initially and escalating to 11% over an eight-year period with
a balloon payment of principal and accrued interest on August 15, 2002. These
notes were recorded at a discount of $1,500,000, yielding an effective
interest rate of 14.48%.
10. PREFERRED STOCK
a. 10% PREFERRED STOCK-The Holding Company issued for $10,000,000, 10,000
shares of cumulative exchangeable preferred stock (the "10% Preferred Stock")
with a par value of $.01 per share. The proceeds from the sale of the
redeemable preferred stock were reduced by the allocation of $350,000 to
warrants issued with the preferred stock. The 10% Preferred Stock has an
initial dividend of 10% per annum, and increases to 15% on August 15, 1999.
Dividends are payable in cash, additional shares of 10% Preferred Stock or
any combination thereof, at the option of the Holding Company, up to and
including the August 15, 1997 dividend, and in cash thereafter. The dividend
rate increases on August 15, 1997 for the period from August 15, 1997 to
August 15, 1998 if cash dividends are not declared, to 12.5%, increasing
again to 13 3/4% on August 15, 1998 for the period from August 15, 1998 to
August 15, 1999 after which it increases to 15%. The payment of cash
dividends is restricted by the 1997 Credit Facility, therefore dividend
payments will continue in additional shares of stock and the Holding Company
expects that such rate increases will occur.
The 10% Preferred Stock must be redeemed on August 15, 2002 for $10,000,000,
plus all accumulated and unpaid dividends. The 10% Preferred Stock is
exchangeable for an issue of the Holding Company's debt
F-17
<PAGE>
that has since been retired, under certain circumstances by the holders of
the 10% Preferred Stock on or after August 15, 1997. Since the exchange did
not occur before such debt was retired, such stock is not currently
exchangeable.
b. SERIES B AND C PREFERRED STOCK- In August and September 1996, the Holding
Company completed a private placement of 115,000 shares of the Holding
Company's 14.0% Senior Redeemable Preferred Stock, Series B par value $0.01
per share (the "Series B Preferred Stock"). The proceeds from issuance of the
Series B Preferred Stock were reduced by an allocation of $32,867,000 to the
warrants issued with the Series B preferred stock (see note 11), and by the
payment of approximately $7,451,000 of financing fees.
On April 28, 1997, the Holding Company completed an offer to exchange shares
of 14.0% Senior Redeemable Preferred Stock, Series C (the "Series C Preferred
Stock") which are registered under the Securities Act of 1933 for outstanding
shares of its 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 "Series B and C Preferred Stock"
on the consolidated balance sheet as of March 31, 1998.
According to the terms of the Series B and C Preferred Stock, if the Holding
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 quarterly period in which such non-cash
payment occurs, to a maximum rate of 17% per annum. Thus, the effective
quarterly dividend rate for the Series B and C Preferred Stock was 3.5625%
for the period ended February 17, 1998 and was 3.625% for the period ended
May 15, 1998. The Holding 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.
c. SERIES A PREFERRED STOCK- In May and June 1996, the Holding Company issued
$20,000,000 aggregate value of Series A Senior Redeemable Exchangeable
Preferred Stock ("Series A Preferred Stock"). Such Series A Preferred Stock
was retired on December 4, 1996.
11. OPTIONS AND WARRANTS
a. STOCK OPTION PLAN - The 1994 Stock Option Plan was approved by the Holding
Company's Board of Directors and stockholders in January 1995. At March 31,
1998, the Holding Company had reserved 136,320 shares of Common Stock under
the plan. The plan provides for incentive and non-qualified stock options for
employees. All options have been granted at exercise prices at or above fair
market value at the date of grant and vest ratably over a four-year period.
The Holding Company has adopted the disclosure only provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"). Accordingly, no compensation cost has been
recognized for the stock option plans. Determining compensation cost for the
Holding Company's stock option plan based on the fair value at the grant date
for awards during the years ended March 31, 1998, 1997 and 1996 consistent
with the provisions of SFAS 123, would not have had a material effect on the
Company's net loss and net loss per share.
At March 31, 1998, 48,823 shares were available for future grants under the
stock option plan.
F-18
<PAGE>
The following table summarizes the activity of options in the stock option plan.
<TABLE>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Options outstanding, March 31, 1995 65,863 $37.17
Granted 23,877 $37.17
Canceled (13,512) $37.17
-------
Options outstanding, March 31, 1996 76,228 $37.17
Granted 40,736 $81.77
Canceled (10,659) $37.17
-------
Options outstanding, March 31, 1997 106,305 $54.26
Granted 12,550 $96.23
Exercised (1,237) $37.17
Canceled (31,358) $56.80
-------
Options outstanding, March 31, 1998 86,260 $63.27
-------
-------
Options exercisable, March 31, 1996 14,832 $37.17
-------
-------
Options exercisable, March 31, 1997 25,571 $37.17
-------
-------
Options exercisable, March 31, 1998 38,182 $47.06
-------
-------
</TABLE>
The following table summarizes information about the Holding Company's stock
options outstanding and exercisable as of March 31, 1998.
<TABLE>
OPTIONS OUTSTANDING
-------------------
OUTSTANDING WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES REMAINING CONTRACTUAL LIFE REMAINING EXERCISE PRICE
<S> <C> <C>
46,974 1.2 years $ 37.17
17,236 2.5 years $ 90.00
17,050 3.5 years $ 96.23
5,000 2.8 years $104.00
------
86,260
------
------
OPTIONS EXERCISABLE
-------------------
OUTSTANDING WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES REMAINING CONTRACTUAL LIFE REMAINING EXERCISE PRICE
<S> <C> <C>
31,498 1.1 years $ 37.17
4,309 2.5 years $ 90.00
1,250 2.5 years $ 96.23
1,125 2.8 years $104.00
------
38,182
------
------
</TABLE>
At March 31, 1998, because of Renaissance's financial restructuring plans,
the Company believes that the fair value of the outstanding stock options is
at or near $0.
F-19
<PAGE>
b. OTHER EMPLOYEE STOCK OPTIONS - Dr. Bonoma had been granted stock options
holding he had the right to acquire a total of 93,182 shares of common stock
of the Holding Company. The earliest date on which these options could have
become exercisable, generally was August 18, 1997, based on the value of the
Holding Company's equity reaching certain thresholds; however, the valuation
date is accelerated prior to that date (and if the thresholds are reached the
options become exercisable) upon a sale or merger of the Holding Company or a
public offering of the Holding Company's common Stock. Notwithstanding
whether the earnings of the Holding Company meet any of the tests enunciated
in the stock option agreement, Dr. Bonoma's estate will be entitled to
exercise these options commencing on August 18, 2000. The above stock options
had been authorized by the Holding Company's Board of Directors and granted
outside of the Company's stock option plan. The exercise price for each
purchasable share under this stock option is $37.17237.
c. STOCK PURCHASE WARRANTS- In 1994, the Holding Company issued 130,000
warrants in connection with an issue of its debt that has since been retired
and 50,000 warrants in connection with its 10% Preferred Stock. Such warrants
were detached in December 1994 and remain outstanding at March 31, 1998. The
value allocated to the warrants aggregated $1,260,000. The warrants are
exercisable and outstanding and expire on August 15, 2001. The exercise price
of the warrants is $.01 per share.
In connection with the issuance of the Series B and C Preferred Stock, the
Holding Company issued 115,000 warrants to purchase 341,550 shares of the
Holding Company's common stock. The value allocated to the warrants was
$32,867,000. The warrants are exercisable at any time and expire on August
15, 2001. These warrants have an exercise price of $.01 per share
12. INCOME TAXES
The Company records deferred tax liabilities and assets for estimated future tax
consequences attributable to temporary differences. Such temporary differences
exist when the tax basis differs from the financial reporting amount of assets
or liabilities. A valuation allowance is recorded to reduce deferred tax assets
to amounts, which, in management's judgment, are more likely than not to be
realized.
The income tax provision (benefit) is composed of the following:
F-20
<PAGE>
<TABLE>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $ - $ - $ (279)
State (24) 269 412
Foreign 940 1,139 1,112
-------- -------- --------
916 1,408 1,245
-------- -------- --------
Deferred:
Federal - - -
State - - (100)
Foreign (4) (86) 160
-------- -------- --------
(4) (86) 60
-------- -------- --------
Total income tax provision $ 912 $ 1,322 $ 1,305
-------- -------- --------
-------- -------- --------
</TABLE>
F-21
<PAGE>
There is no Federal tax liability as a result of Federal tax operating losses in
the amount of approximately $134,123,000. Such losses expire in accordance with
provisions of applicable tax law and expire beginning in 2006 as follows:
<TABLE>
AMOUNT DATE
(dollars in thousands)
<S> <C>
$ 679 2006
3,834 2007
1,703 2008
625 2009
6,400 2010
13,035 2011
43,058 2012
64,789 2013
</TABLE>
The future utilization of certain net operating loss carryforwards is subject to
the provisions of Section 382 of the Internal Revenue Code in connection with
changes in ownership. Net operating loss carryforwards of approximately
$23,000,000 are subject to an annual Section 382 limitation of $5,600,000 and
approximately $13,000,000 of net operating loss carryforwards are subject to an
annual Section 382 limitation of $1,100,000.
The following reconciles the income tax provision computed at the Federal
statutory income tax rate to the benefit recorded in the statement of
operations:
<TABLE>
YEAR ENDED
MARCH 31,
1998 1997 1996
(dollars in thousands)
<S> <C> <C> <C>
Federal benefit at statutory rate $ (66,821) $ (13,768) $ (3,656)
Limitation of utilization of tax benefits 32,773 14,328 5,166
Benefit of carryback not previously recorded - - (279)
State income taxes (24) 269 311
Foreign income 13,617 (593) (1,508)
Foreign taxes 936 1,053 1,271
Amortization 21,703
Life Insurance Proceeds (1,700)
Other 428 33
---------- ---------- ---------
$ 912 $ 1,322 $ 1,305
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
F-22
<PAGE>
The significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
MARCH 31,
1998 1997
(dollars in thousands)
<S> <C> <C>
Current deferred income tax assets (liabilities):
Allowance for sales returns $ 14,908 $ 4,962
Inventory reserves 7,121 5,924
Other non-deductible reserves 9,365 13,567
Royalties 373 1,302
Other, net (95) 42
---------- ----------
31,672 25,797
Less valuation allowance (31,672) (25,797)
---------- ----------
- -
---------- ----------
Non-current deferred income tax assets (liabilities):
Depreciation (935) (1,967)
Amortization of intangible assets (2,281) (1,555)
Federal net operating loss carryforwards 45,602 20,255
State net operating loss carryforwards 9,381 2,524
Foreign tax credit carryforwards 2,660 1,860
---------- ----------
54,427 21,117
Less valuation allowance (54,427) (21,117)
---------- ----------
$ - $ -
---------- ----------
---------- ----------
Deferred foreign tax liability $ 154 $ 158
---------- ----------
---------- ----------
</TABLE>
Foreign pretax income (loss) was $(36,961,000), $1,746,000, and $4,447,000 for
the years ended March 31, 1998, 1997, and 1996, respectively.
13. COMMITMENTS AND CONTINGENCIES
a. LEASES - The Company leases certain warehouses, office facilities, and
automobiles, under operating lease agreements, certain of which are subject to
escalation, expiring at various dates.
F-23
<PAGE>
Future minimum lease payments under noncancelable operating leases as of March
31, 1998 are as follows:
<TABLE>
MARCH 31, AMOUNT
(dollars in thousands)
<S> <C>
1999 $ 2,728
2000 2,350
2001 1,746
2002 1,006
2003 317
Thereafter 1,156
</TABLE>
Rent expense associated with operating leases for the years ended March 31,
1998,1997 and 1996 was $2,818,000, $2,007,000 and $1,999,000, respectively.
B. TERMINATED PENSION PLAN- On February 7, 1997, the Company closed the
Northvale, New Jersey and Boucherville, Quebec facilities of MEM and Tom Fields
Ltd. (a division of MEM) and terminated substantially all of the employees
working at such facilities. The union employees in the Northvale facilities had
been covered by a collective bargaining arrangement which included participation
in the local union pension fund (the "Fund"). Closure of such plants and
termination of the employees triggered an automatic withdrawal from the Fund In
connection with such withdrawal the Company will incur an ERISA withdrawal
liability, which has been estimated by the Fund's actuary at approximately
$3,800,000. The actual payments may be made either in a lump-sum, or in equal
quarterly installments over a period not to exceed twenty years, as calculated
under a statutory formula. During the year ended March 31, 1998, the Company
received an assessment from the Fund and began making quarterly payments of
$69,000 on September 1, 1997.
The Fund's actuary also informed the Company that for several years the Fund has
not received the minimum annual level of contributions required by ERISA. The
Fund is in the process of seeking to obtain certain waivers under ERISA and the
Internal Revenue Code so that the participating employers will not have to pay
any penalties for the Fund's failure to receive such minimum levels of
contributions. The Fund's actuary has estimated the Company's liability, if such
waivers are not obtained, to be approximately $1,100,000. Furthermore, the
Company's ERISA withdrawal liability may be recalculated if the Fund terminates
within three years of the Company's withdrawal, which may significantly increase
the amount of the liability. The amount of the additional ERISA withdrawal
liability in the event of the Fund's termination cannot be estimated at this
time.
As of March 31, 1998 the remaining accrued but unpaid pension liability is
$4,693,000.
F-24
<PAGE>
C. HOUBIGANT AND OTHER LICENSE AGREEMENTS The Company, Houbigant Inc.
("Houbigant") and other parties entered into license and sublicense
agreements in 1994, as amended, ("the Houbigant License Agreements"), whereby
the Company obtained certain exclusive rights to manufacture and sell on a
worldwide basis certain fragrance products owned and licensed by Houbigant
for initial periods of five and seven years. In connection with the Houbigant
License Agreements, the Company paid Houbigant Inc. $5,000,000 as a
prepayment of advance royalties that could be used to reduce future royalty
payments when certain conditions are met. The Company has the option to renew
the Houbigant License Agreements for up to seven successive five year
periods. Pursuant to the Houbigant License Agreement , the Company is
obligated to pay certain minimum annual royalties. During each renewal
period, annual minimum royalties are adjusted based on increases in the
Consumer Price Index.
The Company and Houbigant entered into a License Modification Agreement, dated
March 20, 1998, pursuant to which Houbigant agreed, absent any defaults under
the License Modification Agreement, to forbear, for a period of one year from
March 20, 1998, from taking any action with respect to certain disputes and
alleged defaults under the license agreements existing as of March 20, 1998 or
any defaults which might occur during the forbearance period, with the exception
of certain specified defaults. In consideration of this forbearance, (1) the
first renewal period of five (5) years was bifurcated into two (2) sub-terms of
two and one-half (2-1/2) years each, (2) the Company agreed to an early renewal
of the License for the first 2-1/2 year sub-term (from July 1, 2001 through
December 31, 2003), (3) the amount deemed to have been a prepayment of the
royalties was reduced from $5,000,000 to $2,500,000 (with Houbigant retaining
$2,500,000), and (4) the Company and Houbigant agreed on the allocation of the
remaining $2,500,000 of prepaid royalties as credits against future royalties.
The amendment to the agreement caused an increase in the minimum royalty asset
of $4,592,000, and an increase in the minimum royalty liability of $4,342,000,
with a reduction in current year amortization of $250,000. Additionally, the
minimum royalty asset was among the long-lived assets reviewed for impairment in
accordance with SFAS 121 (see Note 7)
Additionally, Cosmar has certain license agreements through which it is
obligated to pay minimum royalty payments.
Future minimum royalty payments are as follows:
<TABLE>
YEAR ENDING
MARCH 31, AMOUNT
(dollars in thousands)
<S> <C>
1999 3,121
2000 2,585
2001 2,616
2002 2,702
2003 2,681
Thereafter 1,999
---------
Total minimum royalty payments 15,704
Less: Amounts representing interest 5,061
---------
Present value of minimum royalty payments 10,643
Current portion 2,569
---------
Long-term portion 8,074
---------
---------
</TABLE>
F-25
<PAGE>
Royalty expense pursuant to minimum royalty agreements totaled $2,911,000,
$2,848,000, and $1,931,000 for the years ended March 31, 1998, 1997 and 1996,
respectively.
As of March 31, 1998, the balance of the minimum royalty asset relating to the
Houbigant royalties and the Cosmar minimum royalties (included within other
assets) was $9,269,000.
14. EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain of its executive officers,
the terms of which expire at various times through October 31, 2000. Such
agreements, which have been revised from time to time, provide for minimum
salary levels, adjusted annually for cost-of-living changes, as well as for
incentive bonuses that are payable if specified management goals are
attained. The employment agreements also provide for severance benefits,
disability and death benefits and as to one director, a life insurance policy
in his name. The aggregate minimum commitment for future salaries at March
31, 1998, excluding bonuses, was approximately $3,123,000. Additionally, as
part of two employment agreements, options were reserved for issuance but
have not been granted.
In connection with an employment agreement with Dr. Thomas V. Bonoma at March
31, 1997 the Company has a liability for $93,000, representing a bonus owed
to his estate.
15. LEGAL PROCEEDINGS
PREMIER SALES GROUP LITIGATION. The Holding Company, GAC and Cosmar were sued
in the District Court of Jefferson County, Texas in August 1997 by Premier
Sales Group, Inc. and David Gosdin (together, "PSG"), a former sales
representative for the Nat Robbins brand. The complaint alleged (1) breach of
contract, (2) unjust enrichment, (3) failure to provide an accounting, (4)
fraud, (5) interference with business relations and prospective advantage,
(6) breach of duty of good faith and fair dealing and (7) violation of
certain sections of the Texas Business and Commerce Code Sections 35.81, et
seq., and sought actual, statutory, special, punitive and exemplary damages
in amounts to be proven at trial. The Holding Company, Cosmar and GAC denied
all the material allegations of the complaint, and filed a third party
complaint against the sellers of GAC (the "Sellers") in November 1997 seeking
damages for breach of representations and warranties in the Stock Purchase
Agreement and indemnification pursuant to the terms of the Stock Purchase
Agreement. In March 1998, PSG, the Holding Company, Cosmar, GAC and the
Sellers entered into settlement agreements pursuant to which (a) $299,999.99
of the $500,000 held in an escrow account set up under the Stock Purchase
Agreement was released from the escrow account and delivered to PSG, (b)
$30,000 of the amount remaining in the escrow account was delivered to the
Holding Company, Cosmar and GAC to be applied against outstanding attorneys'
fees for the litigation, (c) the balance of the escrow account was delivered
to the Sellers, and (d) all parties signed mutual releases (except that the
Holding Company, GAC and Cosmar did not release any claims arising under the
existing consulting agreements with the Sellers). The litigation was
dismissed with prejudice by order entered on March 13, 1998.
ORIGINAL ADDITIONS. 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
F-26
<PAGE>
of the Company. The complaint alleges (1) breach of contract, (2)
interference with and conspiracy to interfere with contract, (3) unfair
competition and conspiracy to unfairly compete and (4) fraud. Original
Additions is seeking reformation of the original distribution agreement,
declaratory relief with respect to its alleged right of set-off and
compensatory and punitive damages in amounts to be proven. In April 1998, the
parties executed an Agreement pursuant to which (a) they agreed to submit
their claims to binding arbitration before a retired judge from the Los
Angeles or Orange County Superior Court or the United States District Court
for the Central District of California, (b) Cosmar agreed to withdraw its
arbitration demand without prejudice and (c) Original Additions agreed to
dismiss the litigation without prejudice. The parties have thirty days after
the execution of the Agreement to serve their claims on each other and the
arbitrator. The arbitration is to be commenced on or before December 31,
1998, unless extended by mutual agreement of the parties. The Company does
not believe that the outcome of this litigation will have a material effect
on financial position or results of operations.
OTHER LITIGATION. The Company is involved from time to time in various legal
proceedings arising from the ordinary course of business. The Company believes
that the outcome of all pending legal proceedings in the aggregate will not have
a material effect on the financial condition or results of operations of the
Company.
16. RETIREMENT PROGRAMS
The Company has a 401(k) Pension Plan for all U.S. employees, with the
exception of Dana union members for which the Company maintains a separate
401(k) plan. The Plans are available to all employees who have been employed
continuously for at least six months. The participants contribution ceiling
is 20% of their annual compensation, as defined, and a matching contribution
is provided by the Company at 50% of the first 6% of the participants' salary
for the non-union members and 12 1/2% of the first 6% of the participants'
salary for the union plan. The participants become fully vested after four
years of service. The contributions made by the Company during the years
ended March 31, 1998, 1997 and 1996 were $242,000, $393,000, and $166,000,
respectively. Certain of the administrative expenses are paid by the Company,
the Plans' sponsor.
MEM had a defined benefit pension plan covering substantially all of its
non-union employees. The plan had been terminated prior to the acquisition.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following estimated fair value amounts have been determined using
available market information and appropriate valuation methodologies.
However, considerable judgement is required to interpret market data and to
develop the estimates of fair value. Accordingly the estimates presented
herein are not necessarily indicative of the amounts that the Holding Company
could realize in a current market exchange.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value. The carrying values of cash and cash equivalents, accounts
receivable and current liabilities (excluding the accrued interest on the
Holding Company's Subordinated Seller Notes which are payable in 2002)
approximate fair value because of the short-term maturities of those
instruments. The fair values of the Holding Company's 1997 Senior Notes and
Series B and C Preferred Stock and outstanding warrants, are estimated based
upon quoted market prices. However, as there is not a very regular market for
such securities, such quoted prices may vary depending on which broker is
making the quote. The fair values of the Subordinated Seller Notes (and
accrued interest thereon) and the 10% Preferred Stock are estimated based on
rates currently available to the Holding Company for debt with similar terms
and remaining maturities. The fair value of the 1997 Credit Facility is
assumed to approximate cost at March 31, 1998.
F-27
<PAGE>
<TABLE>
Year Ended March 31,
1998 1997
Fair Value Carrying Amount Fair Value Carrying Amount
(dollars in thousands)
<S> <C> <C> <C> <C>
Cash & Cash Equivalents $ 7,698 $ 7,698 $ 719 $ 719
Marketable Securities-Short Term 1,934 1,934 14,331 14,331
Marketable Securities-Long Term - - 8,468 8,468
Accounts Receivable 32,995 32,995 48,837 48,837
Accounts Payable 33,099 33,099 21,612 21,612
Accrued Expenses (a) 44,358 44,358 39,202 39,202
1997 Credit Facility 55,554 55,554 - -
1997 Senior Notes 108,000 200,000 201,000 200,000
Subordinated Seller Notes (b) 6,041 5,720 5,725 4,997
10% Preferred Stock 8,070 14,333 11,539 13,167
Series B and C Preferred Stock 7,089 109,925 94,037 86,660
Warrants issued in 1994 - - 17,321 -
Warrants issued in 1996 - 32,867 32,867 32,867
</TABLE>
(a) Excluding accrued interest on Subordinated Seller Notes due in 2002
(b) Carrying amount includes accrued interest of $1,648,000 and $1,120,000 that
is included in accrued expenses at March 31, 1998 and 1997, respectively
18. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and trade accounts
receivable.
Credit risk with respect to trade accounts receivable is generally diversified
due to the large number of entities comprising the Company's customer base and
their dispersion throughout the United States. The Company generally does not
require collateral, and the majority of its trade receivables are unsecured. The
Company does, however, perform ongoing credit evaluations of its customers'
financial condition.
The Company sells a significant portion of its products through third-party drug
store and discount retailers and as a result, maintains individually significant
accounts receivable balances with major retailers. If the financial condition
and operation of these retailers deteriorate below critical levels, the
Company's operating results could be adversely affected. An allowance for
doubtful accounts and sales returns is maintained at a level which management
believes is sufficient to cover potential credit losses. The ten largest
accounts receivable balances collectively represented 50% and 66% of total
accounts receivable at March 31, 1998 and 1997, respectively. Sales to the top
ten customers represented 55%, 46% and 50% of gross revenues during the years
ended March 31, 1998, 1997 and 1996. One customer accounted for 13% and 12% of
the Company's gross revenues for the years ended March 31, 1998 and 1997,
respectively. No single customer accounted for greater than 10% of the Company's
gross revenues for the year ended March 31, 1996.
F-28
<PAGE>
19. RELATED PARTIES
The Company records fees payable to Kidd, Kamm & Company ("Kidd Kamm"), a
related party. Other (income) expense net for the year ended March 31, 1998
includes $675,000 of fees payable to Kidd Kamm. Approximately $356,000 were
paid. As of August 15, 1997, such payments were restricted by the terms of the
Company's 10% Preferred Stock. In connection with the closing of the
Senior Notes, the Company paid a fee of $1,350,000 to Kidd Kamm, which has been
reflected as deferred financing costs.
In December 1995, the holders of the Subordinated Seller Notes sold such notes
to a third party who is a holder of a substantial portion of the Company's
10% Preferred Stock (the "Holder"). In a related transaction, the Company
signed an agreement with the Holder, whereby in exchange for $225,000, the
Company agreed not to pursue any claims against the Holder relating to the
acquisition of Cosmar. All other terms and provisions of the sellers' note
remained the same.
20. INFORMATION CONCERNING FINANCIAL REPORTING FOR SEGMENTS AND OPERATIONS IN
GEOGRAPHIC AREAS
The Company, through its operating subsidiaries, is engaged in two main
businesses, the manufacturing and marketing of fragrances and associated
products and the manufacturing and marketing of cosmetics products.
Year ended March 31, 1998:
<TABLE>
FRAGRANCES COSMETIC CORPORATE ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 108,577 $ 71,119 - $ - $ 179,696
Intercompany sales 14,739 $ - - (14,739) -
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Net Sales $ 123,316 $ 71,119 $ (14,739) $ 179,696
---------- --------- --------- ----------
---------- --------- --------- ----------
Operating income (loss) $ (139,875) $ (12,587) $ (16,633) $ (252) $ (169,347)
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Identifiable assets $ 120,520 $ 107,006 $ 12,958 $ - $ 240,484
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Depreciation and amortization $ 13,579 $ 6,815 $ 558 $ 252 $ 21,204
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Capital expenditures $ 7,272 $ 4,005 $ 133 $ - $ 11,410
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
</TABLE>
F-29
<PAGE>
Year ended March 31, 1997:
<TABLE>
FRAGRANCES COSMETIC CORPORATE ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 110,662 $ 63,950 $ - $ - $ 174,612
Intercompany sales 2,536 322 - (2,858) -
---------- --------- --------- --------- ----------
Net Sales $ 113,198 $ 64,272 $ (2,858) $ 174,612
---------- --------- --------- ----------
---------- --------- --------- ----------
Operating income (loss) $ 5,360 $ 9,803 $ (10,639) $ - $ 4,524
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Identifiable assets $ 217,077 $ 108,229 $ 36,077 $ - $ 361,383
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Depreciation and
amortization $ 9,307 $ 4,841 $ 561 $ - $ 14,709
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
Capital expenditures $ 6,715 $ 2,141 $ 474 $ - $ 9,330
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
</TABLE>
Year ended March 31, 1996:
<TABLE>
FRAGRANCES COSMETIC CORPORATE CONSOLIDATED
<S> <C> <C> <C> <C>
Net sales (A) $83,153 $48,133 $ - $131,286
------- ------- -------- --------
------- ------- -------- --------
Operating income (loss) $ 7,609 $ 9,160 $ (8,318) $ 8,451
------- ------- -------- --------
------- ------- -------- --------
Identifiable assets $90,709 $83,074 $ 10,836 $184,619
------- ------- -------- --------
------- ------- -------- --------
Depreciation and
amortization $ 4,535 $ 3,305 $ 211 $ 8,051
------- ------- -------- --------
------- ------- -------- --------
Capital expenditures $ 4,339 $ 1,942 $ 1,885 $ 8,166
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
There were no material intersegment sales during the year ended March 31, 1996.
F-30
<PAGE>
Information related to the Company's operations in different geographic areas is
shown below:
Year ended March 31, 1998:
<TABLE>
UNITED LATIN EUROPE, AFRICA
STATES CANADA AMERICA AND THE FAR EAST ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C> <C>
Sales to Unaffiliated Customers $ 130,958 $ 8,998 $16,242 $ 23,498 $ - $ 179,696
Intercompany Sales 14,229 203 - 307 (14,739) -
--------- -------- ------- -------- --------- ---------
Net sales $ 145,187 $ 9,201 $16,242 $ 23,805 $ (14,739) $ 179,696
--------- -------- ------- -------- --------- ---------
--------- -------- ------- -------- --------- ---------
Net income (loss) $(160,405) $(18,229) $(3,556) $(15,256) $(197,446)
--------- -------- ------- -------- ---------
--------- -------- ------- -------- ---------
Identifiable
assets $ 212,596 $ 4,253 $ 6,607 $ 17,028 $ 240,484
--------- -------- ------- -------- ---------
--------- -------- ------- -------- ---------
</TABLE>
Year ended March 31, 1997:
<TABLE>
UNITED LATIN EUROPE, AFRICA
STATES CANADA AMERICA AND THE FAR EAST ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C> <C> <C>
Sales to Unaffiliated Customers $ 139,174 $10,609 $ 17,888 $ 6,941 $ - $174,612
Intercompany Sales 2,236 591 - 31 (2,858) -
--------- -------- -------- -------- --------- --------
Net sales $ 141,410 $ 11,200 $ 17,888 $ 6,972 $ (2,858) $174,612
--------- -------- -------- -------- --------- --------
--------- -------- -------- -------- --------- --------
Net income (loss) $ (42,428) $ 192 $ 1,600 $ (1,182) $(41,818)
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
Identifiable
assets $ 306,186 $ 15,759 $ 10,600 $ 28,838 $361,383
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
</TABLE>
Year ended March 31, 1996:
<TABLE>
UNITED LATIN EUROPE, AFRICA
STATES CANADA AMERICA AND THE FAR EAST CONSOLIDATED
<S> <C> <C> <C> <C> <C>
Net sales(A) $ 115,300 $ 8,026 $ 4,825 $ 3,135 $ 131,286
--------- -------- -------- --------- ---------
--------- -------- -------- --------- ---------
Net income
(loss) $ (15,333) $ 260 $ 1,436 $ 1,580 $ (12,057)
--------- -------- -------- --------- ---------
--------- -------- -------- --------- ---------
Identifiable
assets $ 156,951 $ 9,675 $ 7,107 $ 10,886 $ 184,619
--------- -------- -------- --------- ---------
--------- -------- -------- --------- ---------
</TABLE>
There were no material Intercompany sales between geographic areas during the
year ended March 31, 1996.
21. EXTRAORDINARY ITEM
During the fourth quarter of Fiscal 1996, the Company recorded an extraordinary
loss of $22,438,000, or $28.76 per share, relating to the early extinguishment
of debt. The loss was composed of the redemption premiums on the Company's Old
Senior Notes of $10,725,000, the write-off of deferred financing fees relating
to the debt that was extinguished of $10,489,000, and the write-off of the
remaining unamortized discount on the Old Senior Notes of $1,224,000. No tax
benefit was recognized for the extraordinary item.
F-31
<PAGE>
22. RESTRUCTURING COSTS
Restructuring costs included in the statement of operations consists of the
severance related to the Company's March 26, 1998 decision to close Parfums
Dana SAIC in Argentina. Such costs totaled $567,000 of which $172,000 was
unpaid at March 31, 1998.
23. OTHER SEVERANCE AND PROFESSIONAL FEES
<TABLE>
<S> <C>
(dollars in thousands)
Severance, Relocation and Recruiting $1,795
Professional fees 1,357
----------
Total $3,152
----------
----------
</TABLE>
The severance relocation and recruiting mentioned above represent costs of
reorganizing the Company's management team. Professional fees included above
include fees paid to outside parties to assist in the development and
implementation of the Company's operational restructuring plan.
******
F-32
<PAGE>
Exhibit 10.74
RENAISSANCE COSMETICS, INC.
635 MADISON AVENUE
NEW YORK, NEW YORK 10022
________ __, 1998
[Name]
[Address]
Dear _____________:
I am writing to confirm the action approved by the Renaissance
Cosmetics, Inc. (the "Company") Board of Directors at its February 12, 1998
meeting.
The Company considers it essential to the best interests of its
stockholders to foster the continuous employment of the key management
personnel of the Company. In this connection, the Board of Directors of the
Company (the "Board") recognizes that your departure would be a detriment to
the Company and its stockholders.
On behalf of the Board, I am pleased to inform you that you have been
selected by the Board as a key employee eligible to receive a retention
bonus, as more fully described below
RETENTION BONUS:
Subject to satisfaction of the terms and conditions set forth below, you
will be eligible to receive a retention bonus in the amount of $____________
(the "Retention Bonus").
You will be entitled to receive 50% of the Retention Bonus if you are
employed by the Company as of ____________ __, 1998 (the "First Payment
Date") or cease to be employed by the Company prior to the First Payment Date
as a result of the Company's termination of your employment without Cause (as
defined below) or due to your death or Disability (as defined below) (each a
"Qualifying Termination"). If you cease to be employed prior to the First
Payment Date other than as the result of a Qualifying Termination, you will
not be entitled to receive any portion of the Retention Bonus.
You will; be entitled to receive the remaining 50% of the Retention
Bonus if you are employed by the Company as of __________ __, 1998 (the
"Second Payment Date") or cease to be employed by the Company prior to the
Second Payment Date as a result of a Qualifying Termination.
<PAGE>
If you cease to be employed prior to the Second Payment Date other than as
the result of a Qualifying Termination, you will not be entitled to receive
any portion of the Retention Bonus (other than any portion of the Retention
Bonus which you may have become entitled to pursuant to the immediately
preceding paragraph).
To the extent a portion of the Retention Bonus becomes payable to you
hereunder as of the First Payment Date, such portion of the Retention Bonus
will be paid to you (or your estate, as the case may be) in a lump sum cash
payment no later than 30 days following the First Payment Date. To the
extent a portion of the Retention Bonus becomes payable to you hereunder as
of the Second Payment Date, such portion of the Retention Bonus will be paid
to you (or your estate, as the case may be) in a lump sum cash payment no
later than 30 days following the Second Payment Date.
By way of example:
1. If you remain employed through the Second Payment Date, you will
receive payment of your entire Retention Bonus, 50% within 30 days of the
First Payment Date, and 50% within 30 days of the Second Payment Date.
2. If your employment is terminated by the Company in connection with
a Qualifying Termination (i.e., without Cause or as a result of your death or
Disability) prior to the Second Payment Date (whether or not prior to the
First Payment Date), you will receive payment of your entire Retention Bonus,
50% within 30 days of the First Payment Date, and 50% within 30 days of the
Second Payment Date.
3. If you remain employed through the First Payment Date, and
thereafter your employment is terminated other than as a result of a
Qualifying Termination (e.g., you resign or are terminated for Cause) prior
to the Second Payment Date, you will be entitled to receive 50% of the
Retention Bonus payable within 30 days following the First Payment Date and
will forfeit your entitlement to payment of the balance of the Retention
Bonus.
CONFIDENTIALITY AGREEMENT:
In consideration for your opportunity to receive a Retention Bonus, you
hereby agree to be bound by the terms of the Confidentiality Agreement
attached hereto as Exhibit I (the "Confidentiality Agreement"), which is
hereby incorporated into this letter agreement by this reference. Your
entitlement to any payments hereunder is expressly conditioned upon your
compliance with the terms of the Confidentiality Agreement.
DEFINED TERMS:
For purposes of this letter agreement:
"CAUSE" means (i) your substantial failure to satisfactorily perform
your reasonably assigned duties to the Company or any of its affiliates
(including, without limitation, your failure to use your
<PAGE>
best efforts to assist in the structuring or consummation of any strategic
alternative for the Company that the Board determines to pursue), which
failure is not cured within ten days after your receipt of written notice
from the Company describing such failure, (ii) dishonesty in the performance
of your duties to the Company or its affiliates (iii) an act or acts on your
part constituting a felony under the laws of the United States or any state
thereof or crime involving moral turpitude, (iv) your material breach of the
Confidentiality Agreement or any written policies or practices of the Company
or its affiliates, or (v) any other willful or grossly negligent act or
omission by you which is materially injurious to the financial condition or
business reputation of the Company or any of its affiliates. For such
purposes, the term Company shall mean the Company or its successor, as the
case may be.
"DISABILITY" means "long term disability" as such term (or similar term)
is defined in the Company's long-term disability policy as in effect from
time to time, or if there should be no such policy or such term is not
defined therein, your inability due to physical or mental incapacity, to
substantially perform your duties to the Company for a period of six (6)
consecutive months or for an aggregate of nine (9) months in any twenty-four
(24) consecutive month period, as determined by the Company in good faith.
NO MITIGATION:
Your entitlement to the payment of a Retention Bonus hereunder will not
be subject to mitigation. Consequently, you will not be obligated to seek
alternative employment in the event of your termination of employment with
the Company or its affiliates (including any successor) and the amount of
compensation paid or payable to you hereunder will not be reduced by any
compensation paid or payable to you by any future employer.
MISCELLANEOUS
This letter agreement shall be governed by the laws of the State of New
York, without reference to the principles of conflict of laws and may be
executed in counterparts, each of which shall constitute an original, but all
of which taken together shall constitute one and the same agreement.
Your rights to the payment of any Retention Bonus hereunder may not be
assigned, transferred, pledged or otherwise alienated, other than by will or
the laws of descent and distribution.
Unless otherwise determined by the Board, any payments made hereunder
shall not be taken into account in computing your salary or compensation for
the purposes of determination any benefits or compensation under (i) any
pension, retirement, life insurance or other benefit or compensatory plan of
the Company or its affiliates or (ii) any agreement between the Company or
its affiliates and you.
The Company may withhold from any amounts payable hereunder such
Federal, state or local taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
<PAGE>
The terms of this letter agreement may not be amended or modified other
than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
Kindly sign this letter agreement in the space indicated below at which
time this letter agreement shall become a binding agreement between you and
the Company enforceable in accordance with its terms.
RENAISSANCE COSMETICS, INC.
By:
----------------------------------
[Name]
[Title]
Accepted and Agreed to:
By:
----------------------------------
<PAGE>
EXHIBIT 1
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement is being entered in connection with, and
shall be deemed to form a part of, the letter agreement dated as of __________
__, 1998 (the "Letter Agreement"), between Renaissance Cosmetics, Inc. (the
"Company") and _________________ (the "Executive"). Capitalized terms used
herein without definition have the meanings specified in the Letter Agreement.
I. Executive acknowledges and agrees that the Executive's work for the
Company has brought him and will continue to bring him into close contact
with many confidential affairs not readily available to the public.
Accordingly, to preserve the value of the Company, the Executive covenants
and agrees that:
A. CONFIDENTIAL INFORMATION. During the term of Executive's
employment by the Company or any of its affiliates and thereafter, Executive
shall keep secret and retain in strictest confidence, and shall not use the
for benefit of herself or others, or disclose to any person or entity, except
as required in connection with the business and affairs of the Company, all
confidential matters of the Company and its affiliates, including, without
limitation, trade "know-how," trade secrets, consultant contracts, customer
lists, subscription lists, details of consultant contracts, pricing policies,
operational methods, marketing plans or strategies, product development
techniques or plans, business acquisition, disposition or merger plans, new
personnel acquisition plans, methods of manufacture, technical processes,
designs and design projects, inventions and research projects and other
business affairs of the Company and its affiliates learned by Executive
heretofore or hereafter, and shall not disclose them to anyone outside of the
Company and its affiliates, except (i) as required in the course of
performing Executive's duties to the Company, (ii) with the Company's express
written consent, (iii) if such information is or becomes generally known by
the public other than as a result of a breach hereof or of a similar
confidentiality agreement, or (iv) as required by law or judicial or
administrative process.
B. RETENTION BONUS ARRANGEMENT/SIGNIFICANT TRANSACTION. Without
limiting the generality of the restrictions set forth in Paragraph A above,
during the term of Executive's employment by the Company or any of its
affiliates and thereafter, Executive shall keep secret and retain in
strictest confidence, and shall not use for the benefit of herself or others,
or disclose to any person or entity, except as required in connection with
the business and affairs of the Company, the terms or conditions of the
Letter Agreement (including, without limitations, the amount of the Retention
Bonus provided thereunder) and any intention the Company may have or develop
to consider or pursue a Significant Transaction or other corporate
transaction and any information relating to any potential Significant
Transaction or other corporate transaction, except (i) as required in the
course of performing Executive's duties to the Company, (ii) with the
Company's express written consent, (iii) if such information is or becomes
generally known by the public other than as
i
<PAGE>
a result of a breach hereof or of a similar confidentiality agreement, or
(iv) as required by law or judicial or administrative process.
C. PROPERTY OF THE COMPANY. All memoranda, notes, lists, records
and other documents (and all copies thereof) made or compiled by Executive or
made available to Executive concerning the business of the Company or any of
its affiliates shall be the Company's property and shall be delivered to the
Company promptly upon the termination of Executive's employment with the
Company or any of its affiliates or at any other time on request.
II. RIGHTS AND REMEDIES UPON BREACH. If Executive breaches, or
threatens to commit a breach of, any of the provisions of this
Confidentiality Agreement (the "Restrictive Covenants"), the Company shall
have the following rights and remedies, each of which rights and remedies
shall be independent of the other and severally enforceable, and all of which
rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or in equity.
A. SPECIFIC PERFORMANCE. The right and remedy to have the
Restrictive Covenants specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company.
B. ACCOUNTING. The right and remedy to require Executive to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits (collectively, "Benefits") derived or
received by Executive as the result of any transactions constituting a breach
of any of the Restrictive Covenants, and Executive shall account for and pay
over such Benefits to the Company.
C. The right to discontinue the payment of any amounts owing
under the Letter Agreement.
III. SEVERABILITY OF COVENANTS. If any court determines that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
IV. BLUE-PENCILLING. If any court construes any of the Restrictive
Covenants, or any part thereof, to be unenforceable because of the duration
of such provision or the area covered thereby, such court shall have the
power to reduce the duration or area of such provision and, in its reduced
form, such provision shall then be enforceable and shall be enforced.
ii
<PAGE>
Exhibit 10.75
RENAISSANCE COSMETICS, INC.
635 Madison Avenue
New York, NY 10022
[date]
[name]
[address]
Dear ________:
I am writing to confirm the action approved by the Renaissance
Cosmetics, Inc. (the "Company") Board of Directors at its October 22, 1997
meeting.
The Company considers it essential to the best interests of its
stockholders to foster the continuous employment of the key management
personnel of the Company. In this connection, the Board of Directors of the
Company (the "Board") recognizes that your departure would be a detriment to
the Company and its stockholders.
On behalf of the Board, I am pleased to inform you that you have
been selected by the Board as a key employee eligible to receive a retention
bonus, as more fully described below.
RETENTION BONUS:
Subject to satisfaction of the terms and conditions set forth
below, if (i) a Significant Transaction (as defined below) is consummated on
or before December 31, 2004 (or a definitive agreement to consummate a
Significant Transaction is entered into on or prior to December 31, 2004 and
such Significant Transaction is ultimately consummated) and (ii) you are
employed by the Company as of the date of consummation of such Significant
Transaction (the "Payment Event Date") or cease to be employed by the Company
prior to the Payment Event Date as a result of the Company's termination of
your employment without Cause (as defined below) or due to your death or
Disability (as defined below), then you will be entitled to receive a
retention bonus in the amount of $379,620, or such greater (but not lesser)
amount as may be determined by the Company in its sole discretion (a
"Retention Bonus").
To the extent a Retention Bonus becomes payable to you hereunder,
the Retention Bonus will be paid to you (or your estate, as the case may be)
in a lump sum cash payment no later than 30 days following the Payment Event
Date.
If (i) a Significant Transaction is not consummated on or before
December 31, 2004 (or, in the event a definitive agreement to consummate a
Significant Transaction is entered into on
<PAGE>
or prior to December 31, 2004, if such Significant Transaction is not
ultimately consummated) or (ii) if your employment with the Company is
terminated prior to the Payment Event Date due to your voluntary resignation
or termination of your employment by the Company for Cause, then you will not
be entitled to the payment of a Retention Bonus and you will cease to have
any rights hereunder.
CONFIDENTIALITY AGREEMENT:
In consideration for your opportunity to receive a Retention Bonus,
you hereby agree to be bound by the terms of the Confidentiality Agreement
attached hereto as Exhibit I (the "Confidentiality Agreement"), which is
hereby incorporated into this letter agreement by this reference. Your
entitlement to any payments hereunder is expressly conditioned upon your
compliance with the terms of the Confidentiality Agreement.
DEFINED TERMS:
For purposes of this letter agreement:
"CAUSE" means (i) your substantial failure to satisfactorily
perform your reasonably assigned duties to the Company or any of its
affiliates (including, without limitation, your failure to use your best
efforts to assist in the structuring or consummation of any strategic
alternative for the Company that the Board determines to pursue), which
failure is note cured within ten days after your receipt of written notice
from the Company describing such failure, (ii) dishonesty in the performance
of your duties to the Company or its affiliates (iii) an act or acts on your
part constituting a felony under the laws of the United States or any state
thereof or crime involving moral turpitude, (iv) your material breach of the
Confidentiality Agreement or any written policies or practices of the Company
or its affiliates, or (v) any other willful or grossly negligent act or
omission by you which is materially injurious to the financial condition or
business reputation of the Company or any of its affiliates. For such
purposes, the term Company shall mean the Company or its successors, as the
case may be.
"DISABILITY" means "long term disability" as such term (or similar
term) is defined in the Company's long-term disability policy as in effect
from time to time, or if there should be no such policy or such term is not
defined therein, your inability due to physical or mental incapacity, to
substantially perform your duties to the Company for a period of six (6)
consecutive months or for an aggregate of nine (9) months in any twenty-four
(24) consecutive month period, as determined by the Company in good faith.
"SIGNIFICANT TRANSACTION" means any of:
(a) A registered initial public offering of the equity
securities of the Company pursuant to an effective registration statement
under the Securities Act of 1933; or
2
<PAGE>
(b) (i) any "Person" (as defined in Sections 13(d) and 14(d)
of the Exchange Act) other than the persons or the group of persons in
control of the Company on the date hereof (or their affiliates) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the corporation representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities;
(ii) within any period of two consecutive years (not
including any period prior to the execution of this Agreement) there shall
cease to be a majority of the Board comprised as follows: individuals who at
the beginning of such period constitute the Board and any new director(s)
whose election was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of
the period or whose nomination for election was previously so approved;
(iii) the shareholders of the Board approve a merger of,
or consolidation involving, the Company in which (A) the Company's Common
Stock (such stock, or any other securities of the Company into which such
stock shall have been converted through a reincorporation, recapitalization
or similar transaction, hereinafter called "Common Stock of the Company"), is
converted into shares or securities of another corporation, or into cash or
other property, or (B) the Common Stock of the Company is not converted as
described in Clause (A), but in which more than forty percent (40%) of the
common stock of the surviving corporation in the merger is owned by
shareholders other than those who owned such amount prior to the merger; in
each case, other than a transaction solely for the purpose of reincorporating
the Company in another jurisdiction or recapitalizing the Common Stock of the
Company; or
(iv) the shareholders of the Company approve a plan of
complete liquidation of the Company, or an agreement for the sale or
disposition by the Company of all or substantially all of the proceeds to the
shareholders.
NO MITIGATION:
Your entitlement to the payment of a Retention Bonus hereunder will
not be subject to mitigation. Consequently, you will not be obligated to
seek alternative employment in the event of your termination of employment
with the Company or its affiliates (including any successor) and the amount
of compensation paid or payable to you hereunder will not be reduced by any
compensation paid or payable to you by any future employer.
MISCELLANEOUS
This letter agreement shall be governed by the laws of the Sate of
New York, without reference to the principles of conflict of laws and may be
executed in counterparts, each of which shall constitute an original, but all
of which taken together shall constitute one and the same agreement.
3
<PAGE>
Your rights to the payment of any Retention Bonus hereunder may not
be assigned, transferred, pledged or otherwise alienated, other than by will
or the laws of descent and distribution.
Unless otherwise determined by the Board, any payments made
hereunder shall not be taken into account in computing your salary or
compensation for the purposes of determining any benefits or compensation
under (i) any pension, retirement, life insurance or other benefit or
compensatory plan of the Company or its affiliates or (ii) any agreement
between the Company or its affiliates and you.
The Company may withhold from any amounts payable hereunder such
Federal, state or local taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
The terms of this letter agreement may not be amended or modified
other than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
Kindly sign this letter agreement in the space indicated below at
which time this letter agreement shall become a binding agreement between you
and the Company enforceable in accordance with its terms.
RENAISSANCE COSMETICS, INC.
By:
-------------------------------------
[name]
[title]
Accepted and Agreed to:
By
- -------------------------------------
4
<PAGE>
EXHIBIT I
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement is being entered in connection with
and shall be deemed to form a part of, the letter agreement dated as of ________
__, 199_ (the "Letter Agreement"), between Renaissance Cosmetics, Inc. (the
"Company") and __________ (the "Executive"). Capitalized terms used herein
without definition have the meanings specified in the Letter Agreement.
I. Executive acknowledges and agrees that the Executive's work for the
Company has brought him and will continue to bring him into close contact
with many confidential affairs not readily available to the public.
Accordingly, to preserve the value of the Company, the Executive covenants
and agrees that:
A. CONFIDENTIAL INFORMATION. During the term of Executive's
employment by the Company or any of its affiliates and thereafter, Executive
shall keep secret and retain in strictest confidence, and shall not use for
the benefit of himself or others, or disclose to any person or entity, except
as required in connection with the business and affairs of the Company, all
confidential matters of the Company and its affiliates, including, without
limitation, trade "know-how," trade secrets, consultant contracts, customer
lists, subscription lists, details of consultant contracts, pricing policies,
operational methods, marketing plans or strategies, product development
techniques or plans, business acquisition, disposition or merger plans, new
personnel acquisition plans, methods of manufacture, technical processes,
designs and design projects, inventions and research projects and other
business affairs of the Company and its affiliates learned by Executive
heretofore or hereafter, and shall not disclose them to anyone outside of the
Company and its affiliates, except (i) as required in the course of
performing Executive's duties to the Company, (ii) with the Company's express
written consent, (iii) if such information is or become generally known by
the public other than as a result of a breach hereof or of a similar
confidentiality agreement, or (iv) as required by law or judicial or
administrative process.
B. RETENTION BONUS ARRANGEMENT/SIGNIFICANT TRANSACTION. Without
limiting the generality of the restrictions set forth in Paragraph A above,
during the term of Executive's employment by the Company or any of its
affiliates and thereafter, Executive shall keep secret and retain in
strictest confidence, and shall not use for the benefit of himself or others,
or disclose to any person or entity, except as required in connection with
the business and affairs of the Company, the term or conditions of the Letter
Agreement (including, without limitations, the amount of the Retention Bonus
provided thereunder) and any intention the Company may have or develop to
consider or pursue a Significant Transaction or other corporate transaction
and any information relating to any potential Significant Transaction or
other corporate transaction, except (i) as required in the course of
performing Executive's duties to the Company, (ii) with the Company's express
written consent, (iii) if such information is or becomes generally known by
the public other than as
5
<PAGE>
a result of a breach hereof or of a similar confidentiality agreement, or
(iv) as required by law or judicial or administrative process.
C. PROPERTY OF THE COMPANY. All memoranda, notes, lists, records
and other documents (and all copies thereof) made or compiled by Executive or
made available to executive concerning the business of the Company or any of
its affiliates shall be the Company's property and shall be delivered to the
Company promptly upon the termination of Executive's employment with the
Company or any of its affiliates or at any other time on request.
II. RIGHTS AND REMEDIES UPON BREACH. If Executive breaches, or
threatens to commit a breach of, any of the provisions of this
Confidentiality Agreement (the "Restrictive Covenants"), the Company shall
have the following rights and remedies, each of which rights and remedies
shall be independent of the other and severally enforceable, and all of which
rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or in equity;
A. SPECIFIC PERFORMANCE. The right and ready to have the
Restrictive Covenants specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the company and that money
damages will not provide an adequate remedy to the Company.
B. ACCOUNTING. The right and remedy to require Executive to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits (collectively, "Benefits") derived or
received by Executive as the result of any transactions constituting a breach
of any of the Restrictive Covenants, and Executive shall account for and pay
over such benefits to the Company.
C. The right to discontinue the payment of any amounts owing
under the Letter Agreement.
III. SEVERABILITY OF COVENANTS. If any court determines that any of
the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby affected and
shall be given full effect, without regard to the invalid portions.
IV. BLUE-PENCILING. If any court construes any of the Restrictive
Covenants, or any part thereof, to be unenforceable because of the duration
of such provision or the area covered thereby, such court shall have the
power to reduce the duration or area of such provision and, in its reduced
form, such provision shall then be enforceable and shall be enforced.
6
<PAGE>
Exhibit 10.76
[RENAISSANCE COSMETICS, INC. LETTERHEAD]
_______ __, 199_
[NAME]
[ADDRESS]
Dear __________:
This will confirm the proposal made to you by Renaissance Cosmetics,
Inc. (the "Company"), in connection with the termination of your employment with
the Company and our mutual understandings with respect to such proposal:
1. We agree that your employment with the Company is terminated
effective as of ________ __, 199_. On __________ __, 199_, we explained to you
what you are entitled to receive upon termination of your employment, and that,
contingent upon the execution, delivery and effectiveness of this letter
agreement ("Agreement"), the Company would provide to you the following
additional severance benefits (which you acknowledge are additional
consideration that would not be available to you if you did not enter into this
Agreement):
(a) For a period of twelve (12) months, you will be paid, in
accordance with normal Company payroll practices, an amount equal
to 100% of your current monthly salary of $________________, less
applicable deductions and legally required tax and other
withholdings. The first such payment will be made to you on
________ __, 199_. In the event that you owe any amounts to the
Company or any of its affiliates, the Company shall have the
right to offset such amounts against any amounts due and owing to
you from the Company.
(b) During the period you are receiving the payments referred to in
(a) above, you will be entitled to continue to participate in (i)
the medical and dental insurance programs then in effect and (ii)
the 401-K Plan offered by the Company to its employees during
such period, provided that you continue to make your share of the
contributions for such benefits, as applicable. By executing
this Agreement, you authorize those contributions to be deducted
and withheld directly from the payments referred to in (a) above.
All benefits
<PAGE>
not specifically referred to in this paragraph (b) shall
cease on the date of termination of your employment.
(c) Upon termination of your employment, the Company car that you are
currently using will become your property, at no expense to you;
provided, however, that the Company may, in its discretion, elect
to continue to make the payments under the lease for the car and
transfer title to the car to you at the end of the term of the
lease.
2. On _________ __, 1998, we provided you with this Agreement and
explained to you that it constitutes a legal waiver and release of any rights
and claims that you may have under any contract and under all federal, state and
local laws and regulations prohibiting employment discrimination or otherwise
regulating employment or claims related to employment, including, without
limitation, Title VII of the Civil Rights Act of 1964, the Equal Employment
Opportunity Act of 1972, the Age Discrimination in Employment Act of 1967
("ADEA"), the Americans with Disabilities Act of 1990, the National Labor
Relations Act, the Employee Retirement Income Security Act of 1974, the Civil
Rights Act of 1991, the Workers Adjustment and Retraining Notification Act of
1988, and 42 U.S.C. Section 1981. You acknowledge that you intend to waive and
release any and all such rights and claims you may have under any contract or
agreement and under the statutes, laws and regulations cited above or any other
applicable statute, law or regulation (with the exception of any claims that may
arise under the ADEA after the date that you sign this Agreement). You
understand and acknowledge that this Agreement does not constitute an admission
by the Company (i) of any violation of any statute, law, regulation, order or
other applicable authority, (ii) of any breach of any contract, actual or
implied, or (iii) of any commission of any tort.
3. In exchange for the consideration described herein, on behalf of
yourself and your executors, administrators, representatives, trustees, heirs,
subrogees, guardians, conservators, agents, successors and assigns, you hereby
release and discharge the Company, its parents, subsidiaries, affiliates,
divisions and related companies, and each of their respective successors and
assigns, their past and present principals, directors, officers,
representatives, shareholders, employees and agents, and their respective heirs,
executors, and administrators, 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, with respect to, or arising out of, your employment or the
termination of your employment with the Company, all of which are referred to
herein as the "Released Claims." The Released Claims do not include any claims
related to the enforcement of any provision of this Agreement.
4. Neither you nor the Company will at any time (a) disclose the
terms or existence of this Agreement or any fact concerning its negotiation,
execution or implementation or concerning your employment or termination of
employment with the Company, except as may be required by law, statute or
regulation, or in connection with a valid and effective subpoena or order issued
by a court of competent jurisdiction or by a governmental body, or in connection
with any financing, sale of the Company (through a stock or asset sale), merger
or other restructuring
<PAGE>
transaction entered into by the Company, but only to the extent required, or
(b) denigrate, disparage, impugn or defame the Company, its services or
business conduct or reputation or that of any of its principals, directors,
officers, employees or agents, on the one hand, or you, on the other hand.
Furthermore, you agree not to disclose to any third party any information
designated or otherwise treated as "confidential" by the Company, including,
without limitation, financial statements, corporate records and other
information and data relating to the operations, assets, liabilities,
financial condition, future prospects, employees, vendors, financing and
litigation of any business unit of the Company, all technical and business
information, know-how or trade secrets, or any other information relating to
the Company or any unit thereof, which is of a confidential or proprietary
nature. "Confidential" information does not include information that (i) is
or becomes generally available to the public other than as a result of a
disclosure by you or (ii) becomes available to you on a non-confidential
basis from a source other than the Company.
5. You acknowledge and agree that you will cooperate with the
Company as requested by the Company from time to time on matters with respect
to which you have particular knowledge, such as the Procter and Gamble
matter, details of prior acquisitions and similar matters.
6. Upon the request by the Company for the return of all property
of the Company then in your possession, you will immediately return such
property, including, without limitation (and to the extent applicable),
computers, building keys and passes, memoranda (including e-mail memoranda
addressed to you or on which you were copied or otherwise in your
possession), sales brochures, credit cards, telephone charge cards, manuals,
courtesy parking passes, customer lists and customer contacts, sales
information, diskettes, intangible information stored on diskettes, 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 property or
information held or used by you in connection with your employment with the
Company.
7. You acknowledge that the Company advised you to consult with
an attorney before signing this Agreement and that you had sufficient
opportunity to consult with an attorney after receiving a copy of this
Agreement and before signing it. Furthermore, you acknowledge that the
Company advised you that you are entitled to a period of twenty-one (21) days
from the date of this Agreement to consider the proposal herein and seven (7)
days thereafter to revoke your agreement to the terms hereof. In signing
this Agreement, you have relied only on the promises contained herein and not
on any other promises made by the Company.
8. If you do not sign and deliver a signed copy of this Agreement
to the Company by 9:00 a.m. EDT on _________ __, 199_, the offer of the
Company as set forth herein shall be withdrawn in its entirety.
9. By signing this Agreement, you acknowledge that you are
entering into this Agreement voluntarily and with full knowledge of its
significance, meaning and binding effect. You have seven (7) days to revoke
this Agreement after you sign it. This Agreement will not become effective
or enforceable until eight (8) days after the date you sign it.
<PAGE>
10. This Agreement (i) represents the entire agreement of the
parties with respect to the subject matter hereof, (ii) may not be amended,
modified or rescinded except in writing, signed by both the Company and you,
and (iii) is governed by and shall be construed in accordance with the law of
the State of New York, excluding its laws regarding choice of law. In the
event of any dispute arising out of this Agreement or any action to enforce
the terms hereof, the costs incurred by the prevailing party in connection
with such dispute or action (including reasonable attorneys' fees) will be
paid by the party not prevailing in such dispute or action.
RENAISSANCE COSMETICS, INC.,
By:
------------------------------
[Name]
[Title]
AGREED TO AND ACCEPTED BY:
- ------------------------------
[Name]
Date:
------------------------
<PAGE>
ADDENDUM TO SEVERANCE LETTER AGREEMENT
Reference is hereby made to that certain severance letter agreement
(the "Agreement") previously issued to you by Renaissance Cosmetics, Inc.
(the "Company"). The Company confirms and acknowledges the following
amendment to the Agreement:
1. Nothing in the Agreement is intended to amend, modify,
supercede or affect in any other manner the rights and benefits granted to
you under (i) the Indemnification Agreement by and between you and the
Company or (ii) the stay bonus program approved by the Company's Board of
Directors at its October 22, 1997 meeting and memorialized in the letter to
you dated January 22, 1998.
2. In addition to the severance benefits described in paragraph 1
of the Agreement, the Company will pay an amount not to exceed $10,000 for
outplacement services. You agree that you will coordinate locating such
services with Jim O'Brien.
3. You will also receive payment for any accrued but unused
vacation through the date of your termination. Please contact Jim O'Brien
for any questions regarding the amount of this payment.
4. Except as specifically amended above, the terms and conditions
set forth in the Agreement shall remain in full force and effect.
Dated this __ day of _____, 199_.
RENAISSANCE COSMETICS, INC.
By:
---------------------------------
Title:
---------------------------------
<PAGE>
Exhibit 10.77
[RENAISSANCE COSMETICS, INC. LETTERHEAD]
May 12, 1998
Ron Bowen
100 Maplewood Drive
Brewster, New York 10509
Dear Ron:
This will confirm the proposal made to you by Renaissance
Cosmetics, Inc. (the "Company") in connection with your engagement by the
Company as a consultant and our mutual understandings with respect to such
proposal:
1. ENGAGEMENT AS CONSULTANT; TERM. The Company hereby engages
you as a consultant to the Company and each of its affiliated entities and
businesses, and you accept such engagement for a term of two (2) months,
commencing on June 1, 1998 (the "Consulting Term"). You understand that this
engagement (i) will be a full time engagement for the Consulting Term, and
(ii) may require domestic, and possibly international, travel (at Company
expense), and you agree to travel as reasonably requested by the Company. At
the discretion of the Company, and with your agreement, the Consulting Term
may be extended on a month-to-month basis on the same terms as set forth
herein.
The Consulting Term may be terminated by the Company at any time
if, in the reasonable opinion of the Company, you cease to perform your
duties in a satisfactory manner or otherwise fail to comply with the
provisions hereof. Such termination shall be effective immediately upon
written notice by the Company to you.
2. CONSULTING FEE. During the Consulting Term, you will be paid
the sum of $17,666.66 per month (pro rated on a daily basis for any portion
of the Consulting Term that is less than a full calendar month), payable on
the last business day of each month (with any remaining balance due and
payable on the last day of the Consulting Term). In addition, the Company
will reimburse you for such reasonable out-of-pocket expenses incurred by you
during the Consulting Term in connection with your engagement as are approved
by the Company upon receipt by the Company of standard documentation and/or
receipts at the time reimbursement is requested. In the
<PAGE>
event that you owe any amounts to the Company or any of its affiliates, the
Company shall have the right to offset such amounts against any amounts due
and owing to you from the Company.
3. CONFIDENTIALITY. You agree not to disclose to any third party
any information designated or otherwise treated as "confidential" by the
Company, including, without limitation, financial statements, corporate
records and other information and data relating to the operations, assets,
liabilities, financial condition, future prospects, employees, vendors,
financing and litigation of any business unit of the Company, all technical
and business information, know-how or trade secrets, or any other information
relating to the Company or any unit thereof, which is of a confidential or
proprietary nature. "Confidential" information does not include information
that (i) is or becomes generally available to the public other than as a
result of a disclosure by you or (ii) becomes available to you on a
non-confidential basis from a source other than the Company. You also agree
that, during the Consulting Term and for a period of one (1) year thereafter,
you will not, directly or indirectly, solicit, employ or retain in any other
capacity, or assist any entity in soliciting, employing or retaining, any
employee of the Company or any of its affiliates.
4. RETURN OF COMPANY PROPERTY. Upon the termination of the
Consulting Term, or earlier at the request of the Company, you will return
the Company property then in your possession, including, without limitation
(and to the extent applicable), computers, building keys and passes,
memoranda (including e-mail memoranda addressed to you or on which you were
copied or otherwise in your possession), sales brochures, credit cards,
telephone charge cards, manuals, courtesy parking passes, customer lists and
customer contacts, sales information, diskettes, intangible information
stored on diskettes, 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 property or information held or used by you in connection
with your employment with the Company.
5. INDEPENDENT CONTRACTOR. The parties acknowledge, understand
and agree that you are an independent contractor and shall not be considered
an employee or agent of the Company or any of its affiliates pursuant to the
terms hereof for any purposes whatsoever and you 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 such affiliates in any manner or thing whatsoever, without the
express prior written consent of the Company. You will be responsible for
all income taxes, Social Security and other tax liabilities with respect to
payment of any amounts to be paid to you by the Company hereunder.
6. MISCELLANEOUS. This letter agreement (i) represents the
entire agreement of the parties with respect to the subject matter hereof,
(ii) may not be amended, modified or rescinded except in writing, signed by
both the Company and you, and (iii) is governed by and shall be construed in
accordance with the laws of the State of New York, excluding its laws
regarding choice of law. The rights and obligations hereunder are separate
and distinct from the rights and obligations under that certain letter
agreement, of even date herewith, by and between you and the Company with
respect to the benefits to be received by you upon termination of your
employment with the Company. In the event of any dispute arising out of this
letter agreement or any action to enforce
<PAGE>
the terms hereof, the costs incurred by the prevailing party in connection
with such dispute or action (including reasonable attorneys' fees) will be
paid by the party not prevailing in such dispute or action.
RENAISSANCE COSMETICS, INC.
By: /s/ Norbert Becker
------------------------------------------
Norbert Becker
President and Chief Executive Officer
AGREED TO AND ACCEPTED BY:
/s/ Ron Bowen
- ----------------------------------
Ron Bowen
Date:
----------------------------
cc: John R. Jackson
James E. O'Brien
<PAGE>
Exhibit 10.78
RENAISSANCE COSMETICS, INC.
635 MADISON AVENUE
NEW YORK, NEW YORK 10022
May 15, 1998
Mr. John R. Jackson
1116 Preserve Circle
Golden, Colorado 80401
RE: EMPLOYMENT AGREEMENT ("AGREEMENT")
Dear John:
This Agreement sets forth the terms and conditions of your
continued employment with Renaissance Cosmetics, Inc., a Delaware corporation
("RCI"), Dana Perfumes Corp., a Delaware corporation ("Dana"), Cosmar
Corporation, a Delaware corporation, Flirt Cosmetics, Inc., a Nevada
corporation ("Flirt"), Marcafin, S.A., a Swiss corporation ("Marcafin"),
Perfumes Dana do Brasil, S.A., a Brazilian corporation ("Dana Brasil"), and
certain of RCI's other subsidiaries (the "Subsidiaries") as designated from
time to time by the Chief Executive Officer and/or Board of Directors of RCI
(the "Board"). RCI, Dana, Cosmar, Flirt, Marcafin, and Dana Brasil are
collectively referred to herein as the "Employers." This Agreement shall
become effective as of May 15, 1998 (the "Effective Date").
1. EMPLOYMENT AND SERVICES. You shall continue to be employed as
a Group Vice President, Corporate Development and Human Resources and
Secretary of RCI and Vice President and Secretary of each of the Employers
and the Subsidiaries, for the period beginning on the Effective Date and
ending upon the two year 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 Employers as the Chief Executive Officer
<PAGE>
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 Employers.
Each of the Employers is jointly and severally liable for the
obligations hereunder; provided, however, that with respect to the fringe
benefits provided hereunder, such benefits shall be provided under RCI's
plans and in the event RCI is unable for any reason to provide such benefits,
the Employers shall promptly make a cash payment to you in an after-tax
amount sufficient to permit you to purchase equivalent benefits in the
marketplace. The Employers shall determine, in their discretion, which
Employer shall make all cash payments required under the terms of this
Agreement, but nothing herein shall limit the joint and several liability of
each of the Employers.
2. COMPENSATION. During the Employment Period, the Employers
shall pay you an annual base salary of $210,000 ("Base Salary"), payable in
installments in accordance with RCI'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 RCI's senior executive annual
bonus program, in such manner and at such level as is determined by the
Board; provided, however, that you will be entitled to receive a minimum
bonus of $10,000 for each year during the Employment Period without regard to
the amount you would otherwise be entitled to receive under the bonus program
then in effect. The bonus program is reviewed by the Board yearly at which
time the Board sets targets which it deems reasonable for RCI.
3. BENEFITS AND OTHER MATTERS.
(a) INSURANCE AND OTHER BENEFIT PLANS. You shall be entitled
to participate in the insurance plans, retirement plans and all other benefit
plans generally available to RCI'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
any of the Employers 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) INDEMNIFICATION. RCI ratifies and confirms that its
obligations under the Indemnification Agreement, dated May 12, 1997, by and
between RCI and you, remain in full force and effect, and each of the other
Employers agrees to become a party to, and assume and perform the obligations
of RCI under, such Indemnification Agreement.
(d) REIMBURSEMENT OF EXPENSES. The Employers will reimburse
your reasonable out-of-pocket expenses incurred in connection with the
performance of your services
2
<PAGE>
hereunder, in each case subject to and consistent with RCI's expense
reimbursement policy; provided that, for all expenses incurred by you on and
after the Effective Date, you prepare expense reports within thirty (30)
days of the date the expense is incurred. With respect to all expenses
incurred by you prior to the Effective Date for which you have not submitted
requests for reimbursement, the Employers will reimburse you for such
expenses consistent with RCI's expense reimbursement policy provided that you
submit the appropriate documentation by not later than June 15, 1998.
(e) COMPANY CAR. You will be entitled to the use of a
company car at the Employers' expense on terms no less favorable than those
provided to RCI's executives generally (the "Company Car"). The Employers
may, in their discretion, lease or acquire the Company Car for your use,
consistent with 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 $40,000 (or you may choose a car allowance of
$1,000 per month). At the expiration of the Employment Period as provided in
paragraph 1 hereof or upon the termination of your employment by the
Employers without Cause (as defined below) or by you for Good Reason (as
defined below), (i) 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 one of the Employers at such time, the Employers may, in their
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 Employers' then-current car policy, and (ii) the
Employers will reimburse you for any federal or state tax liability incurred
by you arising out of the transfer of the Company Car to you.
(f) TRAVEL. During the Employment Period, you will continue
to be based in Denver, Colorado. You will be required to travel in an
amount consistent with the amount you have traveled for the Employers over
the two years prior to the Effective Date, and you will continue to be
reimbursed for travel expenses in a manner consistent with RCI's practice
over the same period of time.
4. 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 Employers terminate 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 Employers terminate your employment for reasons
other than for Cause, or you terminate your employment for Good Reason, you
shall be entitled to (i) the
3
<PAGE>
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) the greater of (A) the
Base Salary for each year (pro rated for any part thereof) remaining in the
Employment Period after the date of termination, or (B) one year's Base
Salary (net of any severance payments paid to you under the Employers'
severance policy as may then be in effect). In addition, in the event the
executives participating in RCI's 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 your employment at any time
during such fiscal year. The payments described in (ii) above plus the
bonus described in the immediately preceding sentence are collectively
referred to herein as the "Severance Payments." You shall also be entitled
to receive the full insurance and other benefits (under the benefit plans
described in paragraph 3(a) hereof) you were receiving immediately prior to
the termination date for the period in which you are receiving Severance
Payments.
(d) For purposes of this Agreement:
(i) "Cause" shall mean:
(A) your willful and repeated failure to comply with the
reasonable and 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 Employers;
or
(C) your material breach of this Agreement (which shall
include any breach of paragraph 5 or paragraph 6 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), or (C) below (provided that such termination occurs
within 90 days of the date on which the event described in (A), (B), or (C)
becomes effective) or by reason of an event described in (D) below:
(A) a reduction in your fringe or retirement benefits
that is not applied by the Employers 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 Employers 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 one of the
Employers or one of their Subsidiaries) which vests in such third
4
<PAGE>
party 50% or more of the total voting power of the common stock of RCI;
provided, however, that a transaction that vests 50% or more of the total
voting power of the common stock of RCI in the holders of the 11 3/4% Senior
Notes due 2004 shall not constitute a change of control for purposes hereof),
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 Employers to relocate or
your travel time increases materially compared to your travel time for the
Employers over the two years prior to the Effective Date; or
(D) 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 long-term disability insurance
policy then maintained by the Employers.
(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 Employers of such
employment prior to the commencement thereof. Effective immediately upon the
commencement of your new employment, the Severance Benefits shall cease and
the Employers shall have no further obligation to you with respect to
Severance Benefits.
(f) All Severance Payments shall be made monthly at such time as
RCI's regular payroll payments are made, with the exception of the portion
attributable to the bonus described in paragraph 4(c) hereof which shall be
paid at the same time as RCI pays all other bonuses under the senior
executive bonus program.
5. CONFIDENTIAL INFORMATION. You acknowledge that information
obtained by you during your employment with the Employers concerning the
business or affairs of the Employers ("Confidential Information") is the
property of the Employers. 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 Employers 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 Employers that you
may then possess or have under your control.
6. NON-COMPETITION; NON-SOLICITATION.
5
<PAGE>
(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 Employers. Accordingly, during the Employment
Period and, if applicable, for so long as you are receiving Severance
Payments in accordance with the terms of paragraph 4 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 Employers 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
Employers engage or plan (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 Employers to
terminate, or in any way interfere with, the relationship between the
Employers and any employee thereof, (ii) hire directly or through another
entity any person who was an employee of the Employers at any time during the
Employment Period or (iii) induce or attempt to induce any customer or other
business relation of the Employers to cease doing business with the
Employers, or in any way interfere with the relationship between any such
customer or business relation and the Employers.
(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 Employers
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 Employers'
request for injunctive relief in connection with any such breach or
threatened breach.
7. KEY MAN LIFE INSURANCE. In the event any of the Employers
purchases a key man life insurance policy covering you, you agree to provide
such Employer with such information, and execute such documents, as may be
necessary for such Employer to purchase such policy.
8. 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 the matters addressed herein. 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 each of the Employers.
9. SURVIVAL. The provisions of paragraphs 5 and 6 hereof will
survive any termination of this Agreement.
6
<PAGE>
10. 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 New York.
11. 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. John R. Jackson
1116 Preserve Circle
Golden, Colorado 80401
To the Employers:
c/o Renaissance Cosmetics, Inc.
3 Landmark Square
Fifth Floor
Stamford, Connecticut 06901
Attention: President and Chief Executive Officer
With a copy to:
Brownstein Hyatt Farber & Strickland
410 Seventeenth Street, 22nd Floor
Denver, Colorado 80202
Attention: Jacquelyn Kilmer, Esq.
12. 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.
13. SEVERABILITY. The various provisions 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.
7
<PAGE>
14. ATTORNEYS' FEES. Should any dispute arise between the
Employers 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.
Very truly yours,
RENAISSANCE COSMETICS, INC.
DANA PERFUMES CORP.
COSMAR CORPORATION
FLIRT COSMETICS, INC.
MARCAFIN, S.A.
DANA DO BRASIL, S.A.
By: /s/ Norbert Becker
---------------------------
Name: Norbert Becker
Title: President and Chief Executive
Officer
Accepted and agreed to:
MR. JOHN R. JACKSON
/s/ John Jackson
- ---------------------------
8
<PAGE>
Exhibit 10.79
CONSENT AND AMENDMENT
CONSENT AND AMENDMENT, dated as of May 13, 1998, among 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 consent to
the sale by MEM Company, Inc. ("MEM") of the Northvale Property, which is
located at Union Street Extension (Lot 1), Northvale, New Jersey (the
"Northvale Property"), as more fully set forth in EXHIBIT A hereto, and to
amend the Loan Documents as hereinafter set forth; and
WHEREAS, Agent and Lenders have agreed to consent to the sale of
the Northvale Property and amend the Loan Documents, 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. CONSENT AND AMENDMENT RELATING TO NORTHVALE PROPERTY;
NO PERMANENT REDUCTION OF COMMITMENT. Effective as of the Effective Date (as
defined below):
(a) Notwithstanding Section 6.8 of the Credit Agreement, Agent and
Lenders hereby consent to the sale by MEM of the Northvale Property on the
terms set forth in EXHIBIT A hereto, and Agent agrees to release its Lien on
such property in order to permit MEM to effect such sale.
<PAGE>
(b) Borrower acknowledges that pursuant to Section 1.2(b)(ii) of
the Credit Agreement, it shall be required, immediately upon receipt by MEM
of proceeds from the sale of the Northvale Property, to prepay the Loans in
an amount equal to the net proceeds as specified in Section 1.2(b)(ii) of the
Credit Agreement, and that such prepayment shall be applied in accordance
with Section 1.2(c) of the Credit Agreement. Notwithstanding anything set
forth to the contrary in the Credit Agreement (particularly the last sentence
of Section 1.2(c) of the Credit Agreement), the Commitment shall not be
permanently reduced by the amount of such prepayment, in the case of the sale
of the Northvale Property as contemplated hereby.
SECTION 2. AMENDMENT OF MAXIMUM OVERADVANCE. Effective as of
March 31, 1998, Section 6(a) of the Waiver, Amendment and Consent, dated as
of February 17, 1998, among the parties hereto, is amended by deleting
"$6,000,000", as the aggregate maximum amount of Overadvances at any time,
and substituting therefor the amount of "$15,000,000".
SECTION 3. AMENDMENT OF MINIMUM EBITDA. Effective as of March 31,
1998, paragraph (b) of ANNEX G to the Credit Agreement is amended by deleting
"($14,100,000)" as the amount of minimum EBITDA for the 12-month period ended
on the Fiscal Quarter ending March 31, 1998, and substituting therefor the
amount of "($27,700,000)".
SECTION 4. EBITDA AND RESTRUCTURING CHARGES. Section 4(d) of the
Waiver, Amendment and Consent, dated as of February 17, 1998, among the
parties hereto, provides as follows:
Solely for the purpose of testing minimum EBITDA, maximum Leverage
Ratio and minimum Interest Coverage Ratio Financial Covenants at March
31, 1998, there shall be added to the items listed in clause (c) of
the definition of "EBITDA" in ANNEX A to the Credit Agreement the
following item: "restructuring charges for such period in an aggregate
amount not to exceed $11,600,000".
Effective as of March 31, 1998, the preceding provision is amended by
deleting "$11,600,000", and substituting therefor the amount of "$35,100,000".
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE CREDIT PARTIES.
The Credit Parties represent and warrant to Agent and each Lender as follows:
(a) The execution, delivery and performance by each Credit Party of
this Consent and Amendment (and each of the other documents to be executed by
such Person pursuant hereto) and the creation of all Liens provided for
herein: (1) are within
2
<PAGE>
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 Consent and Amendment and other documents to be executed
and delivered by the Credit Parties have been duly executed and delivered by
each Credit Party and this Consent and Amendment and the Loan Documents as
amended hereby constitute the legal, valid and binding obligation of such
Credit Party enforceable against it in accordance with their terms.
(c) After giving effect to the consent and amendments contained in
this Consent and Amendment, each of the representations and warranties of the
Credit Parties 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 consent and amendments contained in
this Consent and Amendment, no Default or Event of Default shall be
continuing except with regard to Section 6.14 of the Credit Agreement as
contemplated by Section 1 of the Waiver, Amendment and Consent, dated as of
February 17, 1998, and Section 1 of the Waiver and Amendment, dated as of
March 31, 1998, in each case among the parties hereto.
SECTION 6. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS
CONSENT AND AMENDMENT. Except as otherwise expressly provided herein, this
Consent and Amendment 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 all Lenders (such date
is referred to herein as the "Effective Date"):
(a) Agent shall have executed this Consent and Amendment.
3
<PAGE>
(b) Agent shall have received, in form and substance satisfactory
to Agent, this Consent and Amendment, duly executed and delivered by
Borrower, the other Credit Parties and all Lenders.
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 Consent and
Amendment 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 Consent and
Amendment.
SECTION 9. GOVERNING LAW. THIS CONSENT AND AMENDMENT 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
Consent and Amendment 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 Consent and Amendment may be
executed in any number of separate counterparts, each of which shall
collectively and separately constitute one agreement.
4
<PAGE>
IN WITNESS WHEREOF, this Consent and Amendment has been duly
executed as of the date first written above.
DANA PERFUMES CORP.
By:
----------------------------
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.)
RENAISSANCE INTERNATIONAL
EXPORT, INC.
By:
----------------------------
Name:
Title:
5
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and Lender
By:
----------------------------------
Name:
Title: Duly Authorized Signatory
NATIONAL CITY COMMERCIAL FINANCE, INC.,
as Lender
By:
----------------------------------
Name:
Title:
PNC BANK, N.A.,
as Lender
By:
----------------------------------
Name:
Title:
6
<PAGE>
Exhibit 10.80
WAIVER, AMENDMENT AND CONSENT
WAIVER, AMENDMENT AND CONSENT, dated as of February 17, 1998, among
Dana Perfumes Corp. ("BORROWER"), the other Credit Parties party 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, by letters dated February 2, 10 and 12, 1998, Borrower
notified Agent and Lenders that the Events of Default specified on SCHEDULE A
attached hereto have occurred, and such Events of Default are continuing on
the date hereof (the "EXISTING EVENTS OF DEFAULT"); and
WHEREAS, Borrower has requested that Agent and Lenders waive the
Existing Events of Default and amend the Loan Documents as hereinafter set
forth; and
WHEREAS, Agent and Lenders have agreed to waive the Existing Events
of Default and amend the Loan Documents 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. WAIVER. Agent and Lenders hereby waive the Existing
Events of Default effective as of the Effective Date (as defined herein),
except that such waiver shall not constitute a waiver of the Existing Events
of Default for purposes of Section 6.14 of the Credit Agreement (Restricted
Payments) until July 31, 1998,
<PAGE>
whether or not Borrower is in compliance with any of the financial covenants
set forth the Credit Agreement that are tested after the date hereof.
SECTION 2. CONSENT. Effective as of the Effective Date, and
notwithstanding Section 6.1 of the Credit Agreement, Agent and Lenders hereby
consent to the amalgamation of MEM Company (Canada) Limited and Houbigant
(1995) Limited to continue as Houbigant (1995) Limited. The Credit Parties
hereby represent and warrant to Agent and Lenders that as a result of such
amalgamation there has been no impairment to the terms or priority of the
security in the Collateral held by Agent and Lenders. The Credit Parties
agree that not later than March 3, 1998, they shall comply with the terms of
the third proviso of Section 6.1 of the Credit Agreement (I.E., clauses (A),
(B) and (C) thereof).
SECTION 3. RESTRICTED PAYMENTS. Notwithstanding anything set
forth to the contrary in Section 6.14 to the Credit Agreement, from and after
the date hereof no Credit Party shall make a Restricted Payment specified in
Sections 6.14(e) and 6.14(n) with respect to Kidd Kamm Fees. It is
understood that certain other Restricted Payments are expressly prohibited by
Section 6.14 of the Credit Agreement as a result of the Existing Events of
Default, which have not been waived pursuant to Section 1 of this Waiver,
Amendment and Consent with respect to Section 6.14 of the Credit Agreement.
It is also understood that those payments by Parent of $12,500 per month to
Terry Theodore for rendering services to Parent as Chairman of its Board of
Directors (and those dividends to Parent in an amount to pay such monthly fee
when due and payable) which reduce the Kidd Kamm Fees accrual shall not be
treated as "Kidd Kamm Fees" for this purpose.
SECTION 4. AMENDMENTS TO FINANCIAL COVENANTS. The Credit
Agreement is hereby amended effective on the Effective Date, as follows:
(a) MINIMUM EBITDA. Paragraph (b) of ANNEX G to the Credit
Agreement is amended by deleting "$26,000,000" as the amount of minimum
EBITDA for the 12-month period ended on the Fiscal Quarter ending March 31,
1998, and substituting therefor the amount of "$4,400,000".
(b) MAXIMUM LEVERAGE RATIO. Paragraph (c) of ANNEX G to the Credit
is amended by adding the following phrase to the end thereof: ", except for
the Fiscal Quarter ending March 31, 1998, in which case the Leverage Ratio
shall not be in excess of 12.50 to 1.0".
(c) MINIMUM INTEREST COVERAGE RATIO. Paragraph (d) of ANNEX G to
the Credit Agreement is amended by deleting "1.50" as the minimum Interest
Coverage
2
<PAGE>
Ratio for the 12-month period ended on the Fiscal Quarter ending March 31,
1998, and substituting therefor the ratio of "0.23".
(d) EBITDA AND RESTRUCTURING CHARGES. Solely for the purpose of
testing minimum EBITDA, maximum Leverage Ratio and minimum Interest Coverage
Ratio Financial Covenants at March 31, 1998, there shall be added to the
items listed in clause (c) of the definition of "EBITDA" in ANNEX A to the
Credit Agreement the following item: "restructuring charges for such period
in an aggregate amount not to exceed $11,600,000".
SECTION 5. FINANCIAL INFORMATION AND COMPLIANCE CERTIFICATE FOR
FISCAL QUARTER ENDING JUNE 30, 1998. Notwithstanding anything set forth to
the contrary in paragraph (b) of ANNEX E to the Credit Agreement, Borrower
shall deliver or cause to be delivered to Agent and Lenders by July 27, 1998,
the preliminary financial information as available to Borrower as of such
date, Compliance Certificate and other certificates and information required
to be delivered with respect to the Fiscal Quarter ending June 30, 1998. It
is expressly agreed that for purposes of the preceding sentence, Borrower's
failure to deliver such information and certificates by July 27, 1998 shall
constitute an immediate Event of Default, and the cure period specified in
Section 8.1(c) of the Credit Agreement shall be disregarded.
SECTION 6. OVERADVANCES; INTEREST RATE; CONVERSION TO INDEX RATE
LOANS. Notwithstanding anything set forth to the contrary in the Credit
Agreement (particularly Sections 1.1(a)(iii) and 1.4 thereof), from and after
the Effective Date and until July 31, 1998 (the "OVERADVANCE PERIOD"):
(a) Lenders consent to Agent making Overadvances in its sole
discretion to Borrower on behalf of Revolving Lenders in an aggregate amount
not to exceed $6,000,000 at any time, and Lenders agree that they shall not
have the right to revoke prospectively the authority of the Agent to make
such Overadvances during the Overadvance Period.
(b) All Overadvances shall constitute Index Rate Loans, shall bear
interest at the Index Rate plus 4.00% per annum and shall be payable on
demand.
(c) Borrower shall pay interest with respect to Revolving Credit
Advances (other than Overadvances) at the Index Rate plus 2.00% per annum.
(d) Each LIBOR Loan outstanding on the Effective Date shall be
converted on such date to an Index Rate Loan, subject to payment of LIBOR
breakage costs in accordance with Section 1.12(b) of the Credit Agreement if
such conversion is
3
<PAGE>
made prior to the expiration of the LIBOR Period applicable thereto, and all
Loans outstanding during the Overadvance Period shall be Index Rate Loans.
SECTION 7. PLEDGE OF STOCK OF DOMESTIC AND CANADIAN SUBSIDIARIES.
(a) SCHEDULE B hereto sets forth a list of each domestic Subsidiary
and each Canadian Subsidiary of each Credit Party. Part A of SCHEDULE I to
the Pledge Agreement is hereby amended to add thereto SCHEDULE B hereto.
Each such domestic Subsidiary and Canadian Subsidiary shall constitute a
Pledged Entity (as defined in the Pledge Agreement) for purposes of the
Pledge Agreement, and 100% of the issued and outstanding Stock of each
domestic Pledged Entity and 66% of the issued and outstanding Stock of each
Canadian Pledged Entity shall constitute Pledged Shares (as defined in the
Pledge Agreement). If a Canadian Pledged Entity's constanting documents
contain a restriction on the right to transfer its shares then, in order to
better perfect Agent's and Lenders' security in the Pledged Shares of such
Pledged Entity, the certificates delivered to Agent shall be registered in
Agent's name and the Credit Parties shall deliver to Agent a copy of the
share register of such Canadian Pledged Entity showing Agent as the
registered owner of the Pledged Shares of such Pledged Entity certified by
the corporate secretary of such Pledged Entity as being true and complete,
all in form and substance satisfactory to Agent.
(b) Notwithstanding anything set forth to the contrary in the
Pledge Agreement, each reference to 66% of the issued and outstanding shares
of Stock of a Pledged Entity in the Pledge Agreement shall mean, with respect
to a domestic Pledged Entity, 100% of the issued and outstanding Stock of
such domestic Pledged Entity.
(c) Any Credit Party forming or acquiring any domestic or Canadian
Subsidiary pursuant to the Credit Agreement shall immediately execute and
deliver to Agent a Pledge Amendment with respect to such Subsidiary, and
deliver to Agent all certificates representing or evidencing the Pledged
Shares (as defined in the Pledge Agreement) accompanied by duly executed
instruments of transfer or assignment in blank, all in a form and substance
satisfactory to Agent; PROVIDED that, if such Subsidiary is subject to
private company restrictions of Canada then, in order to better perfect
Agent's and Lenders' security in the Pledged Shares of such Canadian
Subsidiary, the certificates delivered to Agent shall be registered in
Agent's name and the Credit Parties shall deliver to Agent a copy of the
share register of such Canadian Subsidiary showing Agent as the registered
owner of the Pledged Shares of such Canadian Subsidiary certified by the
corporate secretary of such Canadian Subsidiary as being true and complete,
all in form and substance satisfactory to Agent and its counsel.
4
<PAGE>
SECTION 8. NORTHVALE MORTGAGE AND BOUCHERVILLE HYPOTHEC.
Notwithstanding Section 5.9(b) of the Credit Agreement, Borrower and/or the
applicable Credit Parties shall deliver to Agent the Northvale Mortgages
covering the unsold Northvale Properties by March 12, 1998, together with the
other documents, instruments and legal opinions contemplated by Section
5.9(b) of the Credit Agreement. Notwithstanding Section 5.9(c) of the Credit
Agreement, Borrower and/or the applicable Credit Parties shall deliver to
Agent the Boucherville Hypothec covering the Boucherville Property by March
12, 1998, together with the other documents, instruments and legal opinions
contemplated by Section 5.9(c) of the Credit Agreement.
SECTION 9. APPRAISALS OF BUILDINGS LOCATED IN MOUNTAINTOP,
PENNSYLVANIA. Borrower shall deliver to Agent by March 13, 1998, appraisals
as to each building on Real Estate owned by each Credit Party located in
Mountaintop, Pennsylvania, each of which shall be in form and substance
satisfactory to Agent.
SECTION 10. BUSINESS PLAN. Borrower shall deliver or cause to be
delivered to Agent and Lenders, as soon as available, but no later than April
30, 1998, an action oriented business plan and financial forecast for the
Credit Parties developed by Borrower and Arthur Andersen LLP for the fiscal
year ending March 31, 1999.
SECTION 11. UNDERSTANDING REGARDING FINANCIAL COVENANT DEFAULTS.
Borrower has advised Agent and Lenders that Borrower may not be able to
comply with the minimum EBITDA, maximum Leverage Ratio and minimum Interest
Coverage Ratio Financial Covenants to be tested on June 30, 1998 and
thereafter. It is understood among the parties hereto that a Default or
Event of Default resulting solely from the failure to comply with such
Financial Covenants shall not be deemed to have occurred prior to June 30,
1998 (I.E., the date on which such covenants are tested).
SECTION 12. FEES. In consideration of the waivers, amendments and
consent herein, Borrower shall pay on the Effective Date to Agent a fee of
$450,000, to be divided among the Lenders executing this Waiver, Amendment
and Consent based on their Pro Rata Share (the "Amendment Fee").
SECTION 13. REPRESENTATIONS AND WARRANTIES OF THE CREDIT PARTIES.
The Credit Parties represent and warrant to Agent and each Lender as follows:
(a) The execution, delivery and performance by each Credit Party of
this Waiver, Amendment and Consent (and each of the 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,
5
<PAGE>
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 Waiver, Amendment and Consent and the other documents to
be executed and delivered by the Credit Parties have been duly executed and
delivered by each Credit Party and this Waiver, Amendment and Consent and the
Loan Documents as amended hereby constitute the legal, valid and binding
obligation of such Credit Party enforceable against it in accordance with
their terms.
(c) After giving effect to the waivers, amendments and consents
contained in this Waiver, Amendment and Consent, each of the representations
and warranties of the Credit Parties 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 waivers, amendments and consents
contained in this Waiver, Amendment and Consent, no Default or Event of
Default shall be continuing except with regard to Section 6.14 of the Credit
Agreement as contemplated by Section 1 of this Waiver, Amendment and Consent.
SECTION 14. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS
WAIVER, AMENDMENT AND CONSENT. This Waiver, 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 Waiver, Amendment and Consent.
(b) Agent shall have received, in form and substance satisfactory
to Agent, this Waiver, Amendment and Consent, duly executed and delivered by
Borrower, the other Credit Parties and Requisite Lenders.
6
<PAGE>
(c) Agent on behalf of Lenders executing this Waiver, Amendment and
Consent shall have received the Amendment Fee.
(d) Agent shall have received, in form and substance satisfactory
to Agent, Pledge Amendments, duly executed and delivered by each Credit
Party, pledging 100% of the issued and outstanding Stock of each domestic
Subsidiary and 66% of the issued and outstanding Stock of each Canadian
Subsidiary, share certificates (registered in Agent's name in the case of
Stock of a Canadian Subsidiary) representing all of the outstanding Stock
being pledged pursuant to the Pledge Amendments and, except in the case of
share certificates representing Stock of a Canadian Subsidiary, stock powers
for such shares certificates executed in blank in form and substance
satisfactory to Agent.
(e) Agent shall have received a copy of the share register of each
Canadian Pledged Entity showing Agent as the registered owner of the Pledged
Shares of such Pledged Entity certified by the corporate secretary of such
Pledged Entity as being true and complete, all in form and substance
satisfactory to Agent.
(f) Agent shall have received duly executed originals of an opinion
of Brownstein Hyatt Farber & Strickland, P.C., special counsel to the Credit
Parties, and an opinion of McCarthy, Tetrault, special counsel to the Credit
Parties, in form and substance satisfactory to Agent and its counsel, dated
the Effective Date.
SECTION 15. 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 Waiver,
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 16. 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 Waiver,
Amendment and Consent.
7
<PAGE>
SECTION 17. GOVERNING LAW. THIS WAIVER, 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 18. SECTION TITLES. Section titles contained in this
Waiver, 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 19. COUNTERPARTS. This Waiver, Amendment and Consent may
be executed in any number of separate counterparts, each of which shall
collectively and separately constitute one agreement.
[Signature Pages Follow]
8
<PAGE>
IN WITNESS WHEREOF, this Waiver, Amendment and Consent has been
duly executed as of the date first written above.
DANA PERFUMES CORP.
By:
---------------------------------
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.)
RENAISSANCE INTERNATIONAL
EXPORT, INC.
By:
---------------------------------
Name:
Title:
9
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and Lender
By:
---------------------------------
Name:
Title: Duly Authorized Signatory
NATIONAL CITY COMMERCIAL FINANCE, INC.,
as Lender
By:
---------------------------------
Name:
Title:
PNC BANK, N.A.,
as Lender
By:
---------------------------------
Name:
Title:
10
<PAGE>
SCHEDULE A
EXISTING EVENTS OF DEFAULT
1. Events of Default under Section 8.1(b) of the Credit Agreement arising as a
result of Borrower's failure to comply with (i) the Minimum EBITDA
Financial Covenant for the 12-month period ended on the Fiscal Quarter
ending December 31, 1997, (ii) the Maximum Leverage Ratio Financial
Covenant at the end of the Fiscal Quarter ending December 31, 1997, and
(iii) the Minimum Interest Coverage Ratio Financial Covenant for the 12-
month period ended on the Fiscal Quarter ending December 31, 1997, as set
forth in paragraphs (b), (c) and (d) of ANNEX G to the Credit Agreement,
respectively.
2. Event of Default under Section 8.1(b) of the Credit Agreement arising as a
result of the Credit Parties' failure to deliver the documentation required
by the provisions of Section 6.1 of the Credit Agreement in connection with
the amalgamation of MEM Company (Canada) Limited and Houbigant (1995)
Limited.
11
<PAGE>
SCHEDULE B
<TABLE>
PLEDGED SHARES
- --------------------------------------------------------------------------------------
Stock Percentage of
Class of Certificate Number of Outstanding
Pledgor Pledged Entity Stock Nos. Shares* Shares
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Renaissance Cosmar Common 1, 1M 200 100%
Cosmetics, Inc. Corporation
- --------------------------------------------------------------------------------------
Renaissance RCI China, Inc. Common 1 100 100%
Cosmetics, Inc.
- --------------------------------------------------------------------------------------
Cosmar Dana Perfumes Common 1M, 1H, 2 310 100%
Corporation Corp.
- --------------------------------------------------------------------------------------
Cosmar Great American Common 3, 4 200 100%
Corporation Cosmetics, Inc.
- --------------------------------------------------------------------------------------
Dana Perfumes MEM Company, Common 1D 1,000 100%
Corp. Inc.
- --------------------------------------------------------------------------------------
Dana Perfumes Houbigant Common 2, 3 200 66%
Corp. (1995) Limited
- --------------------------------------------------------------------------------------
Dana Perfumes Renaissance Common 1 100 100%
Corp. International
Export, Inc.
- --------------------------------------------------------------------------------------
MEM Company, Tinkerbell, Inc. Common 1 25 100%
Inc.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
* Amount shown is 100% of stock owned by Pledgor.
12
<PAGE>
Exhibit 10.81
WAIVER AND AMENDMENT
WAIVER AND AMENDMENT, dated as of March 31, 1998, among Dana
Perfumes Corp. ("BORROWER"), the other Credit Parties party 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, the Events of Default specified on SCHEDULE A attached
hereto are expected to occur and continue (the "EXPECTED EVENTS OF DEFAULT");
and
WHEREAS, Borrower has requested that Agent and Lenders waive the
Expected Events of Default and amend the Loan Documents as hereinafter set
forth; and
WHEREAS, Agent and Lenders have agreed to waive the Expected Events
of Default and amend the Loan Documents 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. WAIVER. Agent and Lenders hereby waive the Expected
Events of Default effective as of the Effective Date (as defined herein),
except that such waiver shall not constitute a waiver of the Expected Events
of Default for purposes of Section 6.14 of the Credit Agreement (Restricted
Payments) until July 31, 1998, whether or not Borrower is in compliance with
any of the financial covenants set forth the Credit Agreement that are tested
after the date hereof.
<PAGE>
SECTION 2. AMENDMENTS. The Credit Agreement is hereby amended
effective on the Effective Date, as follows:
(a) MINIMUM EBITDA. Paragraph (b) of ANNEX G to the Credit
Agreement is amended by deleting "$4,400,000" as the amount of minimum EBITDA
for the 12-month period ended on the Fiscal Quarter ending March 31, 1998,
and substituting therefor the amount of "($14,100,000)".
(b) LOANS AND ADVANCES TO PLEDGED ENTITIES. Notwithstanding CLAUSE
(H) of Section 6.2 of the Credit Agreement, from and after the Effective Date
and until June 30, 1998, the limitation of "$5,000,000" specified in CLAUSE
(H) of Section 6.2 of the Credit Agreement shall be increased to "$8,000,000".
SECTION 3. FEES. In consideration of the waivers and amendments
herein, Borrower shall pay to Agent an aggregate fee of $500,000, to be
divided among the Lenders executing this Waiver and Amendment based on their
Pro Rata Share (the "Amendment Fee"). The Amendment Fee shall be paid as
follows: (A) $100,000 on the Effective Date (the "Current Amendment Fee") and
(B) $400,000 on July 31, 1998 (the "Deferred Amendment Fee"). In addition,
Borrower shall pay interest in cash with respect to the Deferred Amendment
Fee to Agent for the ratable benefit of Lenders executing this Waiver and
Amendment in arrears on each Interest Payment Date commencing on the first
such date after the Effective Date, at a rate equal to the Index Rate plus
2.00% per annum, calculated on a basis of a 360 day year for the actual
number of days occurring in the period for which such interest is payable,
and based on the amount of the Deferred Amendment Fee unpaid. Borrower
acknowledges that the Deferred Amendment Fee and any interest thereon shall
constitute Obligations under the Credit Agreement.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE CREDIT PARTIES.
The Credit Parties represent and warrant to Agent and each Lender as follows:
(a) The execution, delivery and performance by each Credit Party of
this Waiver and Amendment (and each of the 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
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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 Waiver and Amendment and the other documents to be
executed and delivered by the Credit Parties have been duly executed and
delivered by each Credit Party and this Waiver and Amendment and the Loan
Documents as amended hereby constitute the legal, valid and binding
obligation of such Credit Party enforceable against it in accordance with
their terms.
(c) After giving effect to the waivers and amendments contained in
this Waiver and Amendment, each of the representations and warranties of the
Credit Parties 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 waivers and amendments contained in
this Waiver and Amendment, no Default or Event of Default shall be continuing
except with regard to Section 6.14 of the Credit Agreement as contemplated by
Section 1 of the Waiver, Amendment and Consent, dated as of February 17,
1998, among the parties hereto.
SECTION 5. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS
WAIVER AND AMENDMENT. This Waiver and Amendment 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 Waiver and Amendment.
(b) Agent shall have received, in form and substance satisfactory
to Agent, this Waiver and Amendment, duly executed and delivered by Borrower,
the other Credit Parties and Requisite Lenders.
(c) Agent on behalf of Lenders executing this Waiver and Amendment
shall have received the Current Amendment Fee.
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<PAGE>
SECTION 6. 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 Waiver and
Amendment 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 7. 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 Waiver and
Amendment.
SECTION 8. GOVERNING LAW. THIS WAIVER AND AMENDMENT 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 9. SECTION TITLES. Section titles contained in this
Waiver and Amendment 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 10. COUNTERPARTS. This Waiver and Amendment may be
executed in any number of separate counterparts, each of which shall
collectively and separately constitute one agreement.
[Signature Pages Follow]
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<PAGE>
IN WITNESS WHEREOF, this Waiver and Amendment has been duly
executed as of the date first written above.
DANA PERFUMES CORP.
By:
--------------------------------
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.)
RENAISSANCE INTERNATIONAL
EXPORT, INC.
By:
--------------------------------
Name:
Title:
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<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and Lender
By:
------------------------------------
Name:
Title: Duly Authorized Signatory
NATIONAL CITY COMMERCIAL FINANCE, INC.,
as Lender
By:
------------------------------------
Name:
Title:
PNC BANK, N.A.,
as Lender
By:
------------------------------------
Name:
Title:
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<PAGE>
SCHEDULE A
EXPECTED EVENTS OF DEFAULT
Events of Default under Section 8.1(b) of the Credit Agreement arising as a
result of Borrower's failure to comply with (i) the Maximum Leverage Ratio
Financial Covenant at the end of the Fiscal Quarter ending March 31, 1998,
and (ii) the Minimum Interest Coverage Ratio Financial Covenant for the
12-month period ended on the Fiscal Quarter ending March 31, 1998, as set
forth in paragraphs (c) and (d) of ANNEX G to the Credit Agreement,
respectively.
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<PAGE>
Exhibit 10.82
SUBORDINATED PROMISSORY NOTE
$5,000,000.00 AUGUST 18, 1994
1. FOR VALUE RECEIVED, RENAISSANCE COSMETICS, INC., a Delaware
corporation formerly known as C.P. Holding Corp. (the "Company"), promises to
pay to the order of Triumph-Connecticut Limited Partnership, a Connecticut
limited partnership, whose business address is 60 State Street, Boston,
Massachusetts 02109 or its successors or assigns (the "Payee"), at the
address set forth above or at such other address as the Payee may hereafter
notify the company in writing, the principal sum of FIVE MILLION DOLLARS
($5,000,000.00), together with interest at the rate provided below, to be
paid as follows, subject to the subordination and other provisions hereof:
(a) The Company shall pay the entire outstanding principal amount
of this note (plus all accrued interest to date) on the Maturity Date (as
defined below). The "Maturity Date" shall mean the earlier to occur of (i)
the closing of an initial public offering of the common stock of Cosmar
Corporation, a Delaware corporation formerly known as C.P. Cosmetics,
Inc.(the "Buyer"), the Company and any parent thereof or successor thereto,
(ii) the sale or other transfer of all or substantially all of the common
stock or assets of the Buyer or the Company and any parent thereof or
successor thereto (other than a reorganization, merger or other similar event
where the Company is the survivor or the survivor is an affiliate or under
common control with the Company, (iii) upon the sale or other transfer by
Kidd, Kamm Equity Partners, L.P. ("KKEP") and any affiliate or parent
thereof or successor thereto of any shares of common stock of the Buyer or
the Company and any parent thereof or successor thereto other than (x) any
transfer to any principal or affiliate of KKEP including its limited partners
(y) or the transfer (inter vivos or testamentary) of all or part of the
shares held by that principal or affiliate to his or her spouse, children, or
a trust for the benefit of his or her spouse or children; and (iv) the eighth
anniversary of the date hereof.
(b) Interest shall accrue on the outstanding principal amount of
this note from the date hereof, and on the Maturity Date all such accrued and
unpaid interest shall be due and payable by the Company. Interest shall
accrue and unpaid interest shall be due and payable by the company. Interest
shall accrue on the basis of simple annual compounding for the number of days
outstanding over a year of 365 days beginning on the date hereof, and in any
year interest shall be accrued on that basis (i.e., interest shall accrue
only with respect to principal outstanding and not with respect to prior
accrued but unpaid interest) at the following rates:
(i) until the third anniversary of the date of this note, eight
percent per annum;
<PAGE>
(ii) beginning on the third anniversary and until the fourth
anniversary of the date of this note, nine percent per annum;
(iii) beginning on the fourth anniversary and until the fifth
anniversary of the date of this note, ten percent per annum; and
(iv) beginning on the fifth anniversary and until the principal
amount hereunder is paid in full, eleven percent per annum.
(c) This note (including all accrued interest) may be prepaid by
the Company, in whole or in part, at any time, without premium or penalty, if
and to the extent that the Company shall be permitted to make such
prepayments under the terms of the Superior Indebtedness (as hereinafter
defined).
2. This note is issued as payment of the purchase price being paid by
the Company pursuant to an agreement for the purchase and sale of the assets
of Cosmar Corporation and Precision Molded Plastics, Inc. and related
transactions dated as of May 19, 1994 (the "Purchase and Sale Agreement"),
entered into by the Company, the Buyer, the Payee and others.
3. This note is subordinate and junior in right of payment, as
provided below, to all indebtedness other than trade debt of the Company
(including its contingent obligations in respect of such indebtedness of the
Buyer), including, but not limited to, principal, interest, fees, penalties,
indemnities, "post-petition" interest in bankruptcy (whether or not allowed
by law) of the Company and the Buyer, letters of credit, interest rate caps
and collars and the like, and any and all renewals, extensions, restatements
or refinancings thereof, to any lender which is a bank, insurance company,
financing institution, finance company or other institutional lender (all
such lenders together with any other holder of Superior Indebtedness (as
defined below), hereinafter called the "Lenders"), whether now existing or
hereafter created, and including for the purposes of this note, but without
limitation, the obligations of the Company under notes or other securities or
instruments being issued (whether or not to an institutional lender) to
finance the purchase of assets contemplated under the Purchase and Sale
Agreement and the direct or contingent obligations of the Company to any
lender who provides the Company or the Buyer with a revolving credit and/or
term debt facility (all of said indebtedness hereinafter called "Superior
Indebtedness"). This note shall not be subordinate to obligations of the
Company to the other "Notes" (as defined in the Purchase and Sale Agreement)
being delivered in connection with the closing under the Purchase and Sale
Agreement) all of which shall be parri passu with each other as to all rights
hereunder, and shall be senior to other "seller notes" issued by the company
or the Buyer after the date hereof. "Seller notes" shall mean notes issued
by the Company or the Buyer as part of the purchase price due to the seller
of a business or other asset to the Company, the Buyer or a direct or
indirect subsidiary of the Company or the Buyer.
4. (a) The payment of all amounts (including principal, interest,
fees, penalties and indemnities) owing in respect of this note are hereby
expressly subordinated, to the extent and in the
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<PAGE>
manner hereinafter set forth, to the prior payment in full of all Superior
Indebtedness. The provisions of this section 4 shall constitute a continuing
offer to all person who, in reliance upon such provisions, become holders of,
or continue to hold, Superior Indebtedness, and such provisions are made for
the benefit of the holders of Superior Indebtedness, and such provisions are
made for the benefit of the holders of Superior Indebtedness, and such
holders are hereby made obligees hereunder the same as if their names were
written herein as such, and they and/or each of them may proceed to enforce
such provisions.
(b) Upon the maturity of any Superior Indebtedness, whether at
stated maturity, by acceleration or otherwise, all amounts owing in respect
thereof shall first be paid in full, or such payment duly provided for in
cash or in a manner satisfactory to the holder or holders of such Superior
Indebtedness, before any payment is made on account of the principal of, or
interest on, or any amount otherwise owing in respect of, this note.
(c) Upon the happening of any default or event of default under
the documents evidencing the Superior Indebtedness, unless and until such
default shall have been cured or waived in writing, no payment shall be made
with respect to this note.
(d) (i) In the event that, notwithstanding the preceding
provisions, the Company shall make any payment on account of the principal
of, or interest on, or amounts otherwise owing in respect of, this note, at a
time when payment is not permitted by said provisions, such payment shall be
held by the Payee in trust for the benefit of, and shall be paid forthwith
over and delivered to, the holders of Superior Indebtedness or their
representative or representatives under the agreements pursuant to which the
Superior Indebtedness may have been issued, as their respective interests may
appear, for application pro rate to the payment of all Superior Indebtedness
remaining unpaid to the extent necessary to pay all Superior Indebtedness in
full in accordance with terms of such Superior Indebtedness, after giving
effect to any concurrent payment or distribution to or for the holders of
Superior Indebtedness.
(ii) Anything to the contrary in the section 4(d)
notwithstanding, if no Superior Indebtedness shall have been accelerated by
the holder thereof with written notice of such acceleration given by the
holder or the Company to the Sellers' Representative (as defined in the
Purchase and Sale Agreement), then on the Maturity Date the principal and
interest outstanding under this note shall be paid in full and any and all
payments made pursuant to this subparagraph (ii) shall not be subject in any
respect or at any time to subparagraph (i) of this paragraph (d).
(e) Upon any distribution of assets of the Company upon any
dissolution, winding up or liquidation of the Company (whether in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit
of creditors or otherwise):
(i) the holders of all Superior Indebtedness shall first be
entitled to receive payment in full of all amounts due thereon in cash before
the Payee is entitled to receive any
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<PAGE>
payment on account of the principal of, or interest on, or any other amount
owing in respect of, this note;
(ii) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, to which the
Payee would be entitled except for the provisions hereof, shall be paid by
the liquidating trustee or agent or other person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or other trustee or agent, directly to the holders of Superior
Indebtedness or their representative or representatives under the agreements
pursuant to which the Superior Indebtedness may have been issued, to the
extent necessary to make payment in full in cash of all Superior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Superior Indebtedness; and
(iii) in the event that, notwithstanding the foregoing
provisions, any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, shall be received by
the Payee on account of principal of, or interest on, or other amounts due
on, this note before all Superior Indebtedness is paid in cash in full, such
payment or distribution shall be received and held in trust for and shall be
paid over to the holders of the Superior Indebtedness remaining unpaid or
unprovided for or their representative or representatives under the
agreements pursuant to which the Superior Indebtedness may have been issued,
for application to the payment of such Superior Indebtedness until all such
Superior Indebtedness shall have been paid in full in cash, after giving
effect to any concurrent payment or distribution to the holders of such
Superior Indebtedness.
Without in any way modifying the provisions hereof or affecting the
subordination effected hereby if such notice is not given, the Company shall
give prompt written notice to the Payee of any dissolution, winding up,
liquidation or reorganization of the Company (whether in bankruptcy,
insolvency or receivership proceedings or upon any assignment for the benefit
of creditors or otherwise).
(f) Subject to the prior payment in full of all Superior
Indebtedness, the Payee shall be subrogated to the rights of the holders of
Superior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Superior Indebtedness until all amounts owing on
this note shall be paid in full, and for the purpose of such subrogation no
payments or distribution to the holders of the Superior Indebtedness by or on
behalf of the Company or by or on behalf of the Payee by virtue of the
provisions hereof which otherwise would have been made to the Payee shall, as
between the Company, its creditors other than the holders of Superior
Indebtedness, and the Payee, be deemed to be payment by the Company to or on
account of the Superior Indebtedness, it being understood that the provisions
hereof are, and are intended solely for the purpose of, defining the relative
rights of the Payee, on the one hand, and the holders of the Superior
Indebtedness, on the other hand.
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<PAGE>
(g) Nothing contained in this section 4 is intended to or shall
impair, as between the Company and the Payee, the obligation of the Company
to pay to the Payee the principal of and interest on this note as and when
the same shall become due and payable in accordance with its terms, or is
intended to or shall affect the relative rights of the Payee and creditors of
the Company other than the holders of the Superior Indebtedness, nor except
as provided herein shall anything herein prevent the payee from exercising
all remedies otherwise permitted by applicable law, subject to the rights, if
any, under the provisions hereof of the holders of Superior Indebtedness in
respect of cash, property, or securities of the Company received upon the
exercise of any such remedy. Upon any distribution of assets of the Company
referred to in the provisions hereof, the Payee shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction in which
such dissolution, winding up, liquidation or reorganization proceedings are
pending or a certificate of the liquidating trustee or agent or other person
making any distribution to the Payee, for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of the
Superior Indebtedness and other indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to the provisions hereof.
(h) No right of any present or future holders of any Superior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act in good faith by any such
holders, or by any noncompliance by the Company with the terms and provisions
of this note, regardless of any knowledge thereof with which any such holders
may have or be otherwise charged. The holders of the Superior Indebtedness
may, without in any way affecting the obligations of the Payee with respect
thereto, at any time or from time to time in their absolute discretion,
change the manner, place or terms of payment of, change or extend the time of
payment of, or renew, replace or alter, any Superior Indebtedness, or amend,
modify or supplement any agreement or instrument governing or evidencing such
Superior Indebtedness or any other document referred to therein, or exercise
or refrain from exercising any other of their rights under the Superior
Indebtedness, including, without limitation, the waiver of default thereunder
and the release of any collateral securing such Superior Indebtedness, all
without notice to or assent from the Payee.
(i) Without in any way modifying the provisions of this section 4
or affecting the subordination effected hereby if such notice is not given
(other than section 4(d)), the Company shall give the Payee prompt written
notice of any maturity or event of default of Superior Indebtedness after
which such Superior Indebtedness remains unsatisfied.
5. If any of the following events (each herein called an "Event of
Default") shall occur and be continuing:
(a) If the Company shall default in the payment (whether or not such
payment is prohibited by the terms of any Superior Indebtedness) of (i) any part
of the principal of or interest on this note when the same shall become due and
payable, whether at maturity or at a date fixed for
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<PAGE>
prepayment or by acceleration or otherwise, and such default in the payment
of principal or interest shall have continued for two business days; or
(b) If the Company shall make an assignment for the benefit of
creditors or shall admit in writing its inability to pay its debt; or if a
receiver or trustee shall be appointed for the Company or for substantially
all of its assets and, if appointed without its consent, such appointment is
not discharged or stayed within 60 days of appointment, or if proceedings
under any law relating to bankruptcy, insolvency or the reorganization or
relief of debtors are instituted by or against the Company and, if contested
by it, are not dismissed or stayed within 60 days of institution; or if the
Company takes corporate action in furtherance of any of the foregoing; or
(c) If the Company shall default in its obligations under section
7 and the default shall continue for 30 days after written notice;
then and in each such event the Payee may at any time (unless all Events of
Default shall theretofore have been remedied) at its, his or her option, but
subject to the subordination provisions of this note, by written notice to
the Company, declare this note in writing to be due and payable, whereupon
the same shall forthwith mature and become due and payable, without
presentment, demand, protest or notice, all of which are hereby waived.
6. Until this note is paid in full, the Company shall provide the
Payee with quarterly financial statements of the Company and the Buyer
concurrently with providing such financial statements to the bank or other
institutional lenders of the Company or the Buyer.
7. Until this note is paid in full, neither the Company nor the Buyer
shall make any distribution or pay any dividend or interest in respect of any
of its equity or any debt instrument that by its terms is junior and
subordinated to this note unless and until all accrued interest hereunder has
been paid or while any default hereunder has occurred and is continuing. the
foregoing shall not apply to divided and liquidation payments in respect of:
(i) up to 10,000 shares of the company's series of cumulative exchangeable
preferred stock being issued by the Company as of the date of this note; (ii)
additional shares of said series that are hereafter issued as a stock
dividend on the shares referred to in (i) above or on any such additional
shares; and (iii) subject to the next sentence, any shares of said series (or
any other class or series of preferred stock of the Company) issued by the
company in exchange for shares in (i) and (ii). Clause (iii) in the
preceding sentence is subject to the following conditions; (A) no other
consideration may be transferred in the exchange; and (B) the aggregate
dividend and the aggregate liquidation preference of the new shares may be no
greater than the aggregate dividend and the aggregate liquidation preference
of the shares being exchanged). Notwithstanding anything to the contrary in
this Note, the first sentence of this Section 7 shall not apply to cash
dividend payments with respect to preferred stock issued by the Company
subsequent to December 31, 1995.
8. In case any one or more Events of Default shall occur and be
continuing, the Payee, subject to the subordination provisions of this note
(including without limitation, sections 3 and 4),
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<PAGE>
may proceed to protect and enforce his, her or its rights by an action at
law, suit in equity or other appropriate proceeding.
9. The holder of this note acknowledges and agrees that the Lenders
have relied upon and will continue to rely upon, and are third-party
beneficiaries of, the subordination provisions set forth herein in purchasing
the debt and other securities of the Company and in making loans and
otherwise extending credit to the Company and the Buyer and any parent or
successor thereto.
10. The Lenders shall not be prejudiced in their right to enforce the
subordination provisions contained herein in accordance with the terms hereof
by any act or failure to act on the part of the company, except as provided
in section 4(d)(ii).
11. The subordination provisions contained herein are for the benefit
of the Lenders and may not be rescinded, canceled, amended or modified in any
way without the prior written consent thereto of such Lenders as shall then
be holding Superior Indebtedness.
12. Notwithstanding any inconsistent term of this note, no holder of
this note shall, prior to the Maturity Date, unless the holder hereof is
entitled to accelerate the indebtedness hereunder, have any right to
institute any proceeding to enforce any indebtedness evidenced by this note
or to institute any bankruptcy, insolvency, reorganization or similar
proceeding with respect to the Company.
13. If the entire principal amount is not paid in full on the Maturity
Date, the remaining unpaid principal shall thereafter bear interest at the
rate of ten percent (10%) per annum until paid in full. The provisions of
this section shall not limit the Payee's right to compel prompt performance
hereunder or to exercise any other remedy available at law or in equity.
14. If the Payee refers this note to an attorney to enforce any
provision hereof, or as a consequence of any default hereunder, with or
without the filing of any legal action or proceeding, the Company shall pay
to the Payee upon demand the amount of all attorneys' fees, costs and other
expenses incurred by the Payee in connection therewith, with interest thereon
from the date of demand at the rate applicable to the principal balance of
this note.
15. No delay or omission of the Payee in exercising any right or power
arising in connection with any default shall be construed as a waiver or, as
an acquiescence therein, nor shall any single or partial exercise thereof
preclude any further exercise thereof. The Payee may, at its option, waive
any of the conditions herein and no such waiver shall be deemed to be a
waiver of the Payee's rights hereunder, but rather shall be deemed to have
been made in pursuance of this note and not in modification thereof. No
waiver of any default shall be construed to be a waiver of or acquiescence in
or consent to any preceding or subsequent default.
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16. In case any one or more of the provisions contained in this note
should be held to be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
17. All notices, requests and demands to or upon the Payee hereof or
the Company shall be given by personal delivery or by registered or certified
mail (return receipt requested), postage prepaid, to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice, provided that notices of a change of address shall
be effective only upon receipt thereof):
If to the Company, to:
Renaissance Cosmetics, Inc.
635 Madison Avenue
New York, New York 10022
Attention: Chief Financial Officer
with a copy to:
Edward R. Mandell, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
If to the Payee, to the address set forth above, with a copy to:
E. Mark Noonan
Triumph-Connecticut Limited Partnership
60 State Street
Boston, Massachusetts 02109
All such notices and other communications shall be deemed given or delivered
when received, or five days after mailing, whichever occurs first.
18. Upon surrender of this note for cancellation by the Payee, the
Company will, at Payee's expense, reissue one or more notes in denominations
(but not less than $200,000) requested by Payee, aggregating not more than
the principal amount of this note, provided that such transfer and issuance
is, in the Company's reasonable opinion, not in violation of applicable
federal or state securities law.
19. This note shall be governed by and construed in accordance with the
laws of the State of Connecticut and all disputes arising hereunder or in
connection therewith shall be heard exclusively in the County of Hartford and
the parties hereto consent to personal jurisdiction of the
8
<PAGE>
courts, state and federal, in such county. In the event this note is
transferred by Triumph-Connecticut Limited Partnership, then this note shall
be governed by and construed in accordance with the laws of the State of New
York and all disputes arising hereunder or in connection therewith shall be
heard exclusively in the County of New York and the parties consent to the
personal jurisdiction of the courts, state and federal in such county as
aforesaid.
20. This note may not be modified, amended or changed except in writing
signed by both parties hereto.
21. This note has been issued in substitution of and to replace four
promissory notes aggregating $5,000,000 in principal amount, with each note
dated August 18, 1994 and which notes were issued by the Company under the
Purchase and Sale Agreement described in Section 2 hereof.
RENAISSANCE COSMETICS, INC.
By:
-------------------------------------
Name:
Title:
Agreed and Accepted:
TRIUMPH-CONNECTICUT LIMITED PARTNERSHIP
By:
-------------------------------------
Name:
Title:
9
<PAGE>
Exhibit 10.83
AMENDMENT, WAIVER AND CONSENT
AMENDMENT, WAIVER AND CONSENT, dated as of June 26, 1998, among 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 agree to amend
the Loan Documents as hereinafter set forth; and
WHEREAS, Agent and Lenders have agreed to amend the Loan Documents, 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. AMENDMENT OF OVERADVANCE PROVISIONS. Effective as of the
Effective Date (as defined herein), Section 6(a) of the Waiver, Amendment and
Consent, dated as of February 17, 1998 (the "February 17, 1998 Amendment"),
among the parties hereto, as amended by the Consent and Amendment, dated as of
May 13, 1998, is amended in its entirety to read as follows:
"Notwithstanding anything set forth to the contrary in the Credit
Agreement (particularly Sections 1.1(a)(iii) and 1.4 thereof), from and
after the Effective Date of the February 17, 1998 Amendment and until June
30, 1999 (the "OVERADVANCE PERIOD"):
<PAGE>
(a) Lenders consent to Agent making Overadvances in its sole
discretion to Borrower on behalf of Revolving Lenders in an aggregate
amount not to exceed $30,000,000 at any time, which amount shall be reduced
to $15,000,000 as of December 31, 1998 and further reduced to zero as of
June 30, 1999. Lenders agree that they shall not have the right to revoke
prospectively the authority of the Agent to make such Overadvances during
the Overadvance Period.
(b) Borrower shall not permit the outstanding amount of
Overadvances to exceed the amounts set forth below as of the last day of
each month set forth below (the "OVERADVANCE COVENANT"):
<TABLE>
<CAPTION>
MONTH END DATE OVERADVANCE
<S> <C>
June 30, 1998 $23,500,000
July 31, 1998 27,500,000
August 31, 1998 29,000,000
September 30, 1998 27,500,000
October 31, 1998 19,500,000
November 30, 1998 13,500,000
December 31, 1998 7,500,000
January 31, 1999 15,000,000
February 28, 1999 15,000,000
March 31, 1999 15,000,000
April 30, 1999 15,000,000
May 31, 1999 13,500,000
June 30, 1999 0
</TABLE>
Borrower shall deliver or cause to be delivered to Agent within two (2)
Business Days after the end of each month a statement in reasonable detail
showing the calculations used in determining compliance with the
Overadvance Covenant.
If on the last day of a month set forth above, the outstanding amount of
Overadvances exceeds the Overadvance Covenant, then during the following
month the outstanding amount of Overadvances at any time shall not exceed
the Overadvance Covenant specified for the last day of the prior month
until the outstanding amount of Overadvances is reduced to less than or
equal to such Overadvance Covenant, and if such reduction in the
outstanding amount of Overadvances is not made within seven (7) Business
Days following the last day of such prior month, it shall constitute an
immediate Event of Default, which
2
<PAGE>
shall be deemed continuing and not subject to cure until the end of the
current month.
(c) All Overadvances shall constitute Index Rate Loans, and
shall bear interest at the Index Rate plus 4.00% per annum through June 26,
1998, at the Index Rate plus 5.50% per annum through December 31, 1998 and
thereafter at the Index Rate plus 6.50% per annum. All Overadvances, and
the interest due thereon, shall be payable on demand.
(d) Borrower shall pay interest with respect to Revolving Credit
Advances (other than Overadvances) at the Index Rate plus 2.00% per annum.
(e) Each LIBOR Loan outstanding on the Effective Date of the
February 17, 1998 Amendment shall be converted on such date to an Index
Rate Loan, subject to payment of LIBOR breakage costs in accordance with
Section 1.12(b) of the Credit Agreement if such conversion is made prior to
the expiration of the LIBOR Period applicable thereto, and all Loans
outstanding during the Overadvance Period shall be Index Rate Loans."
SECTION 2. LOANS AND ADVANCES TO PLEDGED ENTITIES. Effective as of
the Effective Date, Section 2(b) of the Waiver and Amendment, dated as of March
31, 1998 (the "March 31, 1998 Amendment"), among the parties hereto, is amended
in its entirety to read as follows: "Notwithstanding CLAUSE (h) of Section 6.2
of the Credit Agreement, from and after the Effective Date and until December
31, 1998, the limitation of "$5,000,000" specified in CLAUSE (h) of Section 6.2
of the Credit Agreement shall be increased to "$13,000,000".
SECTION 3. MARCH 31, 1998 AMENDMENT FEES. Effective as of the
Effective Date, the second sentence of Section 3 of the March 31, 1998 Amendment
is amended by deleting "$400,000" and substituting therefor the amount of
"$150,000".
SECTION 4. WAIVER OF EXPECTED EVENT OF DEFAULT. Effective as of the
Effective Date, Agent and Lenders hereby waive the Event of Default under
Section 8.1(e) of the Credit Agreement expected to occur as a result Parent's
default under the 1997 Senior Notes Indenture by failing to make the cash
interest payment due on August 15, 1998, on the 1997 Senior Notes.
3
<PAGE>
SECTION 5. AGREEMENT TO REVISE CERTAIN COVENANTS. Agent, Lenders and
the Credit Parties agree to revise the Minimum EBITDA Financial Covenant and the
Overadvance Covenant (on such terms as they mutually agree) following the
receipt by any Credit Party of proceeds (as specified in Section 1.2(b)(ii) of
the Credit Agreement) in excess of $5,000,000 from any asset disposition
(including condemnation proceeds, but excluding proceeds of asset dispositions
permitted by Section 6.8(a) of the Credit Agreement) or any sale of Stock of any
Subsidiary of any Credit Party.
SECTION 6. AMENDMENT OF MINIMUM EBITDA. Effective as of the
Effective Date, 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>
PERIOD ENDED EBITDA
------------ ------
<S> <C>
12-month period ended March 31, 1997 $18,000,000
12-month period ended June 30, 1997 18,000,000
12-month period ended September 30, 1997 16,000,000
12-month period ended December 31, 1997 17,000,000
12-month period ended March 31, 1998 (27,800,000)
3-month period ended June 30, 1998 (10,900,000)
6-month period ended September 30, 1998 (6,800,000)
9-month period ended December 31, 1998 1,500,000
12-month period ended March 31, 1999 4,600,000
12-month period ended June 30, 1999 18,000,000
12-month period ended September 30, 1999 32,000,000
12-month period ended December 31, 1999 32,500,000
12-month period ended March 31, 2000 34,000,000
12-month period ended June 30, 2000 34,500,000
12-month period ended September 30, 2000 35,000,000
12-month period ended December 31, 2000 36,000,000
12-month period ended March 31, 2001 37,000,000
and each Fiscal Quarter end thereafter."
</TABLE>
4
<PAGE>
SECTION 7. MAXIMUM LEVERAGE RATIO AND MINIMUM INTEREST COVERAGE
RATIO. Effective as of the Effective Date, Agent and Lenders hereby waive
compliance by Borrower with (i) the Maximum Leverage Ratio Financial Covenant at
the end of the Fiscal Quarters ending on June 30, 1998, September 30, 1998,
December 31, 1998, March 31, 1999 and June 30, 1999, and (ii) the Minimum
Interest Coverage Ratio Financial Covenant for the 12-month periods ended on the
Fiscal Quarters ending June 30, 1998, September 30, 1998, December 31, 1998,
March 31, 1999 and June 30, 1999.
SECTION 8. CASH DOMINION AND CONTROL. Not later than 90 calendar
days after the date hereof, each Credit Party shall establish and maintain until
the Termination Date cash management systems acceptable to Agent, which provide
Agent with cash dominion and control.
SECTION 9. DISPOSITION OF CHINA JOINT VENTURE INTEREST. Effective as
of the Effective Date, and notwithstanding Sections 6.8 of the Credit Agreement,
Agent and Lenders hereby consent the assignment by RCI China, Inc. of a joint
venture interest to its joint venture partner pursuant to a Assignment and
Assumption Agreement, dated as of May 19, 1998.
SECTION 10. RESTRICTED PAYMENTS. Solely for purposes of Section 6.14
of the Credit Agreement (Restricted Payments), there shall be deemed to have
occurred and be continuing an Event of Default. Notwithstanding Section 6.14 of
the Credit Agreement, no Credit Party shall make any Restricted Payment
otherwise permitted by clause (d) thereof (relating to Scheduled Interest
Payments).
SECTION 11. FEES. In consideration of the amendments, waiver and
consent herein, Borrower shall pay to Agent the following fees to be divided
among the Lenders based on their Pro Rata Share (the "Amendment Fees"):
(a) A fee of $1,000,000, (1) $500,000 paid on the Effective Date (the
"Current Amendment Fee") and (2) $500,000 paid upon the earliest to occur of (i)
the receipt by any Credit Party of proceeds (as specified in Section 1.2(b)(ii)
of the Credit Agreement) in excess of $5,000,000 from any asset disposition
(including condemnation proceeds, but excluding proceeds of asset dispositions
permitted by Section 6.8(a) of the Credit Agreement) or any sale of Stock of any
Subsidiary of any Credit Party, (ii) the payment in full of all Obligations
under the Credit Agreement and the other Loan Documents, and (iii) December 31,
1998; and
(b) If all Obligations under the Credit Agreement and the other Loan
Documents have not been paid in full on or before December 31, 1998, an
additional
5
<PAGE>
fee of $1,000,000, paid upon the earliest to occur of (i) the receipt by any
Credit Party of proceeds (as specified in Section 1.2(b)(ii) of the Credit
Agreement) in excess of $5,000,000 from any asset disposition (including
condemnation proceeds, but excluding proceeds of asset dispositions permitted by
Section 6.8(a) of the Credit Agreement) or any sale of Stock of any Subsidiary
of any Credit Party, (ii) the payment in full of all Obligations under the
Credit Agreement and the other Loan Documents, and (iii) June 30, 1999. It is
understood and agreed that if any Credit Party receives proceeds in excess of
$5,000,000 (as specified in clause (i) above) on or before December 31, 1998 and
all Obligations under the Credit Agreement and the other Loan Documents have not
been paid in full on or before December 31, 1998, then the additional fee of
$1,000,000 payable pursuant to this subsection (b) shall be paid on December 31,
1998.
The failure to pay any installment of the Amendment Fees when due shall
constitute an Event of Default. Borrower acknowledges that such installments
constitute Obligations under the Credit Agreement.
SECTION 12. REPRESENTATIONS AND WARRANTIES OF THE CREDIT PARTIES.
The Credit Parties represent and warrant to Agent and each Lender as follows:
(a) The execution, delivery and performance by each Credit Party of
this Amendment, Waiver and Consent (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, Waiver and Consent and other documents to be
executed and delivered by the Credit Parties have been duly executed and
delivered by each Credit Party, and this Amendment, Waiver and Consent and the
Loan Documents as amended hereby constitute the legal, valid and binding
obligation of such Credit Party enforceable against it in accordance with their
terms.
(c) After giving effect to the amendments, waiver and consent
contained in this Amendment, Waiver and Consent, each of the representations and
warranties of
6
<PAGE>
the Credit Parties contained in the Credit Agreement and each of the other Loan
Documents are true and correct on and as of the date hereof 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, waiver and consent
contained in this Amendment, Waiver and Consent, no Default or Event of Default
shall be continuing except with regard to Section 6.14 of the Credit Agreement
as contemplated by Section 1 of the February 17, 1998 Amendment, and Section 1
of the March 31, 1998 Amendment, in each case among the parties hereto.
SECTION 13. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS
AMENDMENT, WAIVER AND CONSENT. Except as otherwise expressly provided herein,
this Amendment, Waiver 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, Waiver and Consent.
(b) Agent shall have received, in form and substance satisfactory to
Agent, this Amendment, Waiver and Consent duly executed and delivered by
Borrower, the other Credit Parties and Requisite Lenders.
(c) Agent on behalf of Lenders shall have received the Current
Amendment Fee.
SECTION 14. 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,
Waiver and Consent shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of Agent or Lenders under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
7
<PAGE>
SECTION 15. 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, Waiver and Consent.
SECTION 16. GOVERNING LAW. THIS AMENDMENT, WAIVER 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 17. SECTION TITLES. Section titles contained in this
Amendment, Waiver 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 18. COUNTERPARTS. This Amendment, Waiver and Consent may be
executed in any number of separate counterparts, each of which shall
collectively and separately constitute one agreement.
8
<PAGE>
IN WITNESS WHEREOF, this Amendment, Waiver and Consent has been duly
executed as of the date first written above.
DANA PERFUMES CORP.
By:
--------------------------------
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.)
RENAISSANCE INTERNATIONAL
EXPORT, INC.
By:
--------------------------------
Name:
Title:
9
<PAGE>
GENERAL ELECTRIC CAPITAL
CORPORATION,
as Agent and Lender
By:
----------------------------------
Name:
Title: Duly Authorized Signatory
NATIONAL CITY COMMERCIAL
FINANCE, INC.,
as Lender
By:
--------------------------------
Name:
Title:
PNC BANK, N.A.,
as Lender
By:
--------------------------------
Name:
Title:
10
<PAGE>
EXHIBIT 21.1
All subsidiaries listed below were in existence as of June 15, 1998.
Direct Subsidiaries of the Company (Delaware)
1. Cosmar Corporation (Delaware)
2. Renaissance Guarantor, Inc. (Delaware)
3. RCI China, Inc. (Delaware)
Direct Subsidiaries of Cosmar Corporation
1. Dana Perfumes Corp. (Delaware)
Direct Subsidiaries of Dana Perfumes Corp.
1. Marcafin S.A. (Switzerland)
2. Estalvi S.A. (Switzerland)
3. Financiera de Perfumeria S.A. (Panama)
4. Perfumes Dana S.A.I.C. (Argentina)
5. Perfumes Dana do Brasil, S.A. (Brazil)
6. Dana S.A. (Spain)
7. Dana Perfumes (Pty), Ltd. (South Africa)
8. Dana U.K. Limited (U.K.)
9. MEM Company, Inc. (New York)
10. Houbigant (1995) Limited (Canada)
11. RSH 149 S.A.R.L. (France)
12. Renaissance International Export, Inc. (Delaware)
Direct Subsidiaries of Estalvi S.A.
1. Perfumes and Cosmetics Importers, Inc. (Puerto Rico)
2. Parfums Dana Export Corp. (New York)
Direct Subsidiaries of MEM Company, Inc.
1. Tinkerbell, Inc. (New York)
2. St. Thomas Leatherworks Limited (Jamaica)
3. Alliance Trading Co., Inc. (Puerto Rico)
4. Tinkerbell (U.K.) Ltd. (U.K.)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF RENAISSANCE COSMETICS INC. AND
SUBSIDIARIES FOR THE THREE YEARS ENDED MARCH 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 7,698
<SECURITIES> 1,934
<RECEIVABLES> 32,995
<ALLOWANCES> 0
<INVENTORY> 54,820
<CURRENT-ASSETS> 104,086
<PP&E> 41,797
<DEPRECIATION> (17,387)
<TOTAL-ASSETS> 240,484
<CURRENT-LIABILITIES> 334,659
<BONDS> 4,072
124,258
0
<COMMON> 8
<OTHER-SE> (230,742)
<TOTAL-LIABILITY-AND-EQUITY> 240,484
<SALES> 179,696
<TOTAL-REVENUES> 179,696
<CGS> 115,724
<TOTAL-COSTS> 115,724
<OTHER-EXPENSES> 233,319
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,143
<INCOME-PRETAX> (196,534)
<INCOME-TAX> 912
<INCOME-CONTINUING> (197,446)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (197,446)
<EPS-PRIMARY> 268.58
<EPS-DILUTED> 0
</TABLE>
