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UNITED STATES
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 December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-13780
POWER CONTROL TECHNOLOGIES INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 02-0423416
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 EAST 62ND STREET, NEW YORK, N.Y. 10021
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(Address of principal executive
offices) (Zip Code)
212-572-8600
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
REGISTERED
----------------------------- -------------------------------
Common Stock, par value $.01 New York Stock Exchange, Inc.
per share
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 requirement for the past 90 days. X Yes 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]
The aggregate market value of the Common Stock held by non-affiliates of
the registrant as of March 7, 1997 was $114,057,541.
The number of shares of Common Stock outstanding as of March 7, 1997
were 20,656,502.
Documents incorporated by reference
Portions of the registrant's Proxy Statement for its Annual Meeting of
Stockholders, which is to be filed pursuant to Regulation 14A not later than
April 30, 1997, are incorporated herein by reference into Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
Power Control Technologies Inc. ("PCT" or the "Company") was
incorporated in Delaware on June 1, 1988 and is a holding company that
conducts its operations through its wholly-owned subsidiary Pneumo Abex
Corporation ("Pneumo Abex").
PCT has been a public company since June 15, 1995 when shares of its
common stock, par value $.01 per share (the "PCT Common Stock"), were publicly
distributed (the "PCT Distribution") to existing stockholders of Abex Inc.
("Abex"), PCT's former parent, in connection with the merger (the "Abex
Merger") of Abex and a wholly-owned subsidiary of Mafco Holdings Inc.
("Holdings") and the related transfer (the "Transfer") to a subsidiary of
Mafco Consolidated Group, Inc. ("Mafco") of substantially all of Abex's
consolidated assets and liabilities, other than those relating to its Abex NWL
Aerospace Division ("Aerospace"), which continued to be owned by PCT. On July
16, 1992, Abex was spun off (the "Abex Distribution") from the Henley Group
Inc. ("Henley Group"). Following the Abex Distribution and prior to the PCT
Distribution, Abex, through PCT, sold three of its five operating divisions
and combined the two others to form Aerospace. Prior to July 16, 1992, PCT was
an indirect wholly-owned subsidiary of Henley Group.
On April 15, 1996, the Company sold to Parker Hannifin Corporation
("Parker Hannifin") its entire Aerospace operations including substantially
all of its assets (the "Aerospace Sale"), pursuant to the terms of a Master
Asset Purchase Agreement for aggregate cash consideration of $201.1 million.
In connection with the Aerospace Sale, Parker Hannifin, the buyer, assumed the
operating liabilities of the Aerospace Business, including the Company's
existing debt.
On November 25, 1996, Mafco and PCT consummated the transactions
contemplated by a Stock and VSR Purchase Agreement (the "Purchase Agreement"),
dated as of October 23, 1996, by and among Mafco, PCT and PCT International
Holdings Inc. ("Purchaser"), a Delaware corporation and wholly-owned
subsidiary of PCT. Pursuant to the Purchase Agreement, Purchaser acquired from
Mafco (the "Flavors Acquisition"), all the issued and outstanding shares (the
"Shares") of capital stock of Flavors Holdings Inc. ("Flavors"), a Delaware
corporation and wholly-owned subsidiary of Mafco, and 23,156,502 Value Support
Rights (each a "VSR" and, collectively, the "VSRs") issued pursuant to a Value
Support Rights Agreement (the "VSR Agreement"), dated November 25, 1996
between Mafco and American Stock Transfer & Trust Company, as trustee.
In consideration for the Shares and VSRs, Purchaser paid Mafco cash in
the amount of $180 million. In addition, Purchaser will pay Mafco deferred
cash payments of $3.7 million on June 30, 1997 and $3.5 million on December
31, 1997. The source of funds for such payments was, and is anticipated to be,
available cash. Mafco owns approximately 28.8% of the outstanding shares of
PCT Common Stock and all of the convertible redeemable preferred stock which
has an aggregate liquidation preference of $20.0 million.
Immediately following the Flavors Acquisition, Mafco Worldwide
Corporation ("Mafco Worldwide"), then a wholly-owned subsidiary of Flavors,
through a series of transactions merged with and into Pneumo Abex, with Pneumo
Abex being the surviving corporation and becoming a wholly-owned subsidiary of
Flavors.
Through Pneumo Abex (as the successor to Mafco Worldwide), the Company
is primarily in the business of producing licorice extract and other flavoring
agents. Based upon its knowledge of the
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licorice industry, the Company believes that it is the world's largest
producer of licorice extract and the only manufacturer of licorice extract in
the United States. The Company also believes that it manufactures more than
70% of the worldwide licorice extract sold to end-users. Approximately 72% of
the Company's licorice sales are to the worldwide tobacco industry for use as
flavoring and moistening agents in the manufacture of American blend
cigarettes as well as other tobacco products (moist snuff, chewing tobacco and
pipe tobacco). While licorice extract represents a small percentage of the
total cost of manufacturing American blend cigarettes and other tobacco
products, the particular formulation and quantity used by each brand is an
important element of the brand's flavor.
The Company also sells licorice extract to worldwide confectioners, food
processors and pharmaceutical manufacturers for use as flavoring or masking
agents. In addition, the Company sells licorice root residue as a garden mulch
under the name Right Dress. The Company's other products include non-licorice
natural flavors, spices and botanicals that are used as flavoring ingredients
in food and tobacco products.
The Company has achieved its position as the world's leading
manufacturer of licorice extract through its experience in obtaining licorice
root, its technical expertise at maintaining the consistency and quality of
its product and its ability to develop and manufacture proprietary
formulations for individual customers and applications.
OPERATING STRATEGIES
The Company intends to maintain its position as the world leader in
licorice extract: (a) by continuing to expand in foreign markets as the
popularity of American blend cigarettes continues to increase; (b) by
improving its manufacturing process and raw material procurement in order to
achieve lower costs and; (c) by forming joint ventures in strategic areas of
the world to increase its overall licorice business.
PRODUCTS AND MANUFACTURING
Licorice extract products. The Company produces a variety of licorice
products from licorice root, licorice extract produced by others and certain
other flavor ingredients at its facilities in Camden, New Jersey and Gardanne,
France. The Company selects licorice root from various sources to optimize
flavoring and chemical characteristics and then shreds the root to matchstick
size. Licorice solids are then extracted from the shredded root with hot
water. After filtration and evaporation, the concentrated extract is converted
into powder, semifluid or blocks, depending on the customer's requirements,
and then packaged and shipped. For certain customers, extracts from root may
be blended with licorice extracts from other producers and non-licorice
ingredients to produce licorice flavors that meet the individual customer's
requirements. Licorice extract can be further purified to produce licorice
derivatives. The Company maintains finished goods inventories of sufficient
quantity to provide immediate delivery to its domestic tobacco and non-tobacco
customers. Foreign orders for licorice extract are produced upon receipt of
orders and are available to ship in approximately 30 days.
Other products. The Company also sells non-licorice flavoring agents to
the tobacco, spice, pharmaceutical and health food industries. The Company
cleans, grinds or cuts unprocessed spices and botanicals, principally chilies,
sage, cassia (cinnamon) and cocoa bean shells to customer specifications.
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RAW MATERIALS
Licorice extract is derived from the roots of the licorice plant, a
shrub-like leguminous plant that is indigenous to the Middle East and Central
Asia. The plant's roots, which can be up to several inches thick and up to 25
feet long are harvested when the plant is about four years old. They are then
cleaned, dried and bagged or pressed into bales. Through its foreign
suppliers, the Company acquires the root in local markets for shipment to the
Company's processing facilities in Camden, New Jersey or Gardanne, France.
Most of the licorice root processed by the Company originates in Afghanistan,
China, Pakistan, Azerbaijan, Uzbekistan, Turkmenistan, Syria and Turkey.
Through many years of experience, the Company has developed extensive
knowledge and relationships with their suppliers in these areas. Although the
amount of licorice root the Company purchases from any individual source or
country varies from year to year depending on cost and quality, the Company
endeavors to purchase some licorice root from all available sources. This
enables the Company to maintain multiple sources of supply and relationships
with many suppliers so that if the licorice root from any one source becomes
temporarily unavailable or uneconomic, the Company will be able to replace
that source with licorice root from another area or supplier. During 1996, two
suppliers of root, one in Pakistan and one in China, supplied 15% and 20%,
respectively of the Company's total root purchases. The Company tries to
maintain a sufficient licorice root inventory and open purchase contracts to
meet production needs for up to two years. Licorice root has an indefinite
retention period as long as it is kept dry, and therefore the Company has
experienced little, if any, material spoilage. The Company has been able to
obtain licorice root without interruption since World War II even though there
has been periodic instability in the areas of the world where licorice root
grows.
In addition to licorice root, the Company also purchases significant
quantities of licorice extract produced by others for use as a raw material.
These licorice extracts are available from producers primarily in China in
quantities sufficient to meet the Company's current requirements and
anticipated requirements for the foreseeable future. During 1996, the Company
had three licorice suppliers of licorice extracts who supplied more than 10%
each of total licorice extract purchases.
Other non-licorice raw materials for the Company's other blended
licorice and non-licorice products are commercially available through many
domestic and foreign sources.
SALES AND MARKETING
All licorice sales in the U.S. (including sales of licorice extract to
U.S. cigarette manufacturers for use in American blend cigarettes to be
exported) are made through the Company's executive offices located in Camden,
New Jersey, with technical support from the Company's research and development
department. Outside the U.S., the Company sells its products directly from its
Camden, New Jersey offices and through its French subsidiary, exclusive agents
and independent distributors.
The Company has established strong relationships with its customers in
the tobacco and other industries because of its expertise in producing and
supplying consistent quality licorice products with a high level of service
and security of supply. The Company ships products worldwide and provides
technical assistance for product development for both tobacco and non-tobacco
applications.
The Company sells licorice root residue, a by-product of the licorice
extract manufacturing process, as a garden mulch under the name Right Dress.
Distribution of Right Dress is limited to the area within a 200-mile radius of
Camden, New Jersey due to shipping costs and supply limitations.
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In 1996, Pneumo Abex's ten largest customers, seven of which are
manufacturers of tobacco products, accounted for approximately 58% of the
Company's pro forma net revenues and one customer, Philip Morris Companies
Inc. ("Philip Morris") accounted for 26% of the Company's pro forma sales. If
Philip Morris were to stop purchasing licorice extract from the Company, it
would have a significant adverse effect on the financial results of the
Company.
COMPETITION
The Company believes that its position as the largest manufacturer of
licorice extract in the world arises from its long-standing ability to provide
its customers with a steady supply of high quality and consistent products,
together with superior technical support. Producing licorice extract of
consistently high quality at low cost requires an experienced work force,
careful manufacturing and rigorous quality control. The Company's long-term
relationships and knowledge of the licorice root market are of great value in
enabling it to consistently acquire quality raw materials at reasonable cost.
Although the Company could face increased competition in the future, the
Company currently encounters limited competition in sales of licorice extract
to tobacco companies in many of its markets as a result of the factors
described above and the large investments in inventories of raw materials and
production facilities that are required to adequately fulfill its customers'
needs. Other markets in which the Company operates, particularly the
confectionery licorice market in Europe, are more competitive. Significant
competing producers of licorice extract are government owned and private
corporations in China, a government owned corporation in Iran and a government
affiliated corporation based in Israel.
THE TOBACCO INDUSTRY
Developments and trends within the tobacco industry may have a material
effect on the operations of the Company.
Producers of tobacco products are subject to regulation in the U.S. at
the federal, state and local levels. Together with changing public attitudes
toward smoking, a constant expansion of smoking regulations since the early
1970s has been a major cause for the decline in consumption. Moreover, the
trend is toward increasing regulation of the tobacco industry.
For more than 30 years, the sale and use of cigarettes has been subject
to opposition from government and health officials in the U.S. and other
countries due to claims that cigarette smoking is harmful to an individual's
health. These claims have resulted in a number of substantial restrictions on
the marketing, advertising, sale and use of cigarettes, in diminished social
acceptability of smoking and in activities by anti-smoking groups designed to
inhibit cigarette sales. The effects of these claims together with substantial
increases in state and federal taxes on cigarettes have resulted in lower
cigarette consumption, which is likely to continue in the future.
During the period 1992-1996, U.S. cigarette consumption declined at an
average of 0.7% per year and exports of cigarettes by U.S. manufacturers
increased at an average rate of 6.0% per year. The growth of U.S. cigarette
exports is due to successful marketing of U.S. cigarette brands by U.S.
tobacco manufacturers and the increasing popularity of the lighter flavor of
American blend cigarettes, particularly in Europe and Asia. In addition,
certain countries have reduced trade barriers that had previously limited
imports of cigarettes manufactured by U.S. manufacturers. In response to the
growing popularity of American blend cigarettes and increased exports by U.S.
manufacturers, foreign manufacturers are now producing American blend
cigarettes.
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Consumption of chewing tobacco and moist snuff is concentrated primarily
in the U.S. U.S. production of chewing tobacco products has steadily declined
for more than a decade and from 1992 through 1996 it has declined by 4.3%.
Consumption has declined because chewing tobacco appeals to a limited and
declining customer base, primarily males living in rural areas. Moist snuff
consumption has risen steadily since the mid-1970s and has increased 1.2% from
1992 through 1996 due to the shift away from cigarettes and other types of
smoking tobacco.
Health Regulations. Federal law has required health warnings on
cigarettes since 1965 and has recently required states, in order to receive
full funding for federal substance abuse block grants, to establish a minimum
age of 18 years for the sale of tobacco products, together with an appropriate
enforcement program. In recent years, a variety of bills relating to tobacco
issues have been introduced in the Congress of the United States, including
bills that would have (i) prohibited the advertising and promotion of all
tobacco products and/or restricted or eliminated the deductibility of such
advertising expenses; (ii) increased labeling requirements on tobacco products
to include, among other things, addiction warnings and lists of additives and
toxins; (iii) modified federal preemption of state laws to allow state courts
to hold tobacco manufacturers liable under common law or state statutes; (iv)
shifted regulatory control of tobacco products and advertisements from the
Federal Trade Commission to the U.S. Food and Drug Administration (the "FDA");
(v) increased tobacco excise taxes; and (vi) required tobacco companies to pay
for health care costs incurred by the federal government in connection with
tobacco related diseases. Hearings have been held on certain of these
proposals; however, to date, none of such proposals or similar bills have had
an adverse effect on the sales or operations of the Company. In addition,
various federal agencies, including the FDA as discussed below, have recently
proposed to regulate the tobacco industry.
In addition, federal, state and local legislative and regulatory bodies
have increasingly moved to curtail smoking by prohibiting smoking in certain
public places, restricting the sale of tobacco products to minors, increasing
labeling requirements, regulating the marketing, promotion and advertisement
of cigarettes and smokeless tobacco and protecting non-smokers from so-called
"second-hand" smoke. Smokeless tobacco manufacturers are subject to similar
health warning regulations as cigarette producers, and there has been
litigation that claims smokeless tobacco causes oral cancer. To the extent
that further actions are taken to regulate tobacco products and restrict
smoking, such actions could have a material adverse effect on the Company.
Some foreign countries have also taken steps to restrict or prohibit cigarette
advertising and promotion, to require ingredient disclosure, to impose maximum
constituent levels, to increase taxes on cigarettes, to control prices, to
restrict imports, to ban or severely restrict smoking in workplace and public
places, and otherwise to discourage cigarette smoking.
As a producer of food-grade products, the Company's business is subject
to certain FDA and New Jersey Department of Health Regulations. Compliance
with these regulations has not had a material effect on the Company's
business.
Tobacco Industry Litigation. The cigarette and smokeless tobacco
industries have experienced and are experiencing significant health-related
litigation involving tobacco and health issues. Current tobacco litigation
generally falls within one of three categories: class actions, individual
actions and actions brought by individual states or localities to recover
Medicaid costs allegedly attributable to tobacco-related illnesses. The
pending actions allege a broad range of injuries resulting from the use of
tobacco products or exposure to tobacco smoke and seek various remedies,
including compensatory and, in some cases, punitive damages together with
certain types of equitable relief such as the establishment of medical
monitoring funds and restitution. There can be no assurance that there will
not be an increase in health-related litigation involving tobacco and health
issues against the cigarette
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industry or that the Company, as a supplier to the tobacco industry, will not
be party to such litigation. This litigation, if successful, could have a
material adverse effect on the Company.
Excise Taxes. The tobacco industry, including cigarettes and smokeless
tobacco, has been subject to federal, state and local excise taxes for many
years. In recent years, federal, state and local governments have proposed
increases to such taxes as a means of both raising revenue and discouraging
the consumption of tobacco products. The Company is unable to predict the
likelihood of enactment of such proposals or the extent to which enactment of
such proposals would effect tobacco sales. A significant reduction in
consumption of cigarettes and other tobacco products could have a material
adverse effect on the Company.
SEASONALITY
The licorice business is generally non-seasonal. However, sales of Right
Dress garden mulch occur primarily in the first seven months of the year.
BACKLOG
The backlog of the Company at any time is generally not significant.
Domestic and foreign tobacco orders are received quarterly, monthly or weekly
depending upon customer requirements. Certain confectionery customers
negotiate annual contracts which were not significant at December 31, 1996.
EMPLOYEES
At December 31, 1996, the Company has approximately 291 employees. The
Company has 154 employees covered under collective bargaining agreements. The
agreement covering employees at the Camden, New Jersey facility expires at the
end of May 1997. Management believes that its employee relations are good.
CORPORATE INDEMNIFICATION MATTERS
The Company is indemnified by third parties with respect to certain of
its contingent liabilities, such as certain environmental and asbestos
matters, as well as certain tax and other matters. In order to implement the
Transfer, a subsidiary of Abex and PCT and certain other subsidiaries of PCT
entered into a Transfer Agreement. Under the Transfer Agreement, substantially
all of Abex's consolidated assets and liabilities, other than those relating
to Aerospace, were transferred to a subsidiary of Mafco, with the remainder
being retained by PCT. The Transfer Agreement provides for appropriate
transfer, indemnification and tax sharing arrangements, in a manner consistent
with applicable law and existing contractual arrangements.
The Transfer Agreement requires such subsidiary of Mafco to undertake
certain administrative and funding obligations with respect to certain
asbestos claims and other liabilities retained by PCT. PCT will be obligated
to make reimbursement for the amounts so funded only when amounts are received
by PCT under related indemnification and insurance agreements. Such
administrative and funding obligations would be terminated as to asbestos
products claims in the case of a bankruptcy of Pneumo Abex or PCT or of
certain other events affecting the availability of coverage for such claims
from third party indemnitors and insurers. The Transfer Agreement further
provides for certain funding indemnification and cooperation arrangements
between PCT and such subsidiary in respect of certain liabilities which may
arise under the Employee Retirement Security Act of 1974 in respect of the
sale of Abex Friction Products (the "Friction Products Sale").
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ITEM 2. PROPERTIES
THE COMPANY'S PRINCIPAL PROPERTIES ARE AS FOLLOWS:
<TABLE>
<CAPTION>
OWNED APPROXIMATE
OR FLOOR SPACE
LOCATION USE LEASED (SQUARE FEET)
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<S> <C> <C> <C>
Camden, New Jersey Licorice manufacturing, warehousing Owned 390,000
and administration
Camden, New Jersey Warehousing Leased(a) 140,000
Gardanne, France Licorice manufacturing and Owned 48,900
administration
Richmond, Virginia Manufacturing and warehousing Owned 45,000
for non-licorice products
Richmond, Virginia Manufacturing and administration Leased(b) 65,000
for non-licorice products
</TABLE>
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(a) Lease expires on March 31, 1998.
(b) Lease expires on October 30, 2001
The Company believes that its facilities are well maintained and are in
substantial compliance with environmental laws and regulations.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to lawsuits incidental to its business. The
Company believes that the outcome of such pending legal proceedings in the
aggregate will not have a material adverse effect on the Company's
consolidated financial position or results of operations. The Company carries
general liability insurance but has no health hazard policy, which, to the
best of the Company's knowledge, is consistent with industry practice.
See Item 1. Business - The Tobacco Industry.
In addition, various legal proceedings, claims and investigations are
pending against the Company and certain subsidiaries, including those relating
to commercial transactions, product liability, safety and health matters and
other matters. PCT is involved in various stages of legal proceedings, claims,
investigations and cleanup relating to environmental natural resource matters,
some of which relate to waste disposal sites. Most of these matters are
covered by insurance, subject to deductibles and maximum limits, and by
third-party indemnities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1996.
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PART II
ITEM 5. MARKET OF REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The PCT Common Stock is listed on the New York Stock Exchange, Inc.
("NYSE") under the symbol ATP. The PCT Common Stock began trading on the NYSE
on June 16, 1995. The following table sets forth, for the calendar quarters
indicated, the high and low closing prices per share of the PCT Common Stock
on the NYSE based on published financial sources.
HIGH LOW
CALENDAR 1995
Second Quarter (since June 16, 1995) $6 3/4 $5
Third Quarter 8 1/8 6 3/8
Fourth Quarter 8 1/4 7 1/8
CALENDAR 1996
First Quarter 9 1/2 7 3/4
Second Quarter 9 1/2 8 3/4
Third Quarter 9 7 1/2
Fourth Quarter 8 1/2 7 1/2
The number of holders of record of the PCT Common Stock as of March 7,
1997 was approximately 7,034.
PCT has not paid any cash dividends on the PCT Common Stock to date. PCT
does not currently intend to pay regular cash dividends on the PCT Common
Stock. PCT's dividend policy will be reviewed from time to time by the Board
of Directors in light of PCT's results of operations and financial position
and such other business considerations as the Board of Directors considers
relevant. The ability of Pneumo Abex to pay dividends is limited by its
indenture and credit agreement, which in turn may limit the ability of the
Company to pay dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and the Notes to Consolidated Financial Statements.
In order to protect the availability of the Company's net operating loss
carryforwards, the PCT charter prohibits, subject to certain exceptions,
transfers of PCT Common Stock, until such date as fixed by the Board of
Directors of PCT, to any person who owns, or after giving effect to such
transfer would own, at least 5% of the outstanding PCT Common Stock. The
Company has been advised by counsel that the transfer restriction in the PCT
charter is enforceable. The Company intends to take all appropriate action to
preserve the benefit of the restriction including, if necessary, the
institution of legal proceedings seeking enforcement.
On December 31, 1996, the Company distributed to its stockholders the
VSRs received as part of the Flavors Acquisition. Each VSR, subject to certain
limitations, entitles its holder to receive a payment, if any, of up to $3.25
per VSR if the 30-Day Average Market Price (as defined in the VSR Agreement)
of PCT Common Stock is below $11.00 per share, subject to adjustment, on
January 1, 1999; provided, however, Mafco has an optional right to call the
VSRs each April 1, July 1, October 1 and January 1 from and including April 1,
1997 to and including October 1, 1998 (each, an "Optional Call Date"). If
Mafco calls the VSRs on or before January 1, 1998, holders will be entitled to
receive a payment of at least $0.50 and up to $3.25 per VSR if the 30-Day
Average Market Price is below $10.25 per share, subject to adjustment, as of
such Optional Call Date. If Mafco calls the VSRs after January 1, 1998, each
VSR will entitle its holder to a payment, if any, of up to $3.25 per VSR if
the
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30-Day Average Market Price is below $11.00 per share on such Optional Call
Date.
ITEM 6. SELECTED FINANCIAL DATA
PCT is the successor to Abex for financial reporting purposes as a
result of the Transfer, the Abex Merger and the PCT Distribution, which
occurred on June 15, 1995. Accordingly, financial information presented for
periods prior to June 15, 1995 represent Abex's results. The following table
sets forth selected historical financial data of Abex and PCT. Abex was formed
by the Henley Group in connection with the Abex Distribution in 1992.
Accordingly, the Abex consolidated financial statements may not necessarily
reflect the results of operations or financial position had Abex been a
separate stand-alone entity. Abex's industrial products and aerospace
businesses have been classified as discontinued operations in the statements
of operations data. See the Notes to Consolidated Financial Statements for a
discussion of the Company's formation and the basis of presentation.
The table below reflects financial data for each of the years in the
five-year period ended December 31, 1996. The selected historical financial
information for each of the years in the three-year period ended December 31,
1994 has been derived from the audited consolidated financial statements of
Abex, while information for the years 1995 and 1996 have been derived from the
audited consolidated financial statements of PCT.
The selected historical financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements of PCT included
elsewhere in this Annual Report on Form 10-K.
For the Year Ended December 31,
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1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in millions, except per share data)
STATEMENT OF OPERATIONS DATA:
Net sales (a) % 9.5 $ -- $ -- $ -- $ --
Income (loss) from
continuing operations (b) 10.4 (4.0) (30.1) (39.4) (74.5)
Income (loss) from
continuing operations per
common share 0.43 (0.24) (1.52) (1.99) (3.77)
BALANCE SHEET DATA (AT PERIOD END)
Total assets (c) $318.1 $51.3 $336.8 $302.2 $522.5
Long-term debt (including
current portion and short
term borrowings) (d) 100.1 -- 31.1 112.8 309.6
Redeemable preferred stock (e) 20.0 20.0 -- -- --
Total stockholders' equity
(deficit) (f) 166.0 22.5 102.2 (29.2) (68.6)
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(a) Reflects sales of Flavors since its acquisition on November 25, 1996.
Sales of the Company's aerospace and industrial products businesses are
included in discontinued operations through their respective dates of
sale.
(b) Includes the results of Flavors, since its acquisition on November 25,
1996. Prior to the Abex Merger and the Transfer, results from continuing
operations reflects costs associated with the former corporate office of
Abex.
(c) Decrease in total assets from 1992 to 1993 was primarily the result of
the sale of a business and the related debt reduction. The decrease from
1994 to 1995 was primarily the result of the Transfer. The
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increase from 1995 to 1996 primarily reflects the Flavors Acquisition
funded with proceeds from the Aerospace Sale.
(d) Decrease in long-term debt from 1992 to 1995 was primarily related to
the paydown of debt as well as the sale of certain business segments.
The increase in long-term debt from 1995 to 1996 was primarily the
result of the Flavors Acquisition.
(e) Reflects the issuance of redeemable convertible preferred stock in
connection with the Abex Merger and Transfer.
(f) Stockholders' equity (deficit) includes the extraordinary gain of $94.0
in 1993 reflecting an adjustment to the Company's reserves for
indemnification under its tax sharing agreements, the gain recorded in
1994 on the sale of the industrial products business of $128.4 and the
gain of $153.7 in 1996 on the sale of the Aerospace business partially
offset by the VSR distribution of $23.2 in 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the notes thereto included elsewhere
herein.
GENERAL
As a result of the sale of the Company's aerospace business in 1996 and
industrial products businesses in 1994, the Company has classified those
operations as discontinued in the consolidated financial statements.
Accordingly, the results of operations below do not reflect the sales, cost of
sales or selling, general and administration expenses ("SG&A") from the
discontinued aerospace and industrial products businesses for the years
presented.
The discussion of historical results reflects the results of operations
of Flavor's licorice extract and other flavoring agents business since
November 25, 1996, the date of the Flavors Acquisition. The results of
operations data presented below reflects the application of the purchase
method of accounting for the Flavors Acquisition based on the purchase price
allocation.
The pro forma consolidated financial information below gives effect to
the Flavors Acquisition, the Abex Merger and Transfer and the Aerospace Sale
as if such transactions occurred on January 1, 1995.
RESULTS OF OPERATIONS
During 1993, Mafco Worldwide's largest customer substantially reduced
the price of its premium brand cigarettes in order to regain market share
which had been lost to generic or "no frills" type cigarettes. The generic
cigarettes sold at a discount to premium brands and had captured a substantial
share of the U.S. cigarette market. In addition, cigarette inventories at
distributors were reduced by abandoning the practice of loading distributors
with cigarettes at the end of each quarter. As a result of these actions,
Mafco Worldwide sold less licorice extract to the cigarette industry in 1993
than in previous years. In 1994, Mafco Worldwide's sales volume to the
cigarette industry increased as production volumes in the cigarette industry
returned to pre-1993 levels. This trend continued in 1995 and 1996.
11
<PAGE>
Pro forma year ended December 31, 1996 compared to pro forma year ended
December 31, 1995
<TABLE>
<CAPTION>
PRO FORMA YEAR
ENDED
DECEMBER 31,
------------------
1996 1995
-------- --------
(IN MILLIONS)
<S> <C> <C>
Net Sales $103.4 $103.2
Cost of sales 57.3 62.3
-------- --------
Gross profit 46.1 40.9
Selling, general and administrative expenses 12.5 13.4
-------- --------
Operating income 33.6 27.5
Interest expense (9.9) (11.0)
Interest, investment and dividend income, net 0.4 0.5
Other expense, net 0.1 (0.4)
-------- --------
Income from continuing operations before income taxes 24.2 16.6
Provision for income taxes (3.3) (2.8)
-------- --------
Income from continuing operations $ 20.9 $ 13.8
======== ========
</TABLE>
On a pro forma basis, net sales in 1996 and 1995 were $103.4 million and
$103.2 million, respectively. U.S. sales increased $0.6 million in 1996 to
$63.2 million. The increase resulted from higher average selling prices due to
the mix of products sold which was partially offset by lower volume from the
Company's smokeless tobacco customers. Foreign sales in 1996 decreased by $0.4
million to $40.2 million in 1996. The decrease was due to lower average
selling prices.
Pro forma cost of sales were $57.3 million in 1996 as compared to $62.3
million in 1995. The decrease of $5.0 million was due to lower material costs,
a gain on an insurance claim of $0.5 million in 1996, and a reduction in the
amortization of the purchase accounting adjustment related to inventory. As a
percentage of net sales, cost of sales decreased to 55.4% in 1996 from 60.4%
in 1995.
Pro forma SG&A expenses were $12.5 million in 1996 and $13.4 million in
1995. The decrease of $0.9 million was primarily due to an increase in income
recognized on the Company's overfunded pension plan and a bad debt recovery of
$0.8 million in 1996, partially offset by higher compensation expense.
Pro forma interest expense was $9.9 million in 1996 and $11.0 million in
1995, a decrease of $1.1 million due to lower debt outstanding at lower
average interest rates in 1996.
Pro forma tax expense was $3.3 million in 1996 and $2.8 million in 1995,
an increase in $0.5 million. The increase primarily relates to state and
foreign taxes.
Year ended December 31, 1996 compared to the year ended December 31, 1995
Net sales were $9.5 million for the year ended December 31, 1996. Net
sales reflects the business of Flavors since the Flavors Acquisition on
November 25, 1996.
Cost of sales were $6.6 million for the year ended December 31, 1996.
Cost of sales reflects the business of Flavors since the Flavors Acquisition
on November 25, 1996, including one month's amortization of the purchase
accounting write-up related to inventory of $1.3 million and depreciation
expense on property, plant and equipment.
12
<PAGE>
SG&A expenses were $0.3 million and $10.5 million for the years ended
December 31, 1996 and 1995, respectively. The 1996 expenses primarily reflect
on-going corporate costs, SG&A expenses of Flavors since the Flavors
Acquisition on November 25, 1996, including one month's amortization of the
purchase accounting adjustments related to intangibles partially offset by
income recognized on the Company's overfunded pension plan. The 1995 expenses
primarily related to costs associated with the former office of Abex before
the Transfer and Abex Merger and on-going corporate costs of the Company after
the Transfer and Abex Merger, partially offset by income recognized on the
Company's overfunded pension plan.
Interest expense was $0.9 million and $0.4 million for the years ended
December 31, 1996 and 1995, respectively. The increase primarily reflects
interest expense on the debt of Pneumo Abex since the Flavors Acquisition on
November 25, 1996.
Interest, investment and other income, net was $8.9 million and $6.9
million for the years ended December 31, 1996 and 1995, respectively.
Interest, investment and other income, net in 1996 primarily reflects income
on the proceeds from the Aerospace Sale which were invested in cash
equivalents and marketable securities pending its use to finance the Flavors
Acquisition. Interest, investment and other income, net in 1995 primarily
relates to interest income on cash held by Abex before the Abex Merger and
Transfer.
The Company recorded a tax provision in continuing operations of $0.2
million (an effective rate of 1.9%) and $0.0 for the years ended December 31,
1996 and 1995, respectively. For the year ended December 31, 1996, the
effective tax rate differs from the statutory tax rate primarily due to the
benefit realized on the tax loss associated with discontinued operations as
well as a reduction of the valuation allowance which represents a portion of
the Company's net operating losses which are expected to be utilized. Based
upon the combined results of operations of Mafco Worldwide and the Company
over the last several years and taking into consideration the current
operating environment of the tobacco industry, the Company believes that is
more likely than not that these tax benefits will be realized. However,
realization of the net deferred tax assets and future reversals of the
valuation allowance will depend on future earnings and accordingly the
valuation allowance will be evaluated on a periodic basis.
Income from discontinued operations of Aerospace was $4.4 million and
$16.9 million for the years ended December 31, 1996 and 1995, respectively.
The 1996 period represents Aerospace through April 15, 1996, the date of sale
while the 1995 period represents Aerospace for the full period.
The Company recorded a net gain of $153.7 million related to the
Aerospace Sale in the year ended December 31, 1996. There were no income taxes
provided in connection with the sale as the tax bases of the assets and
liabilities sold exceeded the net proceeds and resulted in a tax loss.
Year ended December 31, 1995 compared to the year ended December 31, 1994
SG&A expenses were $10.5 million and $22.3 million for the years ended
December 31, 1995 and 1994, respectively. The decrease was primarily due to
the elimination of expenses related to Abex's former corporate office
subsequent to the Abex Merger.
Interest expense was $0.4 million and $9.7 million for the years ended
December 31, 1995 and 1994, respectively. The decrease was primarily due to
the reduction in outstanding indebtedness, including the repayment of $31.1
million of debt in January 1995.
13
<PAGE>
Interest, investment and other income, net was $6.9 million and $1.9
million for the years ended December 31, 1995 and 1994, respectively. The
increase primarily reflects an increase in interest earned on higher cash
balances in 1995 prior to the Abex Merger.
Income from discontinued operations, net of taxes, was $16.9 million and
$166.3 million for the years ended December 31, 1995 and 1994, respectively.
Discontinued operations reflect the improved results of operations of
Aerospace in 1995 from $7.7 million in 1994 to $16.9 million in 1995. The 1994
period also reflects the operations of the Company's discontinued industrial
products businesses through their respective dates of sale of $30.2 million
and the gain on sale of such businesses of $128.4 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows provided by (used in) operating activities
were $8.2 million, ($16.8) million and ($36.0) million for the years ended
December 31, 1996, 1995 and 1994, respectively. Cash provided by operating
activities during 1996 primarily reflects interest and investment income and
operating cash flows of Flavors since the Flavors Acquisition. Operating cash
used during 1995 and 1994 reflect payment of corporate expenses related to the
former corporate office of Abex as well as payments with respect to
non-operating liabilities of Abex prior to the Abex Merger and the Transfer.
Cash flows from investing activities during 1996 consisted primarily of
the proceeds from the sale of Aerospace partially offset by the cash used in
the Flavors Acquisition. In 1995, cash flows used in investing activities was
$181.2 million, which reflects cash transferred in the Abex Merger, while cash
flows provided by investing activities in 1994 was $247.2 million, reflecting
the proceeds from the sale of the industrial products business. Capital
expenditures by the Company since the Flavors Acquisition were $0.2 million.
On a pro forma basis, assuming the Flavors Acquisition had occurred on January
1, 1995, capital expenditures would have been $1.9 million and $2.3 million in
1996 and 1995, respectively. While the Company has not made any significant
commitments for capital expenditures, such expenditures are expected to be
approximately $3.1 million for 1997. In addition, the Company has entered into
an agreement to invest in a joint venture in China totaling $1.3 million in
1997.
Cash flows from financing activities primarily reflect net repayments of
borrowings of $25.1 million, $31.1 million and $81.6 million in 1996, 1995 and
1994, respectively. Under the senior credit agreement as amended in February
1997, the Company may borrow up to $12.5 million under a revolving credit
facility. At December 31, 1996, approximately $2.3 million of this facility
had been reserved to support lender guarantees for outstanding letters of
credit. Management believes the remaining availability of approximately $2.9
million under the revolving credit facility and cash generated from operations
will be sufficient to meet the Company's needs for working capital, capital
expenditures and debt service for the foreseeable future.
TAX MATTERS
In connection with the Abex Merger and the Transfer, Mafco and the
Company entered into a tax sharing agreement. Under the indemnification
provisions of the tax sharing agreement and with respect to periods ending on
or prior to June 15, 1995, Mafco will generally be required to pay any tax
liabilities of the Company, except for foreign income taxes related to
Aerospace. At December 31, 1996, the Company had available Federal net
operating loss carryforwards of approximately $194.0 million, which expire in
years 2000 through 2011.
14
<PAGE>
The IRS is currently examining the returns for the years 1989, 1990 and
1991. The Company has been notified by the IRS that its 1994 and its short
period 1995 return will be examined. The amount of net operating loss
carryforwards available at December 31, 1996 could be affected by the outcome
of this examination.
OTHER
Various legal proceedings, claims and investigations are pending against
the Company and certain subsidiaries, including those relating to commercial
transactions, product liability, safety and health matters and other matters.
PCT is involved in various stages of legal proceedings, claims, investigations
and cleanup relating to environmental or natural resource matters, some of
which relate to waste disposal sites. Most of these matters are covered by
insurance, subject to deductibles and maximum limits, and by third-party
indemnities.
For a discussion of certain indemnification obligations to the Company,
see Item 1. Business - Corporate Indemnification Matters.
In the opinion of management, based upon the information available at
this time, the outcome of the outstanding matters referred to above will not
have a material adverse effect on the Company's financial position or results
of operations.
FOREIGN EXCHANGE
Most of the Company's export sales and purchase of licorice raw
materials are made in U.S. dollars. The Company's French subsidiary sells in
several European currencies as well as the U.S. dollar and purchases raw
materials principally in U.S. dollars.
INFLATION
Prior to 1993, Mafco Worldwide had historically been able to pass
inflationary increases for raw materials and other costs onto customers
through price increases. Since 1993, inflationary increases for raw materials
and other costs have not been significant. There can be no assurance that the
Company will be able to pass on future cost increases to its customers.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the financial statements and supplementary data listed in the
accompanying Index to Consolidated Financial Statements and Schedule on page
F-1 herein. Information required by other schedules called for under
Regulation S-X is either not applicable or is included in the financial
statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On November 25, 1996, the Registrant dismissed Arthur Andersen LLP
("AA") and engaged Ernst & Young LLP ("E&Y") as its independent auditors. This
change of auditors was approved by the Registrant's Board of Directors based
upon the recommendation of its Audit Committee.
In connection with the audits of the Registrant's financial statements
for each of the years in the two year period ended December 31, 1995, and the
subsequent interim period, there have been no
15
<PAGE>
disagreements with AA on any matters of accounting principles or practices,
financial statement disclosure or auditing scope and procedures.
The reports of AA on the Registrant's financial statements for each of
the years in the two year period ended December 31, 1995 did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope, or accounting principles.
The Registrant obtained from AA a letter addressed to the Commission
stating that it agrees with the statements in the three preceding paragraphs.
A copy of that letter, dated December 5, 1996 was filed as Exhibit 16.1 of
Form 8-K/A on December 23, 1996.
On November 25, 1996, the Registrant consummated the Flavors
Acquisition. E&Y has been the independent auditors for Flavors since 1987.
Prior to the Flavors Acquisition, the Registrant had no operating
assets. Its primary assets were short term marketable securities.
Substantially all of these securities were used to acquire Flavors.
Accordingly, the capital stock of Flavors is currently the Registrant's
primary asset. E&Y is also the auditor for Mafco.
PART III
The information required by Part III, Items 10 through 13, of Form 10-K
is incorporated by reference from the Registrant's definitive proxy statement
for its 1997 annual meeting of stockholders, which is to be filed pursuant to
Regulation 14A not later than April 30, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) (1 and 2) Financial statements and financial statement schedule. See
Index to Consolidated Financial Statements and Schedule which appears
on page F-1 herein.
All other schedules for which provision is made in the applicable
accounting regulation of the SEC are not required under the related
instructions or are inapplicable and therefore have been omitted.
(3) Exhibits
EXHIBIT NO. DESCRIPTION
2.1 Master Asset Purchase Agreement, dated as of January
15, 1996, as amended, by and among the Company, Pneumo
Abex and Parker Hannifin, without exhibits and
schedules (incorporated by reference to Exhibit 2.1 to
PCT's Form 10-K dated December 31, 1995).
2.2 Closing Agreement, dated as of April 15, 1996, by and
among the Company, Pneumo Abex and Parker Hannifin
(incorporated by reference to Exhibit 2.2 to PCT's Form
8-K dated April 30, 1996).
16
<PAGE>
2.3 Stock and VSR Purchase Agreement, dated as of October
23, 1996, by and among Mafco, the Company and PCT
International Holdings Inc. (incorporated by reference
from Exhibit 7 of Mafco's Schedule 13D, dated October
25, 1996, filed with respect to PCT).
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to PCT's Form
8-K dated April 30, 1996).
3.2 By-Laws of the Company as currently in effect
(incorporated by reference to Exhibit 3.2 to PCT's
Form 10-K dated December 31, 1995).
4.1 Form of Indenture, together with form of Senior
Subordinated Note (incorporated by reference to
Amendment No. 1 to Mafco Worldwide's Registration
Statement on Form S-1 (33-48904) (the "1992 S-1")).
4.2* First Supplemental Indenture, dated as of November 25,
1996, between Pneumo Abex Corporation and First Trust
of New York, National Association, pursuant to the
Indenture dated as of November 12, 1992 between Mafco
Worldwide Corporation and First Trust of New York,
National Association (successor to Security Pacific
National Trust Company (New York), as trustee).
4.3 Form of Purchase Agreement among Mafco Worldwide,
Flavors Holdings Inc. and the institutional sellers
party thereto (incorporated by reference to Amendment
No. 2 to the 1992 S-1).
4.4 Credit Agreement dated as of June 29, 1994 among Mafco
Worldwide, the Banks (as defined in the Credit
Agreement) and The Chase Manhattan Bank, N.A., as agent
(incorporated by reference to Mafco Worldwide's Form
10-Q filed August 16, 1994).
4.5* Consent Number 5 and First Amendment, dated as of
November 11, 1996, to the Credit Agreement dated as of
June 29, 1994 among Mafco Worldwide, the Banks (as
defined in the Credit Agreement) and The Chase
Manhattan Bank, N.A., as agent.
4.6* Consent Number 6 and Second Amendment, dated as of
December 12, 1996, to the Credit Agreement, dated as of
June 29, 1994 among Pneumo Abex Corporation, the Banks
(as defined in the Credit Agreement) and The Chase
Manhattan Bank, as agent.
4.7* Third Amendment dated as of February 5, 1997, to the
Credit Agreement, dated as of June 29, 1994 among
Pneumo Abex Corporation, the Banks (as defined in the
Credit Agreement) and The Chase Manhattan Bank, as
agent.
4.8* Assumption Agreement, dated as of November 25, 1996,
made by Pneumo Abex Corporation in favor of the Banks
(as defined in the Assumption Agreement) and The Chase
Manhattan Bank (successor by merger to The Chase
Manhattan Bank, N.A.) as agent.
17
<PAGE>
10.1 Transfer Agreement among the Company, MCG Intermediate
Holdings Inc., Pneumo Abex and PCT International
Holdings Inc. (incorporated by reference to Exhibit
10.1 to PCT's Current Report on Form 8-K dated June
28, 1995).
10.2 Tax Sharing Agreement between the Company and Mafco
(incorporated by reference to Exhibit 10.2 to PCT's
Form 10-K dated December 31, 1995).
10.3 Registration Rights Agreement between Mafco and the
Company (incorporated by reference to Exhibit 2 to the
Schedule 13D dated June 26, 1995 filed by Mafco
Holdings Inc., Mafco Consolidated Holdings Inc. and
Mafco in connection with the Company's capital stock).
10.4 Letter Agreement, dated as of June 26, 1995, between
the Company and Mafco (incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form
8-K dated June 28, 1995).
10.5 Letter Agreement, dated as of February 5, 1996,
between the Company and Mafco (incorporated by
reference to Exhibit 6 to Amendment No. 2 to Schedule
13D dated February 8, 1996 filed by Mafco Holdings
Inc., Mafco Consolidated Holdings Inc. and Mafco in
connection with the Company's capital stock).
10.6 Reimbursement Agreement, dated as of February 5, 1996,
among the Company, Mafco and Chemical Bank
(incorporated by reference to Exhibit 10.6 to PCT's
Form 10-K dated December 31, 1995).
10.7 Stock Purchase Agreement, dated April 28, 1988,
between Pneumo Abex and Whitman Corporation
(incorporated by reference to Exhibit 2.1 to Pneumo
Abex's Registration Statement on Form S-1, Commission
File No. 33-22725) as amended by an Amendment, dated
as of August 29, 1988, and a Second Amendment and
related Settlement Agreement, dated September 23, 1991
(incorporated by reference to exhibit 10.4 to Abex
Inc.'s Annual Report on Form 10-K for 1992).
10.8 Asset Purchase Agreement, dated as of May 15, 1993,
between Pneumo Abex and The BF Goodrich Company
(incorporated by reference to Exhibit 2.1 to Abex
Inc.'s Current Report on Form 8-K dated June 10,
1993).
10.9 Asset Purchase Agreement, dated as of November 21,
1994, by and between Pneumo Abex and Wagner Electric
Corporation (incorporated by reference to Exhibit 1 to
Abex Inc.'s Current Report on Form 8-K dated November
21, 1994).
10.10 Lease dated as of December 26, 1989, between
MacAndrews & Forbes Group, Inc. and Fulton Bottom
Associates, L.P., as amended on May
18
<PAGE>
14, 1990, and as further amended on October 15, 1991
(incorporated by reference to the 1992 S-1).
10.11 Contract dated as of May 31, 1994 between Mafco
Worldwide and the Licorice and Paper Employees
Association of Camden, N.J. (incorporated by reference
to Mafco Worldwide's Form 10-Q filed November 14,
1994).
10.12 Agreement dated January 1, 1994 between M.F. Neal &
Co. and Local Union No. 309T (incorporated by
reference to Mafco Worldwide's 1993 Form 10-K).
10.13 Form of Reimbursement Agreement between the Company
and Holdings (incorporated by reference to Amendment
No. 2 to the 1992 S-1).
10.14* Consent Number 1 and First Amendment, dated as of
November 25, 1996, to the Reimbursement Agreement,
dated as of February 5, 1996, among Pneumo Abex
Corporation (the "Account Party"), Mafco (the
"Guarantor") and The Chase Manhattan Bank as issuing
bank.
10.15 Form of License Agreement between Mafco Worldwide and
Holdings (incorporated by reference to Amendment No. 2
to the 1992 S-1).
10.16 Form of Lease to be dated March 31, 1993 between the
Company and H.W.R. Corporation (incorporated by
reference to Mafco Worldwide's 1992 Form 10-K).
10.17 Tax Sharing Agreement between Mafco Worldwide and
Mafco (incorporated by reference to Mafco Worldwide's
1995 Form 10-K).
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS
10.18 Power Control Technologies Inc. 1995 Stock Plan (the
"1995 Stock Plan") for employees of the Company and
employees of affiliated corporations (incorporated by
reference to Annex C to the Proxy Statement/Prospectus
included in the Company's Registration Statement on
Form S-1 (File No. 33-92186)).
10.19* Amendment to the 1995 Stock Plan
10.20 Amendment dated June 15, 1995 to Trust Agreement dated
as of July 1, 1992 between Pneumo Abex and Mellon with
respect to the 1992 Stock Trust for Former
Participants in the 1989 Stock Plan for Executive
Employees of the Henley Group and its Subsidiaries
(incorporated by reference to Exhibit 10.16 to PCT's
Form 10-K dated December 31, 1995).
10.21 Abex Inc. Executive Retirement and Savings Program as
amended and restated effective June 15, 1995
(incorporated by reference to Exhibit 10.17 to PCT's
Form 10-K dated December 31, 1995).
19
<PAGE>
10.22 Trust Agreement dated July 1, 1992 between MCG
Intermediate Holdings Inc. and Mellon, as amended and
restated effective as of June 15, 1995 (incorporated
by reference to Exhibit 10.18 to PCT's Form 10-K dated
December 31, 1995).
10.23 First Amendment, dated November 13, 1995, to Amended
and Restated Trust Agreement between MCG Intermediate
Holdings Inc. and Mellon (incorporated by reference to
Exhibit 10.19 to PCT's Form 10-K dated December 31,
1995).
10.24* Employment agreement, dated January 7, 1997, between
the Registrant and J. Eric Hanson.
10.25* The Company's 1997 Stock Option Plan.
10.26 Tobacco Products Group Performance Bonus Plan
(incorporated by reference to Exhibit 10.5 to Mafco's
Form 10-Q dated March 31, 1996).
11.0* Earnings Per Share
16.1 Letter on change in certifying accountant
(incorporated by reference to Exhibit 16.1 of Form
8-K/A of PCT filed on December 23, 1996).
21* List of subsidiaries
24* Powers of attorney executed by Messrs. Perelman,
Durnan, Folz, Gittis, Hanson, Liebman, Meister, Roche
and Slovin.
27* Financial data schedule
*Filed herein.
(b) Reports on Form 8-K:
Form 8-K filed on November 27, 1996 (Items 2, 4 and 7).
Form 8-K/A filed on December 23, 1996 (Item 4).
20
<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.
POWER CONTROL TECHNOLOGIES INC.
Dated: March 21, 1997 By: Theo W. Folz*
-----------------------------------
Theo W. Folz
President and Chief Executive Officer
Dated: March 21, 1997 By: /s/Irwin Engelman
------------------------------------
Irwin Engelman
Executive Vice President and
Chief Financial Officer
Dated: March 21, 1997 By: /s/Laurence Winoker
-------------------------------------
Laurence Winoker
Vice President and Controller
(Chief Accounting Officer)
21
<PAGE>
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 of the dates indicated.
SIGNATURE TITLE DATE
Title Date
Ronald O. Perelman * Director March 21, 1997
- --------------------------------------
Ronald O. Perelman
Jaymie A. Durnan * Director March 21, 1997
- --------------------------------------
Jaymie A. Durnan
Theo W. Folz * Director March 21, 1997
- --------------------------------------
Theo W. Folz
Howard Gittis * Director March 21, 1997
- --------------------------------------
Howard Gittis
J. Eric Hanson * Director March 21, 1997
- --------------------------------------
J. Eric Hanson
Lance A. Liebman * Director March 21, 1997
- --------------------------------------
Lance A. Liebman
Paul M. Meister * Director March 21, 1997
- --------------------------------------
Paul M. Meister
James G. Roche* Director March 21, 1997
- --------------------------------------
James G. Roche
Bruce Slovin * Director March 21, 1997
- --------------------------------------
Bruce Slovin
* The undersigned by signing his name hereto does hereby execute this Form
10-K pursuant to powers of attorney filed as exhibits to this Form 10-K.
Dated: March 21, 1997 By: /s/ Joram Salig
-------------------------------------
Joram Salig
Attorney-in-Fact
22
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
ITEM 8, ITEM 14 (A)(1) AND (2) AND (D)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1996
The following consolidated financial statements of Power Control
Technologies Inc. are included in Item 8:
As of December 31, 1996 and 1995 and for the years ended December 31,
1996, 1995 and 1994.
Pages
Reports of Independent Auditors........................................ F-2
Consolidated Balance Sheets............................................ F-4
Consolidated Statements of Income...................................... F-5
Consolidated Statements of Stockholders' Equity........................ F-6
Consolidated Statements of Cash Flows.................................. F-7
Notes to Consolidated Financial Statements............................. F-8
The following financial statement schedule of Power Control
Technologies Inc. is included in Item 14(d):
Schedule I - Condensed Financial Information of Registrant............. F-25
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Power Control Technologies Inc.
We have audited the accompanying consolidated balance sheet of Power Control
Technologies Inc. and subsidiaries as of December 31, 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended. Our audit also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Power Control Technologies Inc. and subsidiaries at December 31, 1996, and
the consolidated results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Enrst & Young LLP
New York, New York
February 11, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
Power Control Technologies Inc.
We have audited the accompanying consolidated balance sheet of Power Control
Technologies Inc. and subsidiaries as of December 31, 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1995. These financial
statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Power Control Technologies Inc. and subsidiaries at December 31, 1995, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the material set forth therein.
Arthur Andersen LLP
Detroit, Michigan,
March 11, 1996, except for the first
paragraph of Note 4, as to which
the date is February 3, 1997.
F-3
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5.7 $ -
Trade accounts receivable, net of allowance of $0.1 11.3 -
Inventories 46.0 -
Net assets held for sale 0.8 38.8
Prepaid expenses and other 2.5 1.2
------------ -----------
Total current assets 66.3 40.0
Property, plant and equipment, net 26.3 -
Deferred tax asset, net 38.4 -
Intangibles assets related to business acquired, net 172.7 -
Other assets 14.4 11.3
------------ -----------
$ 318.1 $ 51.3
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 5.2 $ -
Accrued interest 1.3 -
Accrued compensation and benefits 3.1 -
Taxes payable 1.4 -
Deferred cash payments due to Mafco 7.2 -
Other accrued expenses 5.5 4.4
------------ -----------
Total current liabilities 23.7 4.4
Long-term debt 100.1 -
Other liabilities 8.3 4.4
Redeemable preferred stock 20.0 20.0
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01; 250,000,000 shares authorized;
20,656,502 shares issued and outstanding in 1996 and 1995 0.2 0.2
Additional paid-in capital 26.7 26.7
Retained earnings (accumulated deficit) 139.3 (4.4)
Currency translation adjustment (0.2) -
------------ -----------
Total stockholders' equity 166.0 22.5
------------ -----------
$ 318.1 $ 51.3
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Net sales $ 9.5 $ - $ -
Cost of sales (6.6) - -
----------- ----------- ------------
Gross profit 2.9 - -
Selling, general and administrative expenses (0.3) (10.5) (22.3)
----------- ----------- ------------
Operating profit (loss) 2.6 (10.5) (22.3)
Interest expense (0.9) (0.4) (9.7)
Interest, investment and other income, net 8.9 6.9 1.9
----------- ----------- ------------
Income (loss) from continuing operations before income taxes 10.6 (4.0) (30.1)
Provision for income taxes (0.2) - -
----------- ----------- ------------
Income (loss) from continuing operations 10.4 (4.0) (30.1)
Discontinued operations
Income from operations of discontinued aerospace business, net of tax 4.4 16.9 7.7
Income from operations of discontinued industrial products business - - 30.2
Gain on sale of discontinued aerospace business 153.7 - -
Gain on sale of discontinued industrial products businesses - - 128.4
----------- ----------- ------------
Income from discontinued operations, net of taxes 158.1 16.9 166.3
Income before extraordinary loss 168.5 12.9 136.2
Extraordinary loss - (1.6) (4.8)
----------- ----------- ------------
Net income 168.5 11.3 131.4
----------- ----------- ------------
Preferred stock dividend (1.6) (0.9) -
----------- ----------- ------------
Net income available to common stockholders $ 166.9 $ 10.4 $ 131.4
=========== =========== ============
Income (loss) per common share and common share equivalent:
Continuing operations $ 0.43 $ (0.24) $ (1.52)
Discontinued operations 7.64 0.83 8.41
----------- ----------- ------------
8.07 0.59 6.89
Extraordinary loss - (0.08) (0.24)
----------- ----------- ------------
Net income $ 8.07 $ 0.51 $ 6.65
=========== =========== ============
Fully diluted income (loss) per common share:
Continuing operations $ 0.45 $ (0.19) $ (1.52)
Discontinued operations 6.82 0.78 8.41
----------- ----------- ------------
7.27 0.59 6.89
Extraordinary loss - (0.08) (0.24)
----------- ----------- ------------
Net income $ 7.27 $ 0.51 $ 6.65
=========== =========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS/ CURRENCY
COMMON PAID-IN (ACCUMULATED TRANSLATION
STOCK CAPITAL DEFICIT) ADJUSTMENT TOTAL
------------- -------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 0.2 $ 116.8 $ (146.2) $ (29.2)
Net income 131.4 131.4
------------- -------------- --------------- --------------- ----------------
Balance, December 31, 1994 0.2 116.8 (14.8) - 102.2
Transfer of assets, liabilities and
issuance of redeemable preferred stock (90.1) (90.1)
Net income 11.3 11.3
Preferred dividend (0.9) (0.9)
------------- -------------- --------------- --------------- ----------------
Balance, December 31, 1995 0.2 26.7 (4.4) - 22.5
Net income 168.5 168.5
Preferred dividend (1.6) (1.6)
Currency translation adjustment (0.2) (0.2)
Distribution of VSRs (23.2) (23.2)
------------- -------------- --------------- --------------- ----------------
Balance, December 31, 1996 $ 0.2 $ 26.7 $ 139.3 $ (0.2) $ 166.0
============= ============== =============== =============== ================
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 168.5 $ 11.3 $ 131.4
Adjustments to reconcile net income to total cash provided by (used in)
operating activities:
Income from operations of discontinued businesses (4.4) (16.9) (37.9)
Gain on sale of discontinued businesses (153.7) - (128.4)
Extraordinary loss - 1.6 4.8
Depreciation and amortization 0.5 1.1 1.0
Changes in assets and liabilities, net of assets and liabilities
transferred, sold or acquired:
Decrease in trade accounts receivable 0.9 - -
Decrease in net assets held for sale - 5.2 19.8
Increase in inventories (0.1) - -
Increase (decrease) in trade accounts payable and accrued expenses 0.9 (25.1) (23.5)
Other, net (4.4) 6.0 (3.2)
------------ ----------- -----------
Cash provided by (used in) operating activities 8.2 (16.8) (36.0)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of discontinued operations, net 196.8 - 247.2
Capital expenditures (0.2) - -
Acquisition of Flavors, net of cash acquired (178.4) - -
Transfer of cash in Abex Merger - (181.2) -
------------ ----------- -----------
Cash provided by (used in) investing activities 18.2 (181.2) 247.2
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowings (25.1) (31.1) (81.6)
Proceeds from revolving debt 7.3 - -
Preferred dividends (1.6) (0.9) -
Other, net (1.3) - -
------------ ----------- -----------
Cash used in financing activities (20.7) (32.0) (81.6)
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 5.7 (230.0) 129.6
Cash and cash equivalents at beginning of year - 230.0 100.4
------------ ----------- -----------
Cash and cash equivalents at end of year $ 5.7 $ - $ 230.0
============ =========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid $ 0.3 $ 4.0 $ 16.0
Taxes paid 2.7 2.3 24.9
</TABLE>
See Notes to Consolidated Financial Statemetns.
F-7
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1. BACKGROUND AND BASIS OF PRESENTATION
Power Control Technologies Inc. ("PCT" or the "Company") was
incorporated in Delaware on June 1, 1988 and is a holding company which
conducts its operations through its wholly-owned subsidiary Pneumo Abex
Corporation ("Pneumo Abex").
On July 16, 1992, Abex Inc. ("Abex") was spun off (the "Abex
Distribution") from the Henley Group Inc. ("Henley Group"). Following the Abex
Distribution, Abex, through PCT, sold three of its five operating divisions and
combined the two others to form Abex NWL Aerospace Division ("Aerospace").
Prior to July 16, 1992, PCT was an indirect wholly-owned subsidiary of Henley
Group.
PCT has been a public company since June 15, 1995 when shares of its
common Stock, par value $.01 per share (the "PCT Common Stock"), were publicly
distributed (the "PCT Distribution") to existing stockholders of Abex, PCT's
former parent, in connection with the merger (the "Abex Merger") of Abex and a
wholly-owned subsidiary of Mafco Holdings Inc. ("Holdings") and the related
transfer (the "Transfer") to a subsidiary of Mafco Consolidated Group Inc.
("Mafco") of substantially all of Abex's consolidated assets and liabilities,
other than those relating to Aerospace. The assets of Aerospace were
subsequently sold (the "Aerospace Sale") in April 1996 (see Note 4).
On June 15, 1995, the Company transferred cash and other assets and
liabilities to Mafco. The assets and liabilities transferred were as follows:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable, net $ 3.3
Working capital items, net 1.6
Property and equipment, net 13.9
Other assets and liabilities, net (79.3)
Accounts payable (0.2)
Accrued liabilities (52.1)
Dividend (68.4)
---------
Cash transferred $(181.2)
=========
</TABLE>
In addition to the transfer of cash and other assets and liabilities,
the Company issued $20.0 par value of 8% cumulative, redeemable convertible
preferred stock (the "Preferred Stock") to Mafco (see Note 9).
On November 25, 1996, Mafco and PCT consummated the transactions
contemplated by a Stock and VSR Purchase Agreement (the "Purchase Agreement").
Pursuant to the Purchase Agreement, among other things, all the issued and
outstanding shares (the "Shares") of capital stock of Flavors Holdings Inc.
("Flavors"), a wholly-owned subsidiary of Mafco were acquired (see Note 3).
Flavors produces a variety of licorice products from licorice root,
licorice extract produced by others and certain other flavor ingredients at
its facilities in Camden, New Jersey and Gardanne, France. Approximately 72%
of Flavors' licorice sales are to the worldwide tobacco industry for use as
F-8
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
flavoring and moistening agents in the manufacture of American blend
cigarettes as well as other tobacco products (moist snuff, chewing tobacco and
pipe tobacco). While licorice extract represents a small percentage of the
total cost of manufacturing American blend cigarettes and other tobacco
products, the particular formulation and quantity used by each brand is an
important element in the brand's flavor. Flavors also sells licorice extract
to worldwide confectioners, food processors and pharmaceutical manufacturers
for use as flavoring or masking agents. In addition, Flavors sells licorice
root residue as a garden mulch under the name Right Dress. Flavors
manufactures and sells other non-licorice products which include natural
flavors, spices and botanicals that are used as flavoring ingredients in food
and tobacco products.
For financial reporting purposes, PCT is considered the successor to
Abex Inc.; therefore, financial information presented for periods prior to
June 15, 1995 represent Abex Inc. results. The historical financial statements
prior to June 15 include in continuing operations expenses related to Abex
Inc.'s former corporate office and other income and expenses related to assets
and liabilities transferred to Mafco. As a result of the sales of Abex
Friction Products ("AFP") and Jetway Systems ("Jetway") in 1994 and the
Aerospace Sale on April 15, 1996 (see Note 4), the Company has classified the
results of the industrial products and aerospace segments as discontinued
operations for all periods presented. From November 25, 1996, the Company's
financial statements reflect the operations of Flavors.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the
Company and its subsidiaries after elimination of all material intercompany
accounts and transactions.
USE OF ESTIMATES:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION:
Sales are recorded when title passes to customers.
CASH EQUIVALENTS:
Cash equivalents with maturities of 90 days or less (primarily short
term money market funds) are carried at cost which approximates market.
F-9
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
INVENTORIES:
Inventories are stated at the lower of cost or market value. Cost is
determined principally by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of such assets ranging
from 4 to 20 years. Leasehold improvements are amortized over their estimated
useful lives or the terms of the leases, whichever is shorter. Repairs and
maintenance are charged to operations as incurred, and expenditures for
additions and improvements are capitalized.
INTANGIBLE ASSETS RELATED TO BUSINESSES ACQUIRED:
Intangible assets, including goodwill and product formulations, relate
to the Flavors Acquisition and are being amortized on a straight-line basis
over 40 years. Accumulated amortization aggregated $0.4 at December 31, 1996.
The Company's accounting policy regarding the assessment of the recoverability
of the carrying value of goodwill is to review the carrying value of goodwill
if the facts and circumstances suggest that they may be impaired. If this
review indicates that goodwill will not be recoverable, as determined based on
the undiscounted future cash flows of the Company, the carrying value of
goodwill will be reduced to its estimated fair value.
INCOME (LOSS) PER COMMON SHARE:
Income (loss) per common share has been computed based on 20.7 million,
20.3 million and 19.8 million weighted average shares outstanding for 1996,
1995 and 1994, respectively. Fully diluted earnings per share, which assumes
conversion of the Preferred Stock since June 15, 1995, has been computed based
on 23.2 million, 21.6 million and 19.8 million weighted average shares
outstanding for 1996, 1995 and 1994, respectively.
INCOME TAXES:
The Company computes income taxes under the liability method. Under the
liability method, deferred income taxes are generally determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Net deferred tax assets are recorded when
it is more likely than not that such tax benefits will be realized.
PENSION PLANS:
The Company has pension plans which cover certain current and former
employees who meet eligibility requirements. Benefits are based on years of
service and, in some cases, the employee's compensation. The Company's policy
is to contribute annually the minimum amount required pursuant
F-10
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
to the Employee Retirement Income Security Act. Plan assets are principally
invested in equity and fixed income securities. The Company also maintains a
401(k) plan for its non-union employees. Subsidiaries outside the United
States have retirement plans under which funds are deposited with trustees.
RESEARCH AND DEVELOPMENT:
Research and development expenditures are attributable to Flavors and
expensed as incurred. Such expense was not significant for the period since
the Flavors Acquisition.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of foreign operations are translated into U.S.
dollars at the rates of exchange in effect at the balance sheet date. Income
and expense items are generally translated at the average exchange rates
prevailing during the period presented. Gains and losses resulting from
foreign currency transactions are included in the results of operations and
those resulting from translation of financial statements are recorded as a
component of stockholders' equity.
IMPAIRMENT OF LONG-LIVED ASSETS:
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. SFAS 121 is effective for financial
statements for fiscal years beginning after December 15, 1995, and therefore
the Company adopted SFAS 121 in the first quarter of 1996. The effect of the
adoption had no impact on the Company's results of operations.
STOCK-BASED COMPENSATION:
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123, encourages, but does not
require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for
stock-based compensation plans using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related Interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock. (See Note 10).
F-11
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
3. FLAVORS ACQUISITION
On November 25, 1996, Mafco and PCT consummated the transactions
contemplated by the Purchase Agreement, by and among Mafco, PCT and PCT
International Holdings Inc. ("Purchaser"), a Delaware corporation and
wholly-owned subsidiary of PCT. Pursuant to the Purchase Agreement, Purchaser
acquired from Mafco (the "Flavors Acquisition"), all the shares of Flavors and
23,156,502 Value Support Rights (each a "VSR", and collectively, the "VSRs")
issued pursuant to a Value Support Rights Agreement (the "VSR Agreement"),
dated November 25, 1996 between Mafco and American Stock Transfer & Trust
Company, as trustee.
In consideration for the Shares and VSRs, Purchaser paid Mafco cash in
the amount of $180.0. In addition, Purchaser will pay Mafco deferred cash
payments of $3.7 on June 30, 1997 and $3.5 on December 31, 1997. The source of
funds for such payments was, and is anticipated to be, available cash.
Each of the Purchase Agreement and VSR Agreement were unanimously
approved by the Boards of Directors of Mafco and PCT and, in the case of PCT,
by a Special Committee of independent directors formed for the purpose of
considering the transaction. Mafco owns approximately 28.8% of the outstanding
shares of PCT Common Stock and all of the Preferred Stock with an aggregate
liquidation preference of $20.0.
Immediately following the Flavors Acquisition, Mafco Worldwide, a
wholly-owned subsidiary of Flavors, through a series of transactions merged
with and into Pneumo Abex, with Pneumo Abex being the surviving corporation
and Pneumo Abex becoming a wholly-owned subsidiary of Flavors.
The Flavors Acquisition was accounted for using the purchase method of
accounting. The allocation of the purchase price to assets and liabilities
based on their estimated respective fair values at November 25, 1996 is
subject to finalization. The purchase price and expenses associated with the
acquisition exceeded the fair value of Flavors' net assets by $96.1 and has
been assigned to goodwill, which is being amortized over forty years on the
straight-line basis. The fair values of the assets and liabilities acquired
are summarized below:
<TABLE>
<CAPTION>
<S> <C>
Current assets $ 63.3
Noncurrent assets 261.2
Current liabilities (22.8)
Noncurrent liabilities (112.5)
---------
$ 189.2
=========
</TABLE>
The following unaudited pro forma consolidated financial information
gives effect to the Flavors Acquisition, the Abex Merger and Transfer and the
Aerospace Sale as if such transactions occurred on January 1, 1995. These pro
forma results include certain adjustments, primarily increased depreciation
and amortization and decreased interest and tax expense, and are not
necessarily indicative of what the results would have been had the acquisition
occurred on January 1, 1995.
F-12
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Net sales $103.4 $103.2
Income from continuing operations 20.9 13.8
Net income 20.9 13.8
Income per share 0.93 0.59
Fully diluted income per share 0.90 0.60
</TABLE>
4. DISCONTINUED OPERATIONS
On April 15, 1996, the Company consummated the Aerospace Sale, pursuant
to which it sold to Parker Hannifin Corporation ("Parker Hannifin") its
Aerospace operations including substantially all of its assets for aggregate
cash consideration of $201.1, before transaction costs of approximately $4.3.
As a result of the Aerospace Sale, the Company has classified the results of
operations of the aerospace segment as discontinued for all periods presented.
The Company recorded a gain of $153.7 related to this sale, net of
transaction costs. In connection with the Aerospace Sale, Parker Hannifin, the
buyer, assumed the operating liabilities of Aerospace, including the existing
debt of the Company.
On December 30, 1994, the Company sold substantially all of the
operating assets of AFP to Cooper Industries, Inc. for approximately $207.4
plus the assumption of liabilities. The gain of approximately $114.5 has been
recorded as discontinued operations of the industrial products business for
1994.
On May 27, 1994, the Company sold to FMC Corporation the assets of
Jetway for cash proceeds of approximately $39.8 plus the assumption of certain
related liabilities. The gain on the sale of Jetway's operations of $13.9,
which includes $0.8 of income from Jetway's operations during the phaseout
period from April 1, 1994 to May 27, 1994, has been recorded as discontinued
operations of the industrial products business for 1994.
5. INVENTORIES
Inventories consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Raw materials $32.2
Work-in-progress 0.4
Finished goods 13.4
-------
$46.0
=======
</TABLE>
F-13
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1996:
<TABLE>
<CAPTION>
<S> <C>
Land $ 1.7
Buildings 7.5
Machinery and equipment 16.9
Construction-in-progress 0.4
-------
26.5
Accumulated depreciation (0.2)
-------
$26.3
=======
</TABLE>
Depreciation expense was $0.2 in 1996.
7. INCOME TAXES
Information pertaining to the Company's income (loss) from continuing
operations before income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- --------- ---------
<S> <C> <C> <C>
Income (loss) from continuing operations before income
taxes:
Domestic $10.2 $(4.0) $(30.1)
Foreign 0.4 -- --
------- --------- ---------
$10.6 $(4.0) $(30.1)
======= ========= =========
</TABLE>
The Company's tax provision on income from continuing operations for
1996 includes a provision for current foreign income taxes of $0.1 and current
state and local income taxes of $0.1. The tax provision for 1996 also includes
a deferred tax benefit realized on the tax loss associated with discontinued
operations and a tax benefit resulting from the reduction of the valuation
allowance on net deferred tax assets offset by a deferred tax provision. The
Company did not record a benefit on the losses from continuing operations in
1995 and 1994 as it was not assured that it would be able to realize benefit
for such losses in the future.
There were no income taxes provided in connection with the Aerospace
Sale as the tax bases of the assets and liabilities sold exceeded the net
proceeds and resulted in a tax loss.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows:
F-14
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued expenses and other liabilities $ 2.1 $ 3.1
Debt 4.6 --
Net operating loss carryforwards 67.9 60.2
Capital loss carryforwards 7.0 --
Net assets held for sale -- 36.7
-------- --------
Total deferred tax asset 81.6 100.0
Valuation allowance (38.2) (95.6)
-------- --------
Total deferred tax asset net of valuation allowance 43.4 4.4
Deferred tax liabilities:
Property, plant and equipment 0.9 --
Pension asset 5.1 4.0
Intangibles 0.7 --
Other 0.1 0.4
-------- --------
Total deferred tax liability 6.8 4.4
-------- --------
Net deferred tax asset $ 36.6 $ --
======== ========
</TABLE>
In connection with the Flavors Acquisition purchase price allocation,
the Company has reduced the valuation allowance on net deferred tax assets.
Based upon the historical results of Flavors projected for a period which
takes into consideration the current operating environment in the tobacco
industry, the Company believes that it is more likely than not that it will
be able to utilize these benefits.
The effective tax rate on income from continuing operations before
income taxes varies from the current statutory federal income tax rate as
follows:
1996 1995 1994
--------- -------- --------
Statutory rate 35.0% (35.0%) (35.0%)
Non-deductible amortization 0.6 -- --
State and local taxes, net 0.6 -- --
(Decrease) increase in valuation (5.4) 35.0 35.0
allowance
Benefit of tax loss - Discontinued (28.9) -- --
Operations
========= ======== ========
1.9% -- % -- %
========= ======== ========
At December 31, 1996, the Company had available Federal net operating
loss carryforwards of approximately $194.0, which expires in years 2000
through 2011.
In order to protect the availability of the Company's net operating loss
carryforwards, the PCT charter prohibits, subject to certain exceptions,
transfers of PCT Common Stock until such date as fixed by the Board of
Directors of PCT to any person who owns, or after giving effect to such
transfer would own, at least 5% of the outstanding PCT Common Stock. The
Company has been advised by counsel that the transfer restriction in the PCT
charter is enforceable. The Company intends to take all
F-15
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
appropriate action to preserve the benefit of the restriction including,
if necessary, the institution of legal proceedings seeking enforcement.
In connection with the Abex Merger and the Transfer, Mafco and the
Company entered into a tax sharing agreement. Under the indemnification
provisions of the tax sharing agreement and with respect to periods ending on
or prior to June 15, 1995, Mafco will generally be required to pay any tax
liabilities of the Company, except for foreign income taxes related to the
Abex NWL Aerospace division.
The IRS is currently examining the returns for the years 1989, 1990 and
1991. The Company has been notified by the IRS that its 1994 and its short
period 1995 return will be examined. The amount of net operating loss
carryforwards available at December 31, 1996 could be affected by the outcome
of this examination.
8. AUTHORIZED CAPITAL STOCK
PCT's authorized capital stock consists of 250,000,000 shares of Common
stock, par value $0.01 per share, of which 20,656,502 shares were outstanding
at December 31, 1996 and 1995 and 250,020,000 shares of preferred stock, par
value $0.01 per share, 20,000 of which were outstanding at December 31, 1996
and 1995.
The PCT Common Stock is issuable in one or more series or classes, any
or all of which may have such voting powers, full or limited, or no voting
powers, and such designations, preferences and related participating, optional
or other special rights and qualifications, limitations or restrictions
thereof, are set forth in the Company's Certificate of Incorporation or any
amendment thereto, or in the resolution providing for the issuance of such
stock adopted by the Company's Board of Directors, which is expressly
authorized to set such terms for any such issue.
9. REDEEMABLE PREFERRED STOCK
In connection with the Abex Merger, as of June 15, 1995, the Company
issued $20 face amount of Preferred Stock. The Preferred Stock has a
liquidation value of $1,000 per share (the "Liquidation Value"), plus an
amount equal to all accrued and unpaid dividends to the date of final
distribution. Dividends on the Preferred Stock are cumulative and payable
quarterly in arrears at an amount per share equal to $20 per $1,000
Liquidation Value from and after June 16, 1995. All dividends are payable in
cash.
The Preferred Stock is non-voting, except as required by law and as
follows: (i) in the event PCT defaults on the equivalent of six quarterly
dividends, the PCT Board of Directors ("PCT Board") shall be increased by two,
and holders of the Preferred Stock shall have the exclusive right to elect two
directors to the PCT Board, such right to remain in effect until all
accumulated dividends have been paid in full and dividends have been paid
regularly for at least a year; (ii) in the event PCT defaults on its mandatory
redemption obligation, the PCT Board shall be increased by two, and holders of
the Preferred Stock (in addition to all other rights) shall have the exclusive
right to elect two directors to the PCT Board, such right to remain in effect
until such default is cured; and (iii) the affirmative vote
F-16
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
of holders of the Preferred Stock representing at least 662/3% of the
aggregate voting power as a separate class shall be required for (x) the
authorization of any preferred stock having a preference as to dividends or in
liquidation over the Preferred Stock, and (y) the adoption of any amendment to
the PCT Charter if such amendment materially affects any of the rights,
preferences or privileges of the holders of the Preferred Stock.
The Preferred Stock is convertible, at the option of the holder, at any
time after 90 days from June 16, 1995, into shares of PCT Common Stock at a
rate of 125 shares of PCT Common Stock for each share of Preferred Stock,
subject to adjustment (as so adjusted, the "Common Stock Conversion Rate").
The Common Stock Conversion Rate is subject to appropriate antidilution
adjustment in certain situations including payment of dividends or
distributions in shares of PCT Common Stock, any subdivision, reclassification
or combination of shares of PCT Common Stock, or certain rights offerings and
similar issuances for consideration valued at less than the market value of
the PCT Common Stock.
PCT, at its sole option at any time after 90 days from June 15, 1995,
may redeem the Preferred Stock for an amount with respect to each share of
Preferred Stock equal to (i) the sum of the Liquidation Value thereof and all
accrued and unpaid dividends thereon to the redemption date plus (ii) an
amount equal to interest on the amount determined in clause (i) at 8% per
annum, compounded on a quarterly basis, from the date the redemption amount is
otherwise due and payable (without regard to whether PCT may legally redeem
such shares) to the date the redemption amount is actually paid. The Preferred
Stock is redeemable at the option of the holder of the Preferred Stock in the
event of a Change of Control, as defined.
10. STOCK AND OTHER PLANS
PCT established a stock plan during 1995 (the "Stock Plan") which
provided for the grant of awards covering up to 1,000,000 shares of PCT Common
Stock, which would, if used in full, represent approximately 5% of the
outstanding PCT Common Stock of the Company subject to adjustment in the event
of stock dividends, split-ups, recapitalization and similar transactions.
During 1995, the Compensation Committee granted non-statutory stock
options (NSO's) covering 590,000 shares at a price of $6.25 per share which
equaled the market price of the underlying stock on the date of grant and as a
result, no compensation cost was recognized. None of the options were
exercised and in connection with the Aerospace Sale in 1996, all outstanding
options under the Stock Plan were canceled.
During 1994 and 1995, the Company recognized $3.4 and $0.9
respectively, of compensation expense related to the previous Abex Inc. stock
plan. In connection with the Abex Merger, 1,490,000 stock appreciation rights
and 20,000 restricted units held by former Abex employees and directors were
converted into 898,590 shares of PCT Common Stock and the plans under which
such shares were issued were terminated.
The pro forma impact of accounting for the stock options under the fair
value method prescribed by FAS 123 was not material to net income and income
per share.
F-17
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
11. PENSION PLANS
Certain current and former employees are covered under various
retirement plans. Plans covering salaried employees generally provide pension
benefits based on years of service and compensation. Plans covering hourly
employees and union members generally provide stated benefits for each year of
credited service. Plan assets are invested primarily in common stocks, mutual
funds, fixed income securities and cash equivalents. The Company's funding
policy is to contribute annually the statutory required minimum amount as
actuarially determined.
The following table reconciles the funded status of the Company's
significant pension plans from continuing operations as of the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation includes vested benefits of $119.2 and
$111.0 $ 119.4 $ 111.0
Plan assets at fair value $ 150.3 $ 131.5
Less: Projected benefit obligation for service rendered to date (121.1) (111.0)
--------- ---------
Plan assets in excess of projected benefit obligation 29.2 20.5
Unrecognized net gain (15.0) (9.2)
--------- ---------
Net pension asset $ 14.2 $ 11.3
========= =========
</TABLE>
The Company has an unfunded supplemental benefit plan to provide
salaried employees with retirement benefits which were limited by the
enactment of OBRA 93. In addition, the Company has an unfunded benefit plan
which provides benefits to certain former employees of the Company. The
projected benefit obligation, which is totally vested and included in other
liabilities, was $1.5 at December 31, 1996.
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.5% as of December 31,
1996 and 1995. The rate of increase in future compensation levels reflected in
the determination of the Company's salaried plans was 4.5%-5% as of December
31, 1996 and 4% as of December 31, 1995. The expected long-term rate of return
on assets was 8%-9% for the non-union plans for 1996, 9% in 1995 and 1994 and
9% for the union pension plans for 1996.
Plan assets and liabilities were primarily measured on October 31 each
year.
Pension obligations accrued at the date of the sale of AFP remained with
the plan. There are no future benefit accruals for any employee of AFP. The
Company recognized curtailment expense in accordance with Statement of
Financial Accounting Standards No. 88 "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits" ("FAS 88") of $1.2 in 1994 related to the AFP sale which is included
in the gain on sale of discontinued industrial products businesses. In
connection with the Abex Merger and the Transfer, the Company transferred
pension plans with a balance sheet asset value of $39.1 to Mafco at June 15,
1995. In connection with the sale of Aerospace, the Company
F-18
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
transferred $70.6 in plan assets to Parker Hannifin and recognized curtailment
gain in accordance with FAS 88 of $4.5 in 1996 which is included in the gain
on sale of discontinued aerospace business.
Net periodic pension (income) expense included in selling, general and
administration expenses consisted of the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost--benefits earned during the
period $ 0.3 $ -- $ 1.3
Interest cost on projected benefit obligation 8.8 8.1 8.9
Actual gain on plan assets (23.1) (20.2) (10.5)
Net amortization and deferrals 11.3 10.4 0.4
-------- -------- --------
Net pension (income) expense $ (2.7) $ (1.7) $ 0.1
======== ======== ========
</TABLE>
12. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Revolving Credit Loans $ 7.3
11-7/8% Senior Subordinated Notes Due 2002 92.8
-------
$100.1
=======
</TABLE>
In connection with the Flavors Acquisition, the Company assumed debt
under a term and revolving credit facility (together the "Senior Credit")
totaling $25.1 and 11 7/8% Senior Subordinated Notes due 2002 (the "Senior
Notes") with a principal value of $85.0 and fair value of $92.8.
The term facility loans were repaid in full on December 31, 1996. The
revolving credit facility is payable in full by June 30, 1999 and there are no
scheduled commitment reductions. In February 1997, the Senior Credit was
amended to reduce the total commitment under the revolving credit facility to
$12.5 from $20.0 and to lower the interest rates. At December 31, 1996, $7.3
was borrowed under the revolving credit facility and $2.3 was reserved for
lender guarantees on outstanding letters of credit. The Senior Credit, as
amended in February 1997, permits Pneumo Abex to choose between various
interest rate options and to specify the interest rate period to which the
interest rate options are to apply, subject to certain parameters. Borrowing
options available are (i) the Base Rate Loans (as defined) and (ii) Eurodollar
Loans (as defined) plus a borrowing margin of 1.0%. The Senior Credit provides
for a commitment fee of one quarter of one percent per annum on the unused
Revolving Credit Loans. Obligations under the Senior Credit are secured by
pledges of substantially all of Pneumo Abex's domestic assets. The Senior
Credit contains various restrictive covenants which include, among other
things, limitations on indebtedness and liens, minimum interest coverage and
fixed charge coverage ratios, operating cash flow maintenance and capital
expenditure limits. The interest rate charged on the Senior Credit at December
31, 1996 was 9.25%.
F-19
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
The Senior Subordinated Notes, which were issued by Mafco Worldwide in
November 1992, mature on November 15, 2002, and are not subject to redemption
through the operation of a sinking fund. The Senior Subordinated Notes are
subject to redemption at any time after November 15, 1997, at the option of
Pneumo Abex, in whole or in part, at redemption prices (expressed as
percentages of the principal amount) for the 12 month period beginning each
November 15: 1997-105.95%; 1998-103.96%; 1999-101.98% and 100% thereafter.
Interest is payable semiannually in May and November. The Indenture relating
to the Senior Subordinated Notes contains various restrictive covenants, which
include restrictions on the incurrence of additional debt, payments of
dividends and transactions with affiliates. In addition, upon the occurrence
of a change in control whereby any person (as defined in the Indenture)
acquires directly or indirectly more than 35% of the total voting power of all
classes of the voting stock of Pneumo Abex, each holder of the Senior
Subordinated Notes has the right to require Pneumo Abex subject to certain
restrictions in the Senior Credit, to repurchase the Senior Subordinated Notes
at 101% of face value. The Senior Subordinated Notes are subordinate in right
of payment to the existing Senior Credit and all future senior indebtedness of
Pneumo Abex.
Pneumo Abex's French subsidiary has an agreement renewable annually
with a local bank whereby it may borrow up to six million French francs
(approximately $1.2 at December 31, 1996) for working capital purposes. At
December 31, 1996, no amounts were borrowed.
The 1994 and 1995 extraordinary charges of $4.8 and $1.6, respectively,
relate to premiums on debt retired by the Company prior to the Abex Merger.
13. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of trade accounts receivable. The
Company's customers are geographically dispersed, but are concentrated in the
tobacco industry. Even though seven of the Company's ten largest customers are
in the tobacco industry and accounted for approximately 58% of pro forma net
revenues in 1996, Mafco Worldwide historically has had no material losses on
its trade receivables from customers in the tobacco industry. Probable bad
debt losses have been provided for in the allowance for doubtful accounts.
From time to time, the Company enters into forward exchange contracts to
hedge certain receivables and firm sales commitments denominated in foreign
currencies. The effects of movements in currency exchange rates on these
instruments are recognized when the related operating revenue is recognized.
Realized gains and losses on foreign currency contracts are included in the
underlying asset or liability being hedged and recognized in There were no
contracts outstanding at December 31, 1996.
The carrying amounts for cash and cash equivalents, trade accounts
receivable, accounts payable, accrued liabilities and long-term debt
approximate fair value.
F-20
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
14. RELATED PARTY TRANSACTIONS
Under the Transfer Agreement, PCT will be reimbursed by Mafco for
amounts spent in excess of $1.5 during each of the years 1995 (after June 15),
1996, 1997 and 1998 in connection with certain public company costs. The
amount spent for such costs in the 1996 and 1995 periods did not exceed $1.5;
therefore, no reimbursement was made.
On February 5, 1996, the Company, through Pneumo Abex, entered into a
Reimbursement Agreement with Chemical Bank and Mafco. The Reimbursement
Agreement provides for letters of credit totaling $20.8 covering certain
environmental issues, not related to the business of PCT. In connection with
the Transfer, Mafco has agreed to indemnify PCT for these contingent
liabilities, which are generally paid by third party indemnitors and insurers,
including the cost of the letters of credit.
15. COMMITMENTS AND CONTINGENCIES
Future minimum rental commitments for operating leases with
noncancelable terms in excess of one year from December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $0.5
1998 0.3
1999 0.2
2000 0.2
2001 and thereafter 0.1
------
$1.3
======
</TABLE>
The Company had outstanding letters of credit totaling $2.3 at December
31, 1996. Restricted cash of $1.7 at December 31, 1996 included in other
assets reflects segregated cash held for the benefit of certain parties to
cover certain insurance obligations.
At December 31, 1996, the Company had obligations to purchase
approximately $14.8 of raw materials.
The Company is indemnified by third parties with respect to certain of
its contingent liabilities, such as certain environmental and asbestos
matters, as well as certain tax and other matters. In order to implement the
Transfer, a subsidiary of Abex and PCT and certain subsidiaries of PCT entered
into a Transfer Agreement. Under the Transfer Agreement, substantially all of
Abex's consolidated assets and liabilities, other than those relating to the
Aerospace Business, were transferred to a subsidiary of Mafco, with the
remainder being retained by PCT. The Transfer Agreement provides for
appropriate transfer, indemnification and tax sharing arrangements, in a
manner consistent with applicable law and existing contractual arrangements.
F-21
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
The Transfer Agreement requires such subsidiary of Mafco to undertake
certain administrative and funding obligations with respect to certain
asbestos claims and other liabilities retained by PCT. PCT will be obligated
to make reimbursement for the amounts so funded only when amounts are received
by PCT under related indemnification and insurance agreements. Such
administrative and funding obligations would be terminated as to asbestos
products claims in the case of a bankruptcy of Pneumo Abex or PCT or of
certain other events affecting the availability of coverage for such claims
from third party indemnitors and insurers. The Transfer Agreement further
provides for certain funding indemnification and cooperation arrangements
between PCT and such subsidiary in respect of certain liabilities which may
arise under the Employee Retirement Security Act of 1974 in respect of the
sale of AFP.
In addition, various legal proceedings, claims and investigations are
pending against the Company and certain subsidiaries, including those relating
to commercial transactions, product liability, safety and health matters and
other matters. PCT is involved in various stages of legal proceedings, claims,
investigations and cleanup relating to environmental natural resource matters,
some of which relate to waste disposal sites. Most of these matters are
covered by insurance, subject to deductibles and maximum limits, and by
third-party indemnities.
On January 2, 1996, PCT entered into a settlement agreement with the
U.S. Government pursuant to which PCT agreed to pay the U.S. Government $12.5
to settle allegations of labor mischarging and related contract disputes
relating to Aerospace. On January 8, 1996, pursuant to the terms of such
settlement agreement, PCT paid such amount to the U.S. Government. The U.S.
Government had also asserted a claim of non-compliance with Cost Accounting
Standards. In February 1996, PCT entered into a settlement agreement with the
U.S. Government pursuant to which PCT agreed to pay the U.S. Government $0.2
to settle the Cost Accounting Standards non-compliance assertion. On March 11,
1996, pursuant to the terms of such settlement agreement, PCT paid such amount
to the U.S. Government. In addition, the U.S. Government has asserted claims
of defective pricing. Based upon current U.S. Government procurement
regulations, under certain circumstances involving defective pricing a
contractor can incur fines and penalties, as well as be suspended or debarred
from U.S. Government contracts.
In the opinion of management, based upon the information available at
this time, the outcome of the outstanding defective pricing and other matters
referred to above will not have a material adverse effect on the Company's
financial position or results of operations.
The Company believes that its facilities are well maintained and are in
substantial compliance with environmental laws and regulations.
16. SIGNIFICANT CUSTOMER
The Company has a significant customer in the tobacco industry, Philip
Morris Companies Inc., which accounted for approximately 26% of pro forma net
revenues in 1996.
F-22
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
17. GEOGRAPHIC SEGMENTS
As a result of the sale of Aerospace in 1996 and the industrial products
businesses in 1994, the Company has classified those operations as
discontinued in the consolidated financial statements. The discussion below
reflects the results of operations of Flavor's licorice extract and other
flavoring agents business since November 25, 1996, the date of the Flavors
Acquisition. The results of operations data presented below reflects the
application of the purchase method of accounting for the Flavors Acquisition.
The Company operates in one business segment. Information related to the
Company's geographic segments are presented below with the following
definitions:
Operating profit and identifiable assets are classified as domestic and
corporate, respectively, in 1995 and 1994.
Operating profit, as indicated below, represents net sales less
operating expenses.
Identifiable assets are those used by each geographic segment. Corporate
assets are principally domestic cash and cash equivalents, a pension asset and
deferred charges.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
Net Sales:
Domestic--U.S. $ 4.8
--Export 3.2
Foreign 1.5
-----------------
$ 9.5
=================
Operating Profit:
Domestic $ 2.3
Foreign 0.3
-----------------
2.6
Interest, investment and other income, net 8.0
-----------------
Income from continuing operations before income taxes $ 10.6
=================
DECEMBER 31, 1996
-----------------
Identifiable assets:
Domestic (a) $ 262.5
Foreign 36.5
Corporate 19.1
-----------------
$ 318.1
=================
</TABLE>
- ---------------
(a) Includes assets located in foreign countries of $1.7 at December 31, 1996.
F-23
<PAGE>
POWER CONTROL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
18. UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of unaudited quarterly financial information
for 1996 and 1995:
<TABLE>
<CAPTION>
1996
-----------------------------------------------
FIRST SECOND THIRD FOURTH
--------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Net sales (a) $ -- $ -- $ -- $ 9.5 (b)
Gross profit (a) -- -- -- 2.9 (b)
Income from continuing operations 0.3 2.9 3.5 3.7
Income from discontinued operations 4.4 153.7 (c) -- --
Extraordinary item -- -- -- --
Net income 4.7 156.6 (c) 3.5 3.7
Income per common share:
Income from continuing operations $ -- $ 0.12 $0.15 $0.16
Income from discontinued operations 0.21 7.44 -- --
Extraordinary item -- -- -- --
Net income 0.21 7.56 0.15 0.16
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------
FIRST SECOND THIRD FOURTH
--------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Net sales (a) $ -- $ -- $ -- $ --
Gross profit (a) -- -- -- --
Income from continuing operations (1.6) (2.0) (0.2) (0.2)
Income from discontinued operations 4.0 4.0 3.9 5.0
Extraordinary item (d) (1.6) -- -- --
Net income 0.8 2.0 3.7 4.8
Income per common share:
Income from continuing operations $(0.08) $(0.10) $(0.03) $(0.03)
Income from discontinued operations 0.20 0.20 0.19 0.24
Extraordinary item (0.08) -- -- --
Net income 0.04 0.10 0.16 0.21
</TABLE>
- --------------
(a) Quarterly net sales and gross profit reflect the reclassification of
Aerospace to discontinued operations.
(b) Net sales and gross profit reflect the Flavors Acquisition on
November 25, 1996.
(c) Reflects the gain of sale of Aerospace in April 1996.
(d) Reflects the extraordinary loss related to the early retirement of debt
in 1995.
F-24
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET (PARENT ONLY)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-----------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2.2
Prepaid expenses and other 0.2
-----------------
Total current assets 2.4
Investment in and advances to subsidiaries 191.8
-----------------
$ 194.2
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 1.0
Deferred cash payments due to Mafco 7.2
-----------------
Total current liabilities 8.2
Redeemable preferred stock 20.0
Stockholders' equity:
Common stock, par value $.01; 250,000,000 shares authorized;
20,656,502 shares issued and outstanding in 1996 and 1995 0.2
Additional paid-in capital 26.7
Retained earnings 139.3
Currency translation adjustment (0.2)
-----------------
Total stockholders' equity 166.0
-----------------
$ 194.2
=================
</TABLE>
Note: There were no restrictions on the transfer of assets from
subsidiaries to the parent during 1995 and 1994.
F-25
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONSOLIDATED STATEMENT OF INCOME (PARENT ONLY)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
-----------------
<S> <C>
General and administrative expenses $ 1.0
-----------------
Operating loss 1.0
Interest, investment and other income, net (0.9)
-----------------
Loss from continuing operations before taxes 0.1
Benefit for income taxes (0.1)
-----------------
Income from continuing operations -
Equity in income of subsidiaries 168.5
-----------------
Net income 168.5
-----------------
Preferred stock dividend (1.6)
-----------------
Net income available to common shareholders $ 166.9
=================
</TABLE>
Note: There were no restrictions on the transfer of assets from subsidiaries to
the parent during 1995 and 1994.
F-26
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONSOLIDATED STATEMENT OF CASH FLOWS (PARENT ONLY)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
-----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 168.5
Adjustments to reconcile net income to total cash provided by operating
activities:
Equity in income of subsidiaries in excess of cash distributions (165.5)
Changes in assets and liabilities:
Other, net 0.8
-----------------
Cash provided by operating activities 3.8
-----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Preferred dividends (1.6)
-----------------
Cash used in financing activities (1.6)
-----------------
Net increase in cash and cash equivalents 2.2
Cash and cash equivalents at beginning of period -
-----------------
Cash and cash equivalents at end of period $ 2.2
=================
</TABLE>
Note: There were no restrictions on the transfer of assets from subsidiaries to
the parent during 1995 and 1994.
F-27
<PAGE>
PNEUMO ABEX CORPORATION
AND
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
as Trustee
---------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of November 25, 1996
---------------
First Supplemental Indenture dated as of November 25, 1996
between Pneumo Abex Corporation and First Trust of New York, National
Association, pursuant to the Indenture dated as of November 12, 1992 between
Mafco Worldwide Corporation (f/k/a MacAndrews & Forbes Company) and First
Trust of New York, National Association (successor to Security Pacific
National Trust Company (New York)), as trustee.
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE dated as of November 25, 1996
between Pneumo Abex Corporation, a Delaware corporation ("Successor"), and
First Trust of New York, National Association, a national banking association,
as trustee (the "Trustee"), pursuant to the Indenture dated as of November 12,
1992 between Mafco Worldwide Corporation (f/k/a MacAndrews & Forbes Company),
a Delaware corporation (the "Company"), and the Trustee (successor to Security
Pacific National Trust Company (New York), as trustee (the "Indenture").
WITNESSETH
WHEREAS, the Company has previously executed and delivered
to the Trustee the Indenture providing for the issuance of certain 117/8%
Senior Notes due 2002 (the "Securities") pursuant to the Indenture;
WHEREAS, pursuant to the Certificate of Ownership and
Merger, dated as of November 25, 1996, the Company was merged with and into
Successor with Successor being the surviving corporation;
WHEREAS, Section 801 of the Indenture, "Company May
Consolidate, Amalgamate, etc. Only on Certain Terms," provides that the
Company may not merge or consolidate with or merge into any other corporation
unless certain covenants and obligations set forth in Section 801 of the
Indenture are complied with;
WHEREAS, Section 901 of the Indenture, "Supplemental
Indentures And Agreements Without Consent of Holders," provides that the
Company and the Trustee may enter into one or more supplemental indentures
without the consent of the Holders of Securities with respect to certain
matters therein identified, including to evidence the succession of another
Person to the Company and the assumption by any such successor of the
covenants, agreements and obligations of the Company contained in the
Indenture and the Securities issued pursuant thereto;
WHEREAS, Successor desires in and by this First Supplemental
Indenture to expressly assume the obligation to pay the principal and interest
on
1
<PAGE>
the Securities and the performance of every covenant of the Indenture on the
part of the Company to be performed or observed; and
WHEREAS, all conditions necessary to authorize the execution
and delivery of this First Supplemental Indenture and to make this First
Supplemental Indenture valid and binding have been complied with or have been
done or performed.
NOW, THEREFORE, in consideration of the above premises, and
in order to comply with the terms of Sections 801 and 901 of the Indenture,
Successor covenants with the Trustee as follows:
ARTICLE ONE
DEFINITIONS
Section 1.01. For all purposes of the Indenture and this
First Supplemental Indenture, except as otherwise expressly provided or unless
the context otherwise requires:
(a) "herein," "hereof" and other words of similar
import refer to the Indenture and this First Supplemental Indenture as a whole
and not to any particular Article, Section or other subdivision; and
(b) all capitalized terms used in this First
Supplemental Indenture but not defined herein shall have the meanings assigned
such terms in the Indenture.
ARTICLE TWO
ASSUMPTION OF CERTAIN OBLIGATIONS
Section 2.01. Successor hereby expressly and unconditionally
assumes the due and punctual payment of the principal of, premium, if any, and
interest on all the Securities issued pursuant to the Indenture according to
their tenor and Successor hereby expressly and unconditionally assumes the
performance or observance of all of the covenants and conditions of the
Securities and the Indenture to be performed or observed by the Company as if
Successor had been originally named in the Indenture as the "Company" (as such
term is defined therein).
2
<PAGE>
Section 2.02. Successor, for itself and the Company, hereby
represents and warrants to the Trustee that after giving effect to this First
Supplemental Indenture, it will be in compliance with Section 801 of the
Indenture and that all corporate action and all necessary approvals and
filings relating thereto have been obtained or completed with respect to its
succession.
ARTICLE THREE
MISCELLANEOUS
Section 3.01. All of the terms and conditions of the
Indenture shall remain in full force and effect.
Section 3.02. The Trustee accepts the succession of
Successor as issuer under the Indenture as evidenced by this First
Supplemental Indenture. Without limiting the generality of the foregoing, the
Trustee assumes no responsibility for the correctness of the recitals herein
contained, which shall be taken as the statements of Successor. The Trustee
makes no representation and shall have no responsibility as to the validity of
this First Supplemental Indenture.
Section 3.03. In case any provision in this First
Supplemental Indenture shall be invalid, illegal or unenforceable, the
validity, legality or enforceability of the remaining provisions of this First
Supplemental Indenture or of the Indenture shall not in any way be affected or
impaired thereby.
Section 3.04. This First Supplemental Indenture shall be
deemed to be a contract made under the laws of the State of New York and for
all purposes shall be governed by and construed in accordance with the laws of
the State of New York without regard to principles of conflicts of laws.
Section 3.05. This First Supplemental Indenture may be
executed in any number of counterparts, each of which so executed shall be
deemed to be an original, but such counterparts shall together constitute but
one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, Successor and the Trustee have caused
this First Supplemental Indenture to be duly executed by their respective
officers thereunto duly authorized as of the day and the year first above
written.
PNEUMO ABEX CORPORATION
By: /s/ Glenn P. Dickes
------------------------------
Name: Glenn P. Dickes
Title: Vice President
FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, as Trustee
By: /s/ Geovanni Barris
------------------------------
Name: Geovanni Barris
Title: Assistant Vice President
4
<PAGE>
CONSENT NUMBER 5 AND FIRST AMENDMENT
CONSENT NUMBER 5 AND FIRST AMENDMENT, dated as of November
11, 1996 (this "Amendment"), to the Credit Agreement, dated as of June 29,
1994 (the "Credit Agreement"), among Mafco Worldwide Corporation (the
"Company"), the financial institutions from time to time parties thereto (the
"Banks") and The Chase Manhattan Bank (as successor by merger to The Chase
Manhattan Bank, N.A.), as agent (in such capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, the Company is a party to the Credit
Agreement;
WHEREAS, pursuant to the Stock and VSR Purchase
Agreement, dated as of October 23, 1996 (the "Purchase
Agreement"), among Mafco Consolidated Group Inc. ("MCG"),
Power Control Technologies, Inc. and PCT International
Holdings, Inc. ("PCTI"), MCG has agreed to sell all of
the issued and outstanding capital stock of Flavors
Holdings Inc. ("FHI") to PCTI (the "FHI Sale");
WHEREAS, promptly following such sale, (a) the capital stock
of Pneumo Abex Corporation ("Pneumo") shall be contributed to the Company (the
"Capital Contribution") and (b) Pneumo shall be merged with and into the
Company, with Pneumo being the surviving corporation of such merger (the
"Merger");
WHEREAS, in connection with the FHI Sale, the Capital
Contribution and the Pneumo Merger, the Company will enter into certain other
transactions, as more fully described herein (together with the FHI Sale, the
Capital Contribution and the Pneumo Merger, the "Transaction");
WHEREAS, in order to permit the consummation of the
Transaction, the Company has requested that the Agent and the Banks amend
certain provisions of the Credit Agreement, as more fully described herein;
WHEREAS, the Agent and the Banks are willing to consent to
such amendments only upon the terms and subject to the conditions set forth
herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the Company, the Banks and the Agent hereby
agree as follows:
<PAGE>
1. Definitions. All terms defined in the Credit Agreement
shall have such defined meanings when used herein unless otherwise defined
herein.
2. Consent to Changes in Tax Allocation Arrangements. (a)
The Agent and the Banks hereby consent that the existing Tax Allocation
Agreement may be terminated and waive compliance with the provisions of
Section 8.17 of the Credit Agreement to the extent and only to the extent
necessary to permit such termination; provided that (i) the rights and
obligations of the Company and the other parties to the Tax Allocation
Agreement with respect to the matters covered by the Tax Allocation Agreement
shall be as set forth in Section 4.11 of the Purchase Agreement, (ii) the
Company and PCT shall enter into new tax allocation agreement substantially
similar to the existing Tax Allocation Agreement (together with the tax
allocation provisions of the Purchase Agreement, the "Substitute Agreement")
and (iii) PCT shall execute a new tax allocation subordination agreement
substantially similar to the existing Tax Allocation Subordination Agreement
(the "Substitute Subordination Agreement").
(b) From and after the effectiveness of this Amendment and
the Closing under the Purchase Agreement, the terms "Tax Allocation Agreement"
and "Tax Allocation Subordination Agreement" contained in the Credit Documents
shall mean the Substitute Agreement and the Substitute Allocation Agreement,
respectively. In addition, references in the Credit Documents to concepts in
the "Tax Allocation Agreement" shall be deemed to refer to the comparable
concepts in the Substitute Agreement.
3. Consent to Payment of Dividend. The Agent and the Banks
hereby consent to the making of a Dividend Payment by the Company to the
Parent Guarantor in an aggregate amount not to exceed $5,400,000 and waive the
provisions of Section 8.09(a) of the Credit Agreement to the extent and only
to the extent necessary to permit the making of such Dividend Payment;
provided that no Default or Event of Default shall have occurred and be
continuing immediately prior to and immediately after giving effect to the
making of such Dividend Payment.
2
<PAGE>
4. Consent to Merger. The Agent and the Banks hereby consent
to the consummation of the Merger and waive the provisions of Sections 8.05
and 8.13 of the Credit Agreement to the extent and only to the extent
necessary to permit the consummation of the Merger; provided that (a) no
Default or Event of Default shall have occurred and be continuing immediately
prior to and immediately after giving effect to consummation of the Merger,
(b) Pneumo (as the surviving corporation of the Merger) executes and delivers
to the Agent a written assumption of the obligations of the Company under the
Credit Agreement and other Basic Documents, which assumption shall be in form
and substance reasonably acceptable to the Agent, (c) the Parent Guarantor
shall deliver to the Agent the certificate evidencing the capital stock of
Pneumo into which the capital stock of the Company was converted in connection
with the Merger in exchange for the certificates representing the stock of the
Company and (d) immediately after giving effect to the Merger, the Agent shall
hold a first-priority, perfected security interest in substantially all assets
of Pneumo and its Subsidiaries (other than permitted Liens).
5. Amendment to Section 1.01. The definition of the term
"Total Debt" in Section 1.01 of the Credit Agreement is hereby amended by
deleting said definition in its entirety and by substituting therefor the
following:
'Total Debt' shall mean, as at any date, the sum, for any
Person, of all Indebtedness of such Person of the types described in
clauses (a), (b), (d) and (e) of the definition of the term
"Indebtedness" in this Section 1.01; provided, that Total Debt of the
Company shall not include Indebtedness under the Reimbursement
Agreement, dated as of February 5, 1996, among the Company, The Chase
Manhattan Bank (as successor by merger to The Chase Manhattan Bank,
N.A.) and Mafco Consolidated Group Inc., as Guarantor."
6. Agreement to Section 2.03. Section 2.03 of the Credit
Agreement hereby is amended by deleting the amount "$15,000,000" appearing in
the fourteenth line thereof, and substituting in lieu thereof the amount
"$18,000,000."
3
<PAGE>
7. Amendment to Section 8.09(d)(i). Section 8.09(d)(i) of
the Credit Agreement hereby is amended by deleting said Section 8.09(d)(i) in
its entirety and by substituting therefor the following:
(i) in addition to the Dividend made as permitted by
paragraph 3 of the Consent No. 5 and First Amendment to the Credit
Agreement, the Company may, so long as no Default shall have occurred
and be continuing or would result therefrom, make Dividend Payments
in an aggregate amount not to exceed, at any date, the amount of
Restricted Payments (as defined in the Subordinated Debt Indenture)
which would be permitted on such date under the Subordinated Debt
Indenture in accordance with the calculation described in Section
1009 thereof (as in effect on November 1, 1996 and as further
amended, supplemented or otherwise modified from time to time with
the written consent of the Majority Banks); provided that all
references contained in said Section 1009 to "July 1, 1992" or "the
date of this Indenture" shall be deemed to be references to October
1, 1996.
8. Consent to Existing Pneumo Arrangements. The Agent and
the Banks hereby consent to the Indebtedness and Liens under, and the
provisions contained in, (i) the Reimbursement Agreement, dated as of February
5, 1996, among Pneumo, The Chase Manhattan Bank (as successor by merger to The
Chase Manhattan Bank, N.A.), and Mafco Consolidated Group Inc., as Guarantor,
and (ii) the Letter of Credit Reimbursement and Cash Collateral Agreement,
dated as of April 15, 1996, between Pneumo and The Chase Manhattan Bank (as
successor by merger to The Chase Manhattan Bank, N.A.). The Agent and the
Banks hereby consent to the cash deposit by Pneumo of approximately $2,100,000
to secure its obligations for deductibles under workers' compensation
insurance policies.
9. Conditions to Effectiveness. This Amend- ment shall
become effective on and as of the date that the Agent shall have received
counterparts of this Amendment, duly executed by the Company and the
Majority Banks.
10. Representations and Warranties. The Company, as of the
date hereof and after giving effect to the consents and waivers contained
herein, hereby con-
4
<PAGE>
firms, reaffirms and restates the representations and warranties made by it in
Section 7 of the Credit Agreement and otherwise in the Credit Documents to
which it is a party; provided that each reference to the Credit Agreement
therein shall be deemed to be a reference to the Credit Agreement after giving
effect to this Amendment.
11. Reference to and Effect on the Credit Documents; Limited
Effect. On and after the date hereof and the satisfaction of the conditions
contained in Section 9 of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the other Credit
Documents to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as modified hereby. From and after the date that this
Amendment has become effective and the Transactions have been consummated,
references in the Credit Agreement to the "Company" shall be deemed to be
references to Pneumo (as the surviving corporation in the Merger). The
execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy
of any Bank or the Agent under any of the Credit Documents, nor constitute a
waiver or amendment of any provisions of any Credit Documents. Except as
expressly modified herein, all of the provisions and covenants of the Credit
Agreement and the other Credit Documents are and shall continue to remain in
full force and effect in accordance with the terms thereof and are hereby in
all respects ratified and confirmed.
12. Counterparts. This Amendment may be executed by one or
more of the parties hereto in any number of separate counterparts (which may
include counterparts delivered by facsimile transmission) and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. Any executed counterpart delivered by facsimile transmission shall
be effective as for all purposes hereof.
13. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
MAFCO WORLDWIDE CORPORATION
By: /s/ Glenn P. Dickes
--------------------------------
Name: Glenn P. Dickes
Title: Vice President
THE CHASE MANHATTAN BANK, N.A.,
as Agent and as a Bank
By: /s/ Neil R. Boylan
--------------------------------
Name: Neil R. Boylan
Title: Vice President
THE FIRST NATIONAL BANK OF BOS-
TON
By: /s/ Andrew A. Doherty
--------------------------------
Name: Andrew A. Doherty
Title: Vice President
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By: /s/ Anthony R. Clemente
--------------------------------
Name: Anthony R. Clemente
Title: Authorized Signatory
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
By:
--------------------------------
Name:
Title:
6
<PAGE>
GENERAL ELECTRIC CAPITAL CORPO-
RATION
By:
--------------------------------
Name:
Title:
7
<PAGE>
CONSENT NUMBER 6 AND SECOND AMENDMENT
CONSENT NUMBER 6 AND SECOND AMENDMENT, dated as of Decmeber 12,
1996 (this "Amendment"), to the Credit Agreement, dated as June 29, 1994 (the
"Credit Agreement"), among Pneumo Abex Corporation (as successor by merger to
Mafco Worldwide Corporation; the "Company"), the financial institutions from
time to time parties thereto (the "Banks") and The Chase Manhattan Bank (as
successor by merger to The Chase Manhattan Bank, N.A.), as agent (in such
capacity, the "Agent").
WITNESSETH:
WHEREAS, the Company is a party to the Credit Agreement;
WHEREAS, Power Control Technologies Inc., the indirect parent of
the Company ("PCT"), intends to organize EVD holdings Inc., a Delaware
corporation ("US Holdings"), as a new Subsidiary and to cause EVD Holdings
Inc. to organize EVD Holdings France S.A., a French societe anonyme ("French
Holdings"), as a new Subsidiary;
WHEREAS, following such organization, PCT will contribute all of
the issued and outstanding capital stock of US Holdings to the Company and
French Holdings intends to acquire all of the issued and outstanding capital
stock of Extraits Vegetaux et Derives, S.A. (the "Intercompany Transfer") for
aggregate consideration of French Francs 157,500,000, a portion of which shall
be paid with available cash and the remainder of which shall be paid with a
promissory note of French Holdings (the "Intercompany Loan");
WHEREAS, the Company has requested that the Agent and the Banks
agree to amend certain provisions of the Credit Agreement and otherwise grant
certain consents in order to permit such transactions and certain other
transactions, as more fully described herein;
WHEREAS, the Agent and the Banks are willing to agree to such
amendments and to grant such consents, but only upon the terms, and subject to
the conditions, set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Company, the Banks and the Agent hereby agree
as follows:
1. Definitions. All terms defined in the Credit Agreement shall
have such defined meanings when used herein unless otherwise defined herein.
2. Amendment of Section 8.07. Section 8.07 of the Credit
Agreement hereby is amended by:
(a) deleting the word "and" which appears at the end of clause (g) thereof;
<PAGE>
(b) deleting the period which appears at the end of clause (h) thereof
substituting therefor a semi-colon followed by the word "and"; and
(c) inserting therein the following new clause (i) thereof:
(i) Indebtedness of EVD Holdings France S.A. to the
Company in consideration for the purchase by EVD Holdings
France S.A. from the Company of all of the issued and
outstanding capital stock of Extraits Vegetaux et Derives, S.
A.
3. Amendment of Section 8.08. Section 8.08 of the credit
Agreement hereby is amended by:
(a) deleting the word "and" which appears at the end of clause (k) thereof;
(b) deleting the period which appears at the end of clause (l) thereof and
substituting therefor a semi-colon followed by the word "and"; and
(c) inserting therein the following new clause (m) thereof:
(m) Investments not to exceed French Francs 157,500,000
by EVD Holdings France S.A. in capital stock of Extraits
Vegetaux et Derives, S. A.
4. Amendment of Section 8.11. Section 8.11 of the Credit
Agreement hereby is amended by inserting the following therein immediately
before the period at the end thereof:
provided that the Company and its Subsidiaries may make
up to $500,000 in the aggregate of additional Consolidated
Capital Expenditures in Extraits Vegetaux et Derives, S. A.
during the 1997 fiscal year of the Company
5. Consent to Intercompany Transactions. The Agent and the Banks
hereby (i) consent to the consummation of the Intercompany Transfer and the
Intercompany Loan and (ii) waive compliance with the provisions of Sections
8.05, 8.07, 8.08 and 8.15 of the Credit Agreement to the extent and only to
the extent necessary to permit the Intercompany Transfer and the Intercomany
Loan.
6. Consent to Release. (a) The Banks hereby consent that the
Agent may release its security interest in the capital stock of Extraits
Vegetaux et Derives, S. A. and hereby acknowledge and agree that such release
shall become effective, without any further consent or instrument, upon the
effectiveness of this Amendment. In furtherance of the foregoing, the Banks
hereby authorize and instruct the Agent to execute and deliver to the Company
and its Subsidiaries such instruments, documents and agreements as may be
required to evidence such release.
<PAGE>
(b) The Banks hereby consent that the Company shall not be
required to pledge (or to cause US Holdings to pledge) any of the capital
stock of French Holdings to secure the obligations of the Company under the
Credit Agreement; provided that, on or prior to February 28, 1997, (i) US
Holdings shall have executed and delivered to the Agent a guarantee, in form
and substance reasonably satisfactory to the Agent, of the obligations of the
Company under the Credit Agreement, (ii) US Holdings shall have granted to the
Agent a first priority, perfected security interest in all of its material
assets (other than the capital stock of French Holdings) and (iii) the Company
shall have granted to the Administrative Agent, for the benefit of the Banks,
a first priority, perfected security interest in all of the issued and
outstanding capital stock of US Holdings.
7. Additional Event of Default. The Company hereby agrees that
it shall be an Event of Default for the purposes under the Credit Agreement
and the other Basic Documents if all principal, interest and other amounts
owing in respect of the Tranche A Term Loans and Tranche B Term Loans shall
not have been paid in full on or prior to December 31, 1996.
8. Conditions to Effectiveness. This Amendment shall become
effective on and as of the date that the Agent shall have received
counterparts of this Amendment, duly executed by the Company and the Majority
Banks.
9. Representations and Warranties. The Company, as of the date
hereof and after giving effect to the consents and waivers contained herein,
hereby confirms, reaffirms and restates the representations and warranties
made by it in Section 7 of the Credit Agreement and otherwise in the Credit
Documents to which it is a party; provided that each reference to the Credit
Agreement therein shall be deemed to be a reference to the Credit Agreement
after giving effect to this Amendment.
10. Reference to and Effect on the Credit Documents; Limited
Effect. On and after the date hereof and the satisfaction of the conditions
contained in Section 9 of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the other Credit
Documents to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as modified hereby. The execution, delivery and effectiveness
of this Agreement shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of any Bank or the Agent under any of the
Credit Documents nor constitute a waiver or amendment of any provisions of any
of the Credit Documents. Except as expressly modified herein, all of the
provisions and covenants of the Credit Agreement and the other Credit
Documents are and shall continue to remain in full force and effect in
accordance with the terms thereof and are hereby in all respects ratified and
confirmed.
11. Counterparts. This Amendment may be executed by one or more
of the parties hereto in any number of separate counterparts (which may
include counterparts delivered by facsimile transmission) and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. Any executed
<PAGE>
counterpart delivered by facsimile transmission shall
be effective as for all purposes hereof.
12. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
PNEUMO ABEX CORPORATION (as successor by
merger to Mafco Worldwide Corporation)
By: /s/ Glenn P. Dickes
---------------------------------------
Name: Glenn P. Dickes
Title:. Vice President
THE CHASE MANHATTAN BANK (as successor by
merger to The Chase Manhattan Bank, N.A.),
as Agent and as a Bank
By: /s/ Neil R. Boylan
---------------------------------------
Name: Neil R. Boylan
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Andrew A. Doherty
---------------------------------------
Name: Andrew A. Doherty
Title: Vice President
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By: /s/ Anthony R. Clemente
---------------------------------------
Name: Anthony R. Clemente
Title: Authorized Signatory
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
By: /s/
---------------------------------------
Name:
Title:
<PAGE>
RELEASE
RELEASE, dated as of December 20, 1996, made by The Chase
Manhattan Bank (as successor by merger to the Chase Manhattan Bank, N. A.), as
agent (in such capacity, the "Agent") pursuant to the Credit Agreement
described below, in favor of MAFCO INTERNATIONAL INC., a Delaware corporation
(the "Pledgor") and EXTRAITS VEGETEAUX ET DERIVES, S.A., a French societe
anonyme (the "Issuer"). Unless otherwise defined herein, capitalized terms
which are used herein and are defined in the Credit Agreement are used herein
as therein defined.
WITNESSETH:
WHEREAS, the Agent is a party to the Credit Agreement, dated as
of June 29, 1994 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among Pneumo Abex Corporation (as successor by
merger to Mafco Worldwide Corporation; the "Company"), the banks and other
financial institutions parties thereto and the Agent;
WHEREAS, pursuant to the Credit Agreement, the Pledgor, which is
a wholly owned Subsidiary of the Company, granted to the Agent a security
interest in certain of the capital stock of the Issuer (the "Pledged Shares");
NOW, THEREFORE, in consideration of the premises:
1. Release of Security Interests in Pledged Shares. The Agent
does hereby release its security interest in the Pledged Shares, with such
release being made without representation, warranty or recourse, express or
implied.
2. Continuing Effect of Basic Documents. Except as expressly
terminated and release hereby, the terms and provisions of the Credit
Agreement and each of the documents executed and delivered in connection
therewith (including, without limitation, each of the Security Documents)
shall remain in full force and effect and are hereby ratified and confirmed.
3. GOVERNING LAW. THIS RELEASE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the Agent has caused this Release to be duly
executed and delivered in New York, New York by its proper and duly authorized
officer as of the day and year first above written.
THE CHASE MANHATTAN BANK, as Agent
By: /s/ Neil R. Boylan
----------------------------------
Name: Neil R. Boylan
Title: Vice President
<PAGE>
THIRD AMENDMENT
THIRD AMENDMENT, dated as of February 5, 1997 (this
"Amendment"), to the Credit Agreement, dated as of June 29, 1994 (as amended
prior to the date hereof, the "Credit Agreement"), among Pneumo Abex
Aorporation (as successor by merger to Mafco Worldwide Corporation; the
"Company"), the financial institutions from time to time parties thereto (the
"Banks") and The Chase Manhattan Bank (as successor by merger to The Chase
Manhattan Bank, N.A.), as agent (in such capacity, the "Agent").
WITNESSETH:
WHEREAS, the Company, the Banks and the Agent are parties to the
Credit Agreement;
WHEREAS, the Company has requested that the Banks and the Agent
amend the Credit Agreement as more fully set forth herein;
WHEREAS, the Banks and the Agent are willing to consent to such
amendments only upon the terms, and subject to the conditions, set forth
herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Company, the Banks and the Agent hereby agree
as follows:
1. Definitions. All terms defined in the Credit Agreement shall
have such defined meanings when used herein unless otherwise defined herein.
2. Amendment of Section 1.01 -- Definitions of Applicable Letter
of Credit Fee Rate and Applicable Margin. The definitions of "Applicable
Letter of Credit Fee Rate" and "Applicable Margin" set forth in Section 1.01
of the Credit Agreement is hereby amended and restated in their respective
entireties as follows:
"Applicable Letter of Credit Fee Rate" shall mean 1%.
"Applicable Margin" shall mean: (a) with respect to Revolving
Credit Loans that are Base Rate Loans, 0% and (b) with respect to Revolving
Credit Loans that are Eurodollar Loans, 1.0%, provided that the "Applicable
Margin" during any period when an Event of Default shall have occurred and be
continuing shall be (x) with respect to Revolving Credit Loans that are Base
Rate loans, 1-1/4% and (y) with respect to Revolving Credit Loans that are
Eurodollar Loans, 2-1/2%.
3. Amendment of Section 2.03 -- Letters of Credit. Section 2.03
of the Credit Agreement is hereby amended by (a) changing the amount
"$15,000,000" which appears at the end of clause (ii) of the introductory
paragraph thereof to the amount
<PAGE>
"$12,500,000" and (b) deleting clause (i) of said paragraph (g) thereof in its
entirety, including the phase "and (ii)" at the end thereof.
4. Amendment of Section 2.05 -- Commitment Fee. Section 2.05 of
the Credit Agreement is hereby amended by changing the percentage "1/2 of 1%"
in the first sentence thereof to the percentage "1/4 of 1%".
5. Elimination of Borrowing Base and Excess Cash Flow Sweep.
Each of Section 2.10(a), 2.10(d), 8.01(g) and 8.01(i) is hereby deleted and
replaced with the reference "[INTENTIONALLY OMITTED]".
6. Revolving Credit Commitments. The parties hereto hereby agree
that, on the Amendment Effective Date (as defined below), the Revolving Credit
Commitment of The Chase Manhattan Bank shall equal $12,500,000 and the
Revolving Credit Commitment of each other Bank (each, an "Exiting Bank") shall
equal $0.
7. Representations and Warranties. The Company, as of the date
hereof and after giving effect to the amendments contained herein, hereby
confirms, reaffirms and restates the representations and warranties made in
Section 7 of the Credit Agreement and otherwise in the Credit Documents to
which it is a party; provided that each reference to the Credit Agreement
therein shall be deemed to be a reference to the Credit Agreement after giving
effect to this Amendment.
8. Conditions to Effectiveness. This Amendment shall become
effective on and as of the date (the "Amendment Effective Date") that (a) the
Agent shall have received counterparts of this Amendment, duly executed by the
Company and the Banks and (b) the Company shall have repaid all Loans made by
the Exiting Banks, together with accrued interest thereon, accrued commitment
fees and any other amounts owing to the Exiting Banks under the Credit
Agreement. The amendments herein with respect to changes in the Applicable
Letter of Credit Fee Rate, the Applicable Margin and the commitment fee shall
be effective for the period commencing on the Amendment Effective Date.
9. Reference to and Effect on the Credit Documents: Limited
Effect. On and after the Amendment Effective Date, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like
import referring to the Credit Agreement, and each reference in the other
Credit Documents to "the Credit Agreement", "thereunder", "thereof" or words
of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement as modified hereby. The execution, delivery
and effectiveness of this Amendment shall not, except as expressly provided
herein, operate as a waiver of any right, power or remedy of any Bank or the
Agent under any of the Credit Documents, nor constitute a waiver or amendment
of any provisions of any of the Credit Documents. Except as expressly modified
herein, all of the provisions and covenants of the Credit Agreement and the
<PAGE>
other Credit Documents are and shall continue to remain in full force and
effect in accordance with the terms thereof and are hereby in all respects
ratified and confirmed.
10. Exiting Banks. Each Exiting Bank is executing this Amendment
solely with the purpose of acknowledging that its rights and obligations in
respect of its Loans and Revolving Credit Commitment will terminate on the
Amendment Effective Date upon repayment in full of all amounts owing to it
under the Credit Agreement on the Amendment Effective Date. The modifications
effected by this Amendment are being provided by the Banks holding 100% of the
Revolving Credit Commitments after giving effect to the repayment of the Loans
and the termination of the Revolving Credit Commitments of the Exiting Banks
on the Amendment Effective Date.
11. Counterparts. This Amendment may be executed by one or more
of the parties hereto in any number of separate counterparts (which may
include counterparts delivered by facsimile transmission) and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. Any executed counterpart delivered by facsimile transmission shall
be effective as for all purposes hereof.
12. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, theparties hereto have caused this Amendment
to be executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
PNEUMO ABEX CORPORATION (as successor
by merger to Mafco Worldwide
Corporation)
By: /s/ Peter W. Grace
-------------------------------------
Name: Peter W. Grace
Title: Sr. Vice President
THE CHASE MANHATTAN BANK (as successor
by merger to The Chase Manhattan Bank,
N.A.), as Agent and as a Bank
By: /s/ Neil R. Boylan
-------------------------------------
Name: Neil R. Boylan
Title: Vice President
<PAGE>
The Exiting Banks:
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Andrew A. Doherty
-------------------------------------
Name: Andrew A. Doherty
Title: Vice President
BANQUE FRANCAISE DU COMMERCE EXTERIEUR
By: /s/ Peter Karl Harris
-------------------------------------
Name: Peter Karl Harris
Title: Vice President
By: /s/ William C. Maier
-------------------------------------
Name: William C. Maier
Title: VP-Group Manager
<PAGE>
ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT, dated as of November 25, 1996, made by
PNEUMO ABEX CORPORATION, a Delaware corporation ("Pneumo"), in favor of (a)
the BANKS described below and (b) THE CHASE MANHATTAN BANK (as successor by
merger to The Chase Manhattan Bank, N.A.), as agent (in such capacity, the
"Agent") for such Banks.
W I T N E S S E T H:
WHEREAS, Mafco Worldwide Corporation (the "Company") is a
party to the Credit Agreement, dated as of June 29, 1994 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
with the financial institutions from time to time parties thereto (the
"Banks") and the Agent;
WHEREAS, pursuant to the Stock and VSR Purchase Agreement,
dated as of October 23, 1996, among Mafco Consolidated Group Inc. ("MCG"),
Power Control Technologies, Inc. and PCT International Holdings, Inc.
("PCTI"), MCG has agreed to sell all of the issued and outstanding capital
stock of Flavors Holdings Inc. to PCTI;
WHEREAS, promptly following such sale, (a) the capital stock
of Pneumo shall be contributed to the Company and (b) Pneumo shall be merged
with and into the Company, with Pneumo being the surviving corporation of such
merger (the "Merger");
WHEREAS, pursuant to Consent Number 5 and First Amendment,
dated as of November 11, 1996 (the "First Amendment"), to the Credit
Agreement, the Banks have agreed to permit the consummation of the various
transactions described above (including, without limitation, the Merger) upon
the satisfaction of certain conditions described in the First Amendment;
WHEREAS, among the conditions described in the First
Amendment is a requirement that Pneumo shall have entered into this Agreement;
NOW, THEREFORE, in consideration of the premises and for
other good and valid consideration, the parties hereto hereby agree as
follows:
1. Definitions. Unless otherwise defined herein, capitalized
terms which are used herein shall
<PAGE>
have the meanings assigned thereto in the Credit Agreement.
2. Assumption. (a) Pneumo does hereby assume all of the
rights and obligations of the Company in, to and under the Credit Agreement
and the Basic Documents; provided that nothing contained herein shall be
deemed to impair any rights and obligations which will be assumed by Pneumo by
operation of law upon the consum- mation of the Merger.
(b) In furtherance of the foregoing, Pneumo does hereby
acknowledge and agree that, from and after the consummation of the Merger, (a)
all references in the Credit Agreement to the Company (regardless of the
defined term used to describe the Company) shall be deemed to be references to
Pneumo and (b) Pneumo and its Subsidiaries shall be bound by all covenants and
agreements applicable to the Company and its Subsidiaries under the Credit
Agreement and the Basic Documents.
3. Representations and Warranties. Pneumo hereby represents
and warrants that the representations and warranties made by it in Section 7
of the Credit Agreement, and by each Obligor in each of the other Basic
Documents to which it is a party, shall be true and complete in all material
respects on and as of the date of consummation of the Merger (immediately
before and immediately after the consummation thereof) with the same force and
effect as if made on and as of such date (or, if any such representation and
warranty is expressly stated to have been made as of a specific date, as of
such specific date); provided that each reference to the Company and its
Subsidiaries therein shall be deemed to be a reference to Pneumo and its
Subsidiaries (after giving effect to the consummation on the date hereof of
the Merger). Pneumo hereby represents and warrants that no Default or Event of
Default (a) has occurred and is continuing or (b) will be continuing
immediately after giving effect to the consummation of the Merger.
4. Governing Law. This Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New
York.
2
<PAGE>
IN WITNESS WHEREOF, Pneumo has caused this Agreement to be
executed and delivered by its proper and duly authorized officer as of the
date first set forth above.
PNEUMO ABEX CORPORATION
By: /s/ Glenn P. Dickes
--------------------------------
Title: Vice President
3
<PAGE>
CONSENT NUMBER 1 AND FIRST AMENDMENT
CONSENT NUMBER 1 AND FIRST AMENDMENT, dated as of November
25, 1996, to the Reimbursement Agreement, dated as of February 5, 1996 (as
amended, supplemented or otherwise modified from time to time, the
"Reimbursement Agreement"), among Pneumo Abex Corporation (the "Account
Party"), Mafco Consolidated Group Inc. (the "Guarantor") and The Chase
Manhattan Bank (formerly known as Chemical Bank), as issuing bank (in such
capacity, the "Issuing Bank").
W I T N E S S E T H:
WHEREAS, the Account Party, the Guarantor and
the Issuing Bank are parties to the Reimbursement Agree-
ment;
WHEREAS, pursuant to the Stock and VSR Purchase Agreement,
dated as of October 23, 1996, among Mafco Consolidated Group Inc. ("MCG"),
Power Control Technologies, Inc. and PCT International Holdings, Inc.
("PCTI"), MCG has agreed to sell all of the issued and outstanding capital
stock of Flavors Holdings Inc. to PCTI (the "FHI Sale");
WHEREAS, promptly following such sale, (a) the capital stock
of the Account Party shall be contributed to Mafco Worldwide Corporation
("Worldwide"; the "Capital Contribution") and (b) the Account Party shall be
merged with and into Worldwide, with the Account Party being the surviving
corporation of such merger (the "Merger");
WHEREAS, in order to permit the consummation of the Merger
and certain other transactions contemplated to occur in connection therewith,
the Account Party and the Guarantor have requested that the Issuing Bank
consent to the Merger and waive certain provisions of the Reimbursement
Agreement, as more fully set forth herein;
WHEREAS, the Issuing Bank is willing to consent to such
transactions and to waive such provisions of the Reimbursement Agreement, but
only upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the Account Party, the Guarantor and the
Issuing Bank hereby agree as follows:
<PAGE>
1. Definitions. All terms defined in the Reimbursement
Agreement shall have such defined meanings when used herein unless otherwise
defined herein.
2. Consent to Merger. The Issuing Bank hereby consents to
the Merger, and waives compliance with the provisions of subsections 7.2 and
7.4 of the Reimbursement Agreement to the extent, and only to the extent,
necessary to permit the consummation of the Merger.
3. Amendment of Section 9(h). Section 9(h) of the Credit
Agreement hereby is amended by deleting clause (iv) thereof in its entirety
and by substituting therefor the following:
(iv) Aerospace shall cease to own beneficially 100% of the issued and
outstanding capital stock of the Account Party, free and clear of all
Liens (other than any Lien securing the Credit Agreement, dated as of
June 29, 1994, among the Account Party (as successor by merger to
Mafco Worldwide Corporation), the financial institutions from time to
time parties thereto and The Chase Manhattan Bank (as successor by
merger to The Chase Manhattan Bank, N.A.), as agent, as the same may
be amended, supplemented or otherwise modified from time to time);
4. Conditions to Effectiveness. This Consent shall become
effective on and as of the date that the Issuing Bank shall have received
counterparts of this Consent, duly executed by the Guarantor and the Account
Party.
5. Representations and Warranties. The Account Party, as of
the date hereof and after giving effect to the consents and waivers contained
herein, hereby represents and warrants that the representations and warranties
made by the Account Party and the Guaran- tor in the Reimbursement Agreement
and the other Credit Documents to which it is a party shall be true and
complete in all material respects on and as of the date of consummation of the
Merger (immediately before and immediately after the consummation thereof)
with the same force and effect as if made on and as of such date (or, if any
such representation and warranty is expressly stated to have been made as of a
specific date, as of such specific date); provided that each reference to the
2
<PAGE>
Reimbursement Agreement therein shall be deemed to be a reference to the
Reimbursement Agreement after giving effect to this Consent. The Account Party
and the Guarantor hereby represent and warrant that no Default or Event of
Default has occurred and is continuing.
6. Reference to and Effect on the Credit Documents; Limited
Effect. On and after the date hereof and the satisfaction of the conditions
contained in Section 4 of this Consent, each reference in the Reimbursement
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Reimbursement Agreement, and each reference in the other
Credit Documents to "the Reimbursement Agreement", "thereunder", "thereof" or
words of like import referring to the Reimbursement Agreement, shall mean and
be a reference to the Reimbursement Agreement as modified hereby. From and
after the date that this Consent has become effective and the Merger has been
consummated, references in the Reimbursement Agreement to the "Account Party"
shall be deemed to be references to Pneumo (as the surviving corporation in
the Merger). The execution, delivery and effectiveness of this Consent shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Issuing Bank under any of the Credit Documents, nor
constitute a waiver or amendment of any provisions of any of the Credit
Documents. Except as expressly modified herein, all of the provisions and
covenants of the Reimbursement Agreement and the other Credit Documents are
and shall continue to remain in full force and effect in accordance with the
terms thereof and are hereby in all respects ratified and confirmed.
7. Counterparts. This Consent may be executed by one or more
of the parties hereto in any number of separate counterparts (which may
include counterparts delivered by facsimile transmission) and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. Any executed counterpart delivered by facsimile transmission shall
be effective as for all purposes hereof.
8. GOVERNING LAW. THIS CONSENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Consent to be executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
MAFCO CONSOLIDATED GROUP INC.
By: /s/ Glenn P. Dickes
--------------------------------
Name: Glenn P. Dickes
Title: Vice President
PNEUMO ABEX CORPORATION
By: /s/ Glenn P. Dickes
--------------------------------
Name: Glenn P. Dickes
Title: Vice President
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank)
By: /s/ Neil R. Boylan
--------------------------------
Name: Neil R. Boylan
Title: Vice President
4
<PAGE>
FIRST AMENDMENT
TO
POWER CONTROL TECHNOLOGIES INC.
1995 STOCK OPTION PLAN
The Power Control Technologies Inc. 1995 Stock Option Plan
(the "Plan"), is hereby amended, effective as of February 12, 1997, as set
forth below.
1. Section 8 of the Plan is amended by restating paragraph
(h) thereof to read as follows:
The Options are nontransferable except (1) by will or by laws of
descent and distribution, or (2) as specifically provided below. The
Optionee may transfer Nonqualified Stock Options to members of his or
her Immediate Family (as defined below) or to his or her Affiliates
(as defined below) (any such transferee, "Permitted Transferee") if
the Optionee does not receive any consideration for the transfer.
"Immediate Family" refers to children, grandchildren, and spouse of
the Optionee or one or more trusts solely for the benefit of such
family members, or partnerships in which such family members are the
only partners. "Affiliate" refers to any person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Optionee. Options
may be exercised during the lifetime of the Optionee, only by the
Optionee, or by the guardian or legal representative of the Optionee
or the Permitted Transferee as described in this Section 8(h). The
Optionee shall give notice to the Company of any transfer hereunder
as soon as practicable following the date of such transfer. Any such
Permitted Transferee must agree in writing to be bound by all the
provisions of the Option Agreement
<PAGE>
relating to such transferred Option, and the Company must be given a
copy of such instrument.
3. Section 9 of the Plan is amended by restating paragraph
(b)(8) thereof to read as follows:
Free Standing Rights shall be transferable to the same extent and
subject to the same conditions as set forth in Section 8(h) of Plan.
4. Section 11 of the Plan is amended by restating the first
paragraph thereof to read as follows:
The Board at any time and from time to time may suspend,
terminate, modify or amend the Plan; provided, however, that, unless
otherwise determined by the Board, an amendment that requires
stockholder approval in order for the Plan to continue to comply with
Section 162(m) of the Code or any other law, regulation or stock
exchange requirement shall not be effective unless approved by the
requisite vote of stockholders.
Except as set forth above, the Plan is hereby ratified and
confirmed in all respects.
2
<PAGE>
Employment Agreement
EMPLOYMENT AGREEMENT, dated as of January 7, 1997, between Power
Control Technologies Inc., a Delaware corporation (the "Company") and J. Eric
Hanson (the "Executive").
The Company wishes to employ the Executive, and the Executive wishes
to accept such employment, on the terms and conditions set forth in this
Agreement.
Accordingly, the Company and the Executive hereby agree as follows:
Employment, Duties and Acceptance.
1.1 Employment, Duties. The Company hereby employs the Executive for
the Term (as defined in Section 2.1), to render exclusive and full-time
services to the Company as Executive Vice President - Finance and
Administration or in such other executive position as may be mutually agreed
upon by the Company and the Executive, and to perform such other duties
consistent with such position as may be assigned to the Executive by the Board
of Directors or any officer of the Company senior to the Executive.
1.2 Acceptance. The Executive hereby accepts such employment and
agrees to render the services described above. During the Term, the Executive
agrees to serve the Company faithfully and to the best of the Executive's
ability, to devote the Executive's entire business time, energy and skill to
such employment, and to use the Executive's best efforts, skill and ability to
promote the Company's interests. The Executive further agrees to accept
election, and to serve during all or any part of the Term, as an officer or
director of the Company and of any subsidiary or affiliate of the Company,
without any compensation therefor other than that specified in this Agreement,
if elected to any such position by the shareholders or by the Board of
Directors of the Company or of any subsidiary or affiliate, as the case may
be. You shall be permitted to serve on boards of unaffiliated companies with
the prior consent of the Company, which consent shall not be unreasonably
withheld. The Executive hereby represents and warrants that the Executive is
not subject to any other agreement, including without limitation any agreement
not to compete or confidentiality agreement, which would be violated by the
Executive's performance of services hereunder.
<PAGE>
1.3 Location. The duties to be performed by the Executive hereunder
shall be performed primarily at the office of the Company in New York City,
subject to reasonable travel requirements on behalf of the Company.
2. Term of Employment; Certain Post-Term Benefits.
2.1 The Term. The term of the Executive's employment under this
Agreement (the "Term") shall commence on January 1, 1997 and shall end on
December 31, 1999 or such later date to which the Term is extended pursuant to
Section 2.2.
2.2 End-of-Term Provisions. At any time on or after January 1, 1999
the Company shall have the right to give written notice of non-renewal of the
Term. In the event the Company gives such notice of non-renewal, the Term
automatically shall be extended so that it ends twenty-four months after the
last day of the month in which the Company gives such notice. From and after
January 1, 2000, unless and until the Company gives written notice of
non-renewal as provided in this Section 2.2, the Term automatically shall be
extended day-by-day; upon the giving of such notice by the Company, the Term
automatically shall be extended so that it ends twenty-four months after the
last day of the month in which the Company gives such notice.
2.3 Special Curtailment. The Term shall end earlier than the original
December 31, 1999 termination date provided in Section 2.1 or any extended
termination date provided in Section 2.2, in either case if sooner terminated
pursuant to Section 4. Non-extension of the Term shall not be deemed to be a
wrongful termination of the Term or this Agreement by the Company pursuant to
Section 4.4.
3. Compensation; Benefits.
3.1 Salary. As compensation for all services to be rendered pursuant
to this Agreement, the Company agrees to pay the Executive during the Term a
base salary, payable semi-monthly in arrears, at the annual rate of not less
than $491,000 through September 30, 1997 and $500,000 thereafter, less such
deductions or amounts to be withheld as required by applicable law and
regulations (the
2
<PAGE>
"Base Salary"). In the event that the Company, in its sole discretion, from
time to time determines to increase the Base Salary, such increased amount
shall, from and after the effective date of the increase, constitute "Base
Salary" for purposes of this Agreement.
3.2 Discretionary Bonus. In addition to the amounts to be paid to the
Executive pursuant to Section 3.1, the Executive will be eligible, upon the
decision of the Board of Directors and in the Board's sole discretion, to
receive a discretionary bonus with respect to each year of the Term in such
amount as the Board in its sole discretion may determine.
3.3 Business Expenses. The Company shall pay or reimburse the
Executive for all reasonable expenses actually incurred or paid by the
Executive during the Term in the performance of the Executive's services under
this Agreement, upon presentation of expense statements or vouchers or such
other supporting information as the Company customarily may require of its
officers provided, however, that the maximum amount available for such
expenses during any period may be fixed in advance by the Chairman or Vice
Chairman of the Board of Directors, the President of the Company, or the Board
of Directors.
3.4 Vacation. During the Term, the Executive shall be entitled to a
vacation period or periods of four weeks taken in accordance with the vacation
policy of the Company during each year of the Term. Vacation time not used by
the end of a year shall be forfeited.
3.5 Fringe Benefits. During the Term, the Executive shall be entitled
to all benefits for which the Executive shall be eligible under any qualified
pension plan, 401(k) plan, group insurance or other socalled "fringe" benefit
plan which the Company provides to its employees generally, together with
executive medical benefits for the Executive, the Executive's spouse and the
Executive's children as from time to time in effect for officers of the
Company generally. The Company will provide fringe benefits to the Executive
which are substantially equivalent to the benefits provided under the Prior
Agreement referred to in Section 10.3.
3
<PAGE>
3.6 Additional Benefits. During the Term, the Executive shall be
entitled to such other benefits as are specified in Appendix I to this
Agreement.
4. Termination.
4.1 Death. If the Executive shall die during the Term, the Term shall
terminate and no further amounts or benefits shall be payable hereunder,
except that the Executive's legal representatives shall be entitled to receive
continued payments in an amount equal to 60% of the Base Salary, in the manner
specified in Section 3.1, until the end of the Term (as in effect immediately
prior to the Executive's death) or, if the Company has not then given written
notice of non-renewal pursuant to Section 2.2, for a period of twenty-four
months after the last day of the month in which termination described in this
Section 4.1 occurred, whichever is longer.
4.2 Disability. If during the Term the Executive shall become
physically or mentally disabled, whether totally or partially, such that the
Executive is unable to perform the Executive's services hereunder for (i) a
period of six consecutive months or (ii) for shorter periods aggregating six
months during any twenty-four month period, the Company may at any time after
the last day of the six consecutive months of disability or the day on which
the shorter periods of disability shall have equalled an aggregate of six
months, by written notice to the Executive (but before the Executive has
recovered from such disability), terminate the Term and no further amounts or
benefits shall be payable hereunder, except that the Executive shall be
entitled to receive (i) continued payments in an amount equal to 60% of the
Base Salary, in the manner specified in Section 3.1, until the end of the Term
(as in effect immediately prior to such termination) or, if the Company has
not then given notice of non-renewal pursuant to Section 2.2, for a period of
twenty-four months after the last day of the month in which termination
described in this Section 4.2 occurred, whichever is longer and (ii) such
amounts and benefits, if any, specified in Paragraph 6 of Appendix I. If the
Executive shall die before receiving all payments to be made by the Company in
accordance with the foregoing, such payments shall be made to a beneficiary
designated by the Executive on a form prescribed for such purpose by the
Company, or in the absence of such designation to the Executive's legal
representative.
4
<PAGE>
4.3 Cause. In the event of gross neglect by the Executive of the
Executive's duties hereunder, conviction of the Executive of any felony,
conviction of the Executive of any lesser crime or offense involving the
property of the Company or any of its subsidiaries or affiliates, willful
misconduct by the Executive in connection with the performance of any material
portion of the Executive's duties hereunder, breach by the Executive of any
material provision of this Agreement or the Company's Code of Conduct as in
effect from time to time or any other conduct on the part of the Executive
which would make the Executive's continued employment by the Company
materially prejudicial to the best interests of the Company, the Company may
at any time by written notice to the Executive terminate the Term and, upon
such termination, this Agreement shall terminate and the Executive shall be
entitled to receive no further amounts or benefits hereunder, except any as
shall have been earned to the date of such termination.
5
<PAGE>
4.4 Company Breach. In the event of the breach of any material
provision of this Agreement by the Company, the Executive shall be entitled to
terminate the Term upon 60 days' prior written notice to the Company. Upon
such termination, or in the event the Company terminates the Term or this
Agreement other than pursuant to the provisions of Sections 4.2 or 4.3, the
Company shall continue to provide the Executive (i) payments of Base Salary,
in the manner and amount specified in Section 3.1 and (ii) fringe benefits and
additional benefits in the manner and amounts specified in Sections 3.5 and
3.6 until the end of the Term (as in effect immediately prior to such
termination) or, if the Company has not then given written notice of
non-renewal pursuant to Section 2.2, for a period of twenty-four months after
the last day of the month in which termination described in this Section 4.4
occurred, whichever is longer (the "Damage Period"). The Company's obligations
pursuant to this Section 4.4 are subject to the Executive's duty, during the
period commencing in the thirteenth month of the Damage Period through the end
of the Damage Period, to mitigate damages by seeking other employment
provided, however, that the Executive shall not be required to accept a
position of lesser importance or of substantially different character than the
position held with the Company immediately prior to the effective date of
termination or in a location outside of the New York City metropolitan area.
To the extent that the Executive shall earn compensation during the last
twelve months of the Damage Period (without regard to when such compensation
is paid), the Base Salary payments to be made by the Company pursuant to this
Section 4.4 shall be correspondingly reduced.
4.5 Litigation Expenses. Except as provided for in Section 5.7, if
the Company and the Executive become involved in any action, suit or
proceeding relating to the alleged breach of this Agreement by the Company or
the Executive, and if a judgment in such action, suit or proceeding is
rendered in favor of the Executive, the Company shall reimburse the Executive
for all expenses (including reasonable attorneys' fees) incurred by the
Executive in connection with such action, suit or proceeding. Such costs shall
be paid to the Executive promptly upon presentation of expense statements or
other supporting information evidencing the incurrence of such expenses.
6
<PAGE>
5. Protection of Confidential Information;
Non-Competition.
5.1 In view of the fact that the Executive's work for the Company
will bring the Executive into close contact with many confidential affairs of
the Company not readily available to the public, and plans for future
developments, the Executive agrees:
5.1.1 To keep and retain in the strictest confidence all confidential
matters of the Company, including, without limitation, "know how", trade
secrets, customer lists, pricing policies, operational methods, technical
processes, formulae, inventions and research projects, other business affairs
of the Company, and any information concerning any director, officer, employee
or agent of the Company or their respective family members learned by the
Executive heretofore or hereafter, and not to disclose them to anyone outside
of the Company, either during or after the Executive's employment with the
Company, except in the course of performing the Executive's duties hereunder
or with the Company's express written consent. The foregoing prohibitions
shall include, without limitation, directly or indirectly publishing (or
causing, participating in, assisting or providing any statement, opinion or
information in connection with the publication of) any diary, memoir, letter,
story, photograph, interview, article, essay, account or description (whether
fictionalized or not) concerning any of the foregoing, publication being
deemed to include any presentation or reproduction of any written, verbal or
visual material in any communication medium, including any book, magazine,
newspaper, theatrical production or movie, or television or radio programming
or commercial; and
5.1.2 To deliver promptly to the Company on termination of the
Executive's employment by the Company, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints
and other documents (and all copies thereof) relating to the Company's
business and all property associated therewith, which the Executive may then
possess or have under the Executive's control.
5.2 During the Term, the Executive shall not, directly or indirectly,
enter the employ of, or render any services to, any person, firm or
corporation engaged in
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any business competitive with the business of the Company or of any of its
subsidiaries or affiliates; the Executive shall not engage in such business on
the Executive's own account; and the Executive shall not become interested in
any such business, directly or indirectly, as an individual, partner,
shareholder, director, officer, principal, agent, employee, trustee,
consultant, or in any other relationship or capacity provided, however, that
nothing contained in this Section 5.2 shall be deemed to prohibit the
Executive from acquiring, solely as an investment, up to five percent (5%) of
the outstanding shares of capital stock of any public corporation.
5.3 If the Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the Company
shall have the following rights and remedies:
5.3.1 The right and remedy to have the provisions of this Agreement
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; and
5.3.2 The right and remedy to require the 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
the Executive as the result of any transactions constituting a breach of any
of the provisions of the preceding paragraph, and the Executive hereby agrees
to account for and pay over such Benefits to the Company.
Each of the rights and remedies enumerated above shall be independent of the
other, and shall be severally enforceable, and all of such 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.
5.4 If any of the covenants contained in Sections 5.1 or 5.2, or any
part thereof, hereafter are construed to be invalid or unenforceable, the same
shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
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5.5 If any of the covenants contained in Sections 5.1 or 5.2, or any
part thereof, are held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the power to reduce the duration and/or area of
such provision and, in its reduced form, said provision shall then be
enforceable.
5.6 The parties hereto intend to and hereby confer jurisdiction to
enforce the covenants contained in Sections 5.1 and 5.2 upon the courts of any
state within the geographical scope of such covenants. In the event that the
courts of any one or more of such states shall hold such covenants wholly
unenforceable by reason of the breadth of such covenants or otherwise, it is
the intention of the parties hereto that such determination not bar or in any
way affect the Company's right to the relief provided above in the courts of
any other states within the geographical scope of such covenants as to
breaches of such covenants in such other respective jurisdictions, the above
covenants as they relate to each state being for this purpose severable into
diverse and independent covenants.
5.7 In the event that any action, suit or other proceeding in law or
in equity is brought to enforce the covenants contained in Sections 5.1 and
5.2 or to obtain money damages for the breach thereof, and such action results
in the award of a judgment for money damages or in the granting of any
injunction in favor of the Company, all expenses (including reasonable
attorneys' fees) of the Company in such action, suit or other proceeding shall
(on demand of the Company) be paid by the Executive. In the event the Company
fails to obtain a judgment for money damages or an injunction in favor of the
Company, all expenses (including reasonable attorneys' fees) of the Executive
in such action, suit or other proceeding shall (on demand of the Executive) be
paid by the Company.
6. Inventions and Patents.
6.1 The Executive agrees that all processes, technologies and
inventions (collectively, "Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the Term shall belong to the
Company, provided that such Inventions grew out of the Executive's work with
the Company or any of its
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subsidiaries or affiliates, are related in any manner to the business
(commercial or experimental) of the Company or any of its subsidiaries or
affiliates or are conceived or made on the Company's time or with the use of
the Company's facilities or materials. The Executive shall further: (a)
promptly disclose such Inventions to the Company; (b) assign to the Company,
without additional compensation, all patent and other rights to such
Inventions for the United States and foreign countries; (c) sign all papers
necessary to carry out the foregoing; and (d) give testimony in support of the
Executive's inventorship.
6.2 If any Invention is described in a patent application or is
disclosed to third parties, directly or indirectly, by the Executive within
two years after the termination of the Executive's employment by the Company,
it is to be presumed that the Invention was conceived or made during the Term.
6.3 The Executive agrees that the Executive will not assert any
rights to any Invention as having been made or acquired by the Executive prior
to the date of this Agreement, except for Inventions, if any, disclosed to the
Company in writing prior to the date hereof.
7. Intellectual Property.
The Company shall be the sole owner of all the products and proceeds
of the Executive's services hereunder, including, but not limited to, all
materials, ideas, concepts, formats, suggestions, developments, arrangements,
packages, programs and other intellectual properties that the Executive may
acquire, obtain, develop or create in connection with and during the Term,
free and clear of any claims by the Executive (or anyone claiming under the
Executive) of any kind or character whatsoever (other than the Executive's
right to receive payments hereunder). The Executive shall, at the request of
the Company, execute such assignments, certificates or other instruments as
the Company may from time to time deem necessary or desirable to evidence,
establish, maintain, perfect, protect, enforce or defend its right, title or
interest in or to any such properties.
8. Indemnification.
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The Company will indemnify the Executive, to the maximum extent
permitted by applicable law, against all costs, charges and expenses incurred
or sustained by the Executive in connection with any action, suit or
proceeding to which the Executive may be made a party by reason of the
Executive being an officer, director or employee of the Company or of any
subsidiary or affiliate of the Company.
9. Notices.
All notices, requests, consents and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given if delivered personally, sent by overnight courier or
mailed first class, postage prepaid, by registered or certified mail (notices
mailed shall be deemed to have been given on the date mailed), as follows (or
to such other address as either party shall designate by notice in writing to
the other in accordance herewith):
If to the Company, to:
Power Control Technologies Inc.
35 East 62nd Street
New York, New York 10021
Attention: Barry F. Schwartz
Executive Vice President and
General Counsel
If to the Executive, to:
J. Eric Hanson
30 East 76th Street
New York, New York 10021
10. General.
10.1 This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely in New York.
10.2 The section headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
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10.3 This Agreement sets forth the entire agreement and understanding
of the parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understandings, written or oral, relating to the
subject matter hereof, including, without limitation, the Agreement dated as
of January 1, 1995 (the "Prior Agreement") between the Company's affiliate,
MacAndrews & Forbes Holdings Inc. and the Executive, including all Appendices
and Amendments thereto, which Prior Agreement is deemed terminated hereby and
of no further force or effect. No representation, promise or inducement has
been made by either party that is not embodied in this Agreement, and neither
party shall be bound by or liable for any alleged representation, promise or
inducement not so set forth.
10.4 This Agreement, and the Executive's rights and obligations
hereunder, may not be assigned by the Executive. The Company may assign its
rights, together with its obligations, hereunder (i) to any affiliate or (ii)
to third parties in connection with any sale, transfer or other disposition of
all or substantially all of its business or assets; in any event the
obligations of the Company hereunder shall be binding on its successors or
assigns, whether by merger, consolidation or acquisition of all or
substantially all of its business or assets.
10.5 This Agreement may be amended, modified, superseded, canceled,
renewed or extended and the terms or covenants hereof may be waived, only by a
written instrument executed by both of the parties hereto, or in the case of a
waiver, by the party waiving compliance. The failure of either party at any
time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by
either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such breach, or a waiver of the breach of any other term or covenant contained
in this Agreement.
11. Subsidiaries and Affiliates.
11.1 As used herein, the term "subsidiary" shall mean any corporation
or other business entity controlled directly or indirectly by the corporation
or other business entity in question, and the term "affiliate" shall mean and
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include any corporation or other business entity directly or indirectly
controlling, controlled by or under common control with the corporation or
other business entity in question.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
POWER CONTROL TECHNOLOGIES INC.
By: /s/ Barry F. Schwartz
--------------------------------
Barry F. Schwartz,
Executive Vice President and
General Counsel
/s/ J. Eric Hanson
----------------------------------
J. Eric Hanson
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APPENDIX I
Additional Benefits:
1. Medical Examination. The Executive shall be reimbursed by the
Company for the reasonable cost of one annual medical examination upon
presentation of an expense statement.
2. Automobile. The Company shall afford the Executive the right to
use an automobile on a continuing basis and shall provide garaging near the
Executive's residence, all on the following basis. The Company shall pay, upon
presentation of an expense statement, all reasonable expenses associated with
the operation of such automobile and the rental of such garage space in the
same manner as is, from time to time, in effect with respect to executive
officers of the Company generally, including, without limitation, all
reasonable maintenance and insurance expenses. The automobile furnished by the
Company shall be a late model top-of-the-line Range Rover or like vehicle to
be reasonably selected by the Executive. Upon the expiration of the Term, the
Executive promptly shall return the automobile to the Company.
3. Insurance. The Company agrees to provide the Executive with
additional term life insurance coverage with a face amount of twice the then
current Base Salary, subject to the insurer's satisfaction with the results of
any required medical examination to which the Executive hereby agrees to
submit, on the following basis. The Executive may select a plan of his choice
and may designate the beneficiary of such plan. The Company shall pay, upon
presentation of an expense statement, the periodic premiums relating to such
additional term life insurance payable during the Term.
4. Tax Advisor. The Executive shall be reimbursed by the Company,
upon presentation of an expense statement, for the reasonable fees and
disbursements of a personal tax advisor to be selected by the Executive.
5. Estate Planning. The Executive shall be reimbursed by the Company,
upon presentation of an expense statement, for the reasonable fees and
disbursements of an estate planning advisor to be selected by the Executive.
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6. Disability. If the Company elects to terminate the Term pursuant
to Section 4.2 of the Agreement, in addition to the amounts payable under such
Section, for the shorter of the period the Executive remains disabled or until
the Executive has attained the age of 65, the Company shall continue to
provide benefits for the Executive under the corporate group life insurance
plan and for the Executive, his spouse and children under the corporate group
medical (including the executive medical plan) insurance plan, to the extent
permitted by such plans and to the extent such benefits continue to be
provided to the Company's employees or officers, as applicable, generally.
7. Stock Options. The Executive shall be granted options to purchase
250,000 shares of the Company's common stock pursuant to the Company's stock
option plan. The exercise price for such options shall be the closing price
for such shares on the date such options are granted.
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POWER CONTROL TECHNOLOGIES INC.
1997 STOCK OPTION PLAN
1. PURPOSE
This Power Control Technologies Inc. 1997 Stock Option Plan (the
"Plan") is intended to encourage stock ownership by employees, directors and
consultants of Power Control Technologies Inc. (the "Company") and Affiliate
Corporations (as defined in Section 2(a)), so that they may acquire or
increase their proprietary interest in the Company, and to encourage such
employees, directors and consultants to remain in the employ or service of the
Company and to put forth maximum efforts for the success of the business of
the Company. It is further intended that options granted pursuant to Section 6
of the Plan shall constitute "incentive stock options" ("Incentive Stock
Options") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and the regulations issued thereunder (the "Code"), and
options granted pursuant to Section 7 of the Plan shall constitute
"nonqualified stock options" ("Nonqualified Stock Options"). Stock
appreciation rights ("Rights") related to stock options granted under the Plan
("Options"), and Rights that are not related to Options, may be granted under
the Plan, as hereinafter set forth.
2. DEFINITIONS
As used in the Plan, the following words and phrases shall have the
meanings indicated:
(a) "Affiliate Corporation" shall mean any corporation, directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with the Company.
(b) "Disability" shall mean an Optionee's inability to engage in any
substantial gainful activity by reason
<PAGE>
of any medically determinable physical or mental impairment that can be
expected to result in death or that has lasted or can be expected to last for
a continuous period of not less than twelve (12) months.
(c) "Fair Market Value" per share as of a particular date shall mean
(i) the closing price per share of Common Stock (as defined in Section 5) on a
national securities exchange or on the NASDAQ stock market for the last
preceding date on which there was a sale of Common Stock on such exchange, or
(ii) if the shares of Common Stock are then traded on any other
over-the-counter market, the average of the closing bid and asked prices for
the shares of Common Stock in such over-the-counter market for the last
preceding date on which there was a sale of Common Stock in such market or
(iii) if the shares of Common Stock are not then listed on a national
securities exchange or traded in an over-the-counter market, such value as the
Committee in its discretion may determine.
(d) "Parent Corporation" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at
the time of granting an Option, each of such corporations (other than the
Company) owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
(e) "Subsidiary Corporation" shall mean any corporation (other than
the Company) in an unbroken chain of corporations beginning with the Company
if, at the time of granting an Option, each of such corporations (other than
the last corporation in an unbroken chain) owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
(f) "Ten Percent Stockholder" shall mean an Optionee who, at the time
an Incentive Stock Option is granted, owns stock possessing more than ten
percent (10%) of the
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total combined voting power of all classes of stock of the Company or of its
Parent or Subsidiary Corporations.
3. ADMINISTRATION
Unless otherwise determined by the Board of Directors of the Company
(the "Board"), the Plan shall be administered by a committee appointed by the
Board ("Compensation Committee"), which shall consist of two or more members
of the Board who are "outside directors" within the meaning of section 162(m)
of the Code. The Compensation Committee may, in its discretion, delegate to a
subcommittee its duties hereunder, including the grant of Options and Rights.
The full Board shall also have the authority, in its discretion, to grant
Options and Rights under the Plan and to administer the Plan. For all purposes
under the Plan, any entity which performs the duties described herein, shall
be referred to as the "Committee."
The Committee shall have the authority in its discretion, subject to
and not inconsistent with the express provisions of the Plan, to administer
the Plan and to exercise all the powers and authorities either specifically
granted to it under the Plan or necessary or advisable in the administration
of the Plan, including, without limitation, the authority to grant Options and
Rights; to determine which Options shall constitute Incentive Stock Options
and which Options shall constitute Nonqualified Stock Options; to determine
which Options, if any, shall be accompanied by Rights; to determine the
purchase price of the shares of Common Stock covered by each Option (the
"Option Price"); to determine the persons to whom, and the time or times at
which, Options shall be granted; to determine the number of shares to be
covered by each Option; to interpret the Plan; to prescribe, amend and rescind
rules and regulations relating to the Plan; to determine the terms and
provisions of the Option Agreements and Award Agreements (which need not be
identical) entered into in connection with Options and Rights granted under
the Plan; and to make all other determinations deemed necessary or advis-
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able for the administration of the Plan. The Committee may delegate to one or
more of its members or to one or more agents such administrative duties as it
may deem advisable, and the Committee or any person to whom it has delegated
duties as aforesaid may employ one or more persons to render advice with
respect to any responsibility the Committee or such person may have under the
Plan.
No member of the Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Option or
Right granted hereunder.
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4. ELIGIBILITY
Options or Rights, or both, may be granted to key employees
(including, without limitation, officers) and directors (whether or not such
directors are employees) of, or consultants to, the Company or its present or
future Affiliate Corporations, except that Incentive Stock Options shall be
granted only to individuals who, on the date of such grant, are employees of
the Company or a Parent Corporation or a Subsidiary Corporation. In
determining the persons to whom Options and Rights shall be granted and the
number of shares to be covered by each Option and any Rights, the Committee
shall take into account the duties of the respective persons, their present
and potential contributions to the success of the Company and such other
factors as the Committee shall deem relevant in connection with accomplishing
the purpose of the Plan. A person to whom an Option or a Right has been
granted hereunder is sometimes referred to herein as an "Optionee."
An Optionee shall be eligible to receive more than one grant of an
Option or Rights during the term of the Plan, but only on the terms and
subject to the restrictions hereinafter set forth.
5. STOCK
The stock subject to Options and Rights hereunder shall be shares of
the Company's common stock, par value $0.01 per share ("Common Stock"). Such
shares may, in whole or in part, be authorized but unissued shares or shares
that shall have been or that may be reacquired by the Company. The aggregate
number of shares of Common Stock with respect to which Options and Rights may
be granted from time to time under the Stock Plan shall not exceed 1,000,000.
No person may be granted Options or Rights under the Plan during any calendar
year with respect to more than 600,000 shares of Common Stock. The limitations
established by the preceding two sentences shall be subject to adjustment as
provided in Section 8(h).
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6. INCENTIVE STOCK OPTIONS
Options granted pursuant to this Section 6 are intended to constitute
Incentive Stock Options and shall be subject to the following special terms
and conditions, in addition to the general terms and conditions specified in
Section 8.
(a) Value of Shares. The aggregate Fair Market Value (determined as
of the date the Incentive Stock Option is granted) of the shares of Common
Stock with respect to which Options granted under the Plan and all other
option plans of the Company, any Parent Corporation and any Subsidiary
Corporation become exercisable for the first time by an Optionee during any
calendar year shall not exceed $100,000.
(b) Ten Percent Stockholder. In the case of an Incentive Stock Option
granted to a Ten Percent Stockholder, (i) the Option Price shall not be less
than one hundred ten percent (110%) of the Fair Market Value of a share of
Common Stock on the date of grant of such Incentive Stock Option, and (ii) the
exercise period shall not exceed five (5) years from the date of grant of such
Incentive Stock Option.
7. NONQUALIFIED STOCK OPTIONS
Options granted pursuant to this Section 7 are intended to constitute
Nonqualified Stock Options and shall be subject only to the general terms and
conditions specified in Section 8.
8. TERMS AND CONDITIONS OF OPTIONS
Each Option granted pursuant to the Plan shall be evidenced by a
written stock option agreement ("Option Agreement") between the Company and
the Optionee, which shall comply with and be subject to the following terms
and conditions:
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(a) Number of Shares. Each Option Agreement shall state the number of
shares of Common Stock to which the Option relates.
(b) Option Price. Each Option Agreement shall state the Option Price
per share of Common Stock, which, in the case of Incentive Stock Options,
shall be not less than one hundred percent (100%) of the Fair Market Value of
a share of Common Stock on the date of grant of the Option. The Option Price
shall be subject to adjustment as provided in Section 8(h).
(c) Medium and Time of Payment. The Option Price shall be paid in
full, at the time of exercise, in cash or in shares of Common Stock having a
Fair Market Value equal to the Option Price or in a combination of cash and
such shares, and may be effected in whole or in part with monies borrowed from
the Company pursuant to repayment terms and conditions as shall be determined
from time to time by the Committee, in its discretion, separately with respect
to each exercise of Options and each Optionee; provided, however, that each
such method and time for payment and each such borrowing and terms and
conditions of security, if any, and repayment shall be permitted by and be in
compliance with applicable law.
(d) Term and Exercise of Options. Options shall be exercisable over
the exercise period as and at the times and upon the conditions that the
Committee may determine, as reflected in the Option Agreement; provided,
however, that the Committee shall have the authority to accelerate the
exercisability of any outstanding Option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. The exercise
period shall be determined by the Committee; provided, however, that in the
case of an Incentive Stock Option, such exercise period shall not exceed ten
(10) years from the date of grant of such Incentive Stock Option. The exercise
period shall be subject to earlier termination as provided in Section 8(e) and
8(f). An Option may be exercised, as to any or all full shares of Common Stock
as to which the Option has become exercisable, by giving written
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notice of such exercise to the Company; provided, however, that an Option may
not be exercised at any time as to fewer than 100 shares (or such number as to
which the Option is then exercisable if such number of shares is less than
100).
(e) Termination of Employment or Service. Except as provided in this
Section 8(e) and in Section 8(f), an Option may not be exercised unless the
Optionee is then in the employ of, or a director of, or a consultant to (1)
the Company, (2) an Affiliate Corporation or (3) a corporation issuing or
assuming the Option in a transaction to which Section 424(a) of the Code
applies or a Parent Corporation or Subsidiary Corporation of the corporation
described in clauses (1), (2) or (3) above in this Section 8(e) (any such
corporation, an "Employer") and unless the Optionee has remained continuously
employed or in service with an Employer since the date of grant of the Option.
Unless otherwise determined by the Committee, in the event that the employment
or service of an Optionee shall terminate other than by reason of death or
Disability (and regardless of whether the Optionee is entitled to any
contractual or severance payments with respect to such termination), then all
Options of such Optionee that are not exercisable as of the date of such
termination shall terminate as of the date of termination and all exercisable
Options shall (unless earlier terminated in accordance with their terms)
remain exercisable for a period of three months immediately following the date
of termination and shall terminate thereafter. Nothing in the Plan or in any
Option or Right granted pursuant hereto shall confer upon an individual any
right to continue in the employ of, or as a director of, or a consultant to an
Employer or interfere in any way with the right of an Employer to terminate
such employment or service at any time.
(f) Death or Disability of Optionee. Unless otherwise determined by
the Committee, if an Optionee shall die while employed by, or a director of,
or a consultant to an Employer, or if the Optionee's employment or service
shall terminate by reason of Disability, then all
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Options of such Optionee that are not exercisable as of the date of such death
or termination by reason of Disability shall terminate as of the date of such
death or termination by reason of Disability and all Options that are
exercisable as of such date shall (unless earlier terminated in accordance
with their terms) remain exercisable for a period of one year immediately
following the date of such death or termination by reason of Disability and
shall terminate thereafter.
(g) Nontransferability of Options. Unless otherwise determined by the
Committee, the Options shall not be transferable otherwise than by will or by
the laws of descent and distribution, and Options may be exercised, during the
lifetime of the Optionee, only by the Optionee or by the guardian or legal
representative of the Optionee.
(h) Effect of Certain Changes.
(1) If there is any change in the number of shares of Common
Stock as a result of the declaration of stock dividends,
recapitalization resulting in stock splits or combinations or
exchanges of such shares, the number of shares of Common Stock
available for Options and Rights, the number of such shares covered
by outstanding Options and Rights, and the price per share of such
Options or the applicable market value of Rights shall be
proportionately adjusted by the Compensation Committee to reflect any
increase or decrease in the number of issued shares of Common Stock;
provided, however, that any fractional shares resulting from such
adjustment shall be eliminated.
(2) In the event of a change in the Common Stock of the
Company as presently constituted, which is limited to a change of all
of its authorized shares with par value into the same number of
shares with a different par value or without par value, the shares
resulting from any such change shall be
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deemed to be the Common Stock within the meaning of the Plan.
(3) To the extent that the foregoing adjustments relate to
stock or securities of the Company, such adjustments shall be made by
the Compensation Committee, whose determination shall be final,
binding and conclusive, provided that each Incentive Stock Option
granted pursuant to the Plan shall not be adjusted in a manner that
causes such option to fail to continue to qualify as an Incentive
Stock Option within the meaning of Section 422 of the Code.
(i) Rights as a Stockholder. An Optionee or a transferee of an Option
shall have no rights as a stockholder with respect to any shares covered by
the Option until the date of the issuance of a stock certificate to him or her
for such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distribution
of other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 8(h).
(j) Other Provisions. The Option Agreements authorized under the Plan
shall contain such other provisions, including, without limitation, (i) the
granting of Rights, (ii) the imposition of restrictions upon the exercise of
an Option and (iii) in the case of an Incentive Stock Option, the inclusion of
any condition not inconsistent with such Option's qualifying as an Incentive
Stock Option, as the Committee shall deem advisable.
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9. STOCK APPRECIATION RIGHTS
(a) Grant and Exercise. Rights may be granted either alone ("Free
Standing Rights") or in conjunction with all or part of any Option granted
under the Plan ("Related Rights"). In the case of a Nonqualified Stock Option,
Related Rights may be granted either at or after the time of the grant of such
Option. In the case of an Incentive Stock Option, Related Rights may be
granted only at the time of the grant of the Incentive Stock Option.
A Related Right or applicable portion thereof granted with respect to
any Option shall terminate and no longer be exercisable upon the termination
or exercise of the related Option, except that, unless otherwise determined by
the Committee, a Related Right granted with respect to less than the full
number of shares covered by a related Option shall only be reduced if and to
the extent that the number of shares covered by the exercise or termination of
the related Option exceeds the number of shares not covered by the Right
immediately prior to such termination or exercise.
A Related Right may be exercised in accordance with paragraph (b) of
this Section 9, by surrendering the applicable portion of the related Option.
Upon such exercise and surrender, the Optionee shall be entitled to receive an
amount determined in the manner prescribed in paragraph (b) of this Section 9.
Options which have been so surrendered, in whole or in part, shall no longer
be exercisable to the extent the Related Rights have been exercised.
(b) Terms and Conditions. Rights shall be subject to such terms and
conditions not inconsistent with the provisions of the Plan as shall be
determined from time to time by the Committee, including the following:
(1) Related Rights shall be exercisable only at such time or
times and to the extent that the
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Options to which the Related Rights relate shall be exercisable in
accordance with the provisions of Sections 6, 7 and 8 and this
Section 9 of the Plan.
(2) Upon the exercise of a Related Right, an Optionee shall
be entitled to receive up to, but not more than, an amount in cash or
shares of Common Stock equal in value to the excess of the Fair
Market Value of one share of Common Stock over the Option Price per
share specified in the related Option multiplied by the number of
shares in respect of which the Related Right shall have been
exercised, with the Committee having the right to determine the form
of payment.
(3) Unless otherwise determined by the Committee, Related
Rights shall be transferable only when and to the extent (and subject
to the same restrictions) that the underlying Option would be
transferable under Section 8(g) of the Plan.
(4) Upon an exercise of a Related Right, the Option or part
thereof to which the Related Right relates shall terminate but the
number of shares available for issuance set forth in Section 5 of the
Plan shall be reduced only by the number of shares actually issued
upon the exercise of such Related Right.
(5) A Related Right granted in connection with an Incentive
Stock Option may be exercised only if and when the market price of
the Common Stock subject to the Incentive Stock Option exceeds the
exercise price of such Option.
(6) Each Free Standing Right granted pursuant to the Plan
shall be evidenced by a written award agreement ("Award Agreement")
between the Company and the recipient. Free Standing Rights shall be
exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee at or after grant
thereof.
12
<PAGE>
(7) The term of each Free Standing Right shall be fixed by
the Committee.
(8) Upon the exercise of a Free Standing Right, a recipient
shall be entitled to receive up to, but not more than, an amount in
cash or shares of Common Stock equal in value to the excess of the
Fair Market Value of one share of Common Stock over the price per
share specified in the Award Agreement multiplied by the number of
shares in respect of which such Right is being exercised, with the
Committee having the right to determine the form of payment.
(9) Unless otherwise determined by the Committee, Free
Standing Rights shall not be transferable otherwise than by will or
by the laws of descent and distribution, and may be exercised, during
the lifetime of the recipient, only by the recipient or by the
guardian or legal representative of the recipient.
(10) In the event of the termination of employment or
service of a recipient of a Free Standing Right or the death,
disability or retirement of such recipient of a Free Standing Right,
such Free Standing Right shall be exercisable to the same extent that
an Option would have been exercisable in accordance with the
provisions of Sections 8(e) and (f), in the event of the termination
of employment or service or the death, disability or retirement of
the Optionee.
10. AGREEMENT BY OPTIONEE REGARDING WITHHOLDING TAXES
If the Committee shall so require as a condition of exercise, each
Optionee shall agree that
(a) no later than the date of exercise of any Option or
Right granted hereunder, the Optionee will pay to the Company or make
ar-
13
<PAGE>
rangements satisfactory to the Committee regarding payment of any
federal, state or local taxes of any kind required by law to be
withheld upon the exercise of such Option or Right; and
(b) the Company shall have the right, to the extent
permitted or required by law, to deduct from any payment of any kind
otherwise due to the Optionee, federal, state and local taxes of any
kind required by law to be withheld upon the exercise of such Option
or Right.
11. TERM OF PLAN
Options and Rights may be granted pursuant to the Plan from time to
time within a period of ten (10) years from the date the Plan is adopted by
the Board.
12. AMENDMENT AND TERMINATION OF THE PLAN
The Board at any time and from time to time may suspend, terminate,
modify or amend the Plan; provided, however, that, unless otherwise determined
by the Board, an amendment that requires stockholder approval in order for the
Plan to continue to comply with Section 162(m) of the Code or any other law,
regulation or stock exchange requirement shall not be effective unless
approved by the requisite vote of stockholders. Except as provided in Section
8, no suspension, termination, modification or amendment of the Plan may
adversely affect any Option or Right previously granted, unless the written
consent of the Optionee is obtained.
13. EFFECTIVENESS; APPROVAL OF STOCKHOLDERS
The Plan shall take effect upon its adoption by the Board or the
Compensation Committee, but its effectiveness and the exercise of any Options
or Rights shall be subject to the approval of the stockholders of the Company,
which approval must occur within twelve (12) months after the date the Plan is
adopted by the Board.
14
<PAGE>
14. EFFECT OF HEADINGS
The section and subsection headings contained herein are for
convenience only and shall not affect the construction of the Plan.
15. COMPLIANCE WITH CERTAIN LAWS
This Plan is intended to comply with the requirements of Section
162(m) of the Code and shall be interpreted accordingly.
15
<PAGE>
EXHIBIT 11
EARNINGS PER SHARE
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
<S> <C> <C> <C>
Income (loss) from continuing operations $ 10.4 $ (4.0) $ (30.1)
Preferred stock dividend (1.6) (0.9) -
------------------ ------------------ ------------------
Income (loss) from continuing operations
net of preferred stock dividend 8.8 (4.9) (30.1)
Income from discontinued operations,
net of foreign income taxes 4.4 16.9 37.9
Gain on sale of discontinued operations 153.7 - 128.4
------------------ ------------------ ------------------
Income from discontinued operations 158.1 16.9 166.3
Extraordinary loss - (1.6) (4.8)
------------------ ------------------ ------------------
Net income available to common shareholders $ 166.9 $ 10.4 $ 131.4
================== ================== ==================
Primary shares outstanding:
Common shares outstanding during the period 20.7 20.3 19.8
================== ================== ==================
Fully diluted shares:
Primary common shares outstanding 20.7 20.3 19.8
Assumed conversion of preferred stock 2.5 1.3 -
------------------ ------------------ ------------------
Fully diluted common shares outstanding 23.2 21.6 19.8
================== ================== ==================
INCOME (LOSS) PER COMMON SHARE AND COMMON EQUIVALENT SHARE:
Continuing operations $ 0.43 $ (0.24) $ (1.52)
Discontinued operations 7.64 0.83 8.41
------------------ ------------------ ------------------
8.07 0.59 6.89
Extraordinary loss - (0.08) (0.24)
------------------ ------------------ ------------------
Net income $ 8.07 $ 0.51 $ 6.65
================== ================== ==================
FULLY DILUTED INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ 0.45 $ (0.19) $ (1.52)
Discontinued operations 6.82 0.78 8.41
------------------ ------------------ ------------------
7.27 0.59 6.89
Extraordinary loss - (0.08) (0.24)
------------------ ------------------ ------------------
Net income $ 7.27 $ 0.51 $ 6.65
================== ================== ==================
</TABLE>
<PAGE>
POWER CONTROL TECHNOLOGIES INC.
LIST OF SUBSIDIARIES
AS OF FEBRUARY 28, 1997
COMPANY NAME STATE OF INCORPORATION
- ---------------------------------------- ----------------------
PCT International Holdings Inc. Delaware (DE)
Flavors Holdings Inc. DE
Pneumo Abex Corporation DE
EVD Holdings Inc. DE
EVD Holdings S.A. France
Extraits Vegetaux Et Derives, S.A. France
Rishmac Produce & Export Co. (45% owned) Iran
Mafco Establishment Liechtenstein
Jensen-Kelly Corporation DE
American Brake Shoe Company DE
NWL Control Systems, Inc. Michigan
Stanray Corporation DE
NWL Service Corp. DE
Exhibit 21
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Joram C. Salig and Laurence
Winoker or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
POWER CONTROL TECHNOLOGIES INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of
1934, as amended, including, without limiting the generality of the foregoing,
to sign the Form 10-K in the name and on behalf of the Corporation or on
behalf of the undersigned as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract, document or other
writing, of or in connection with the Form 10-K or amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the Securities and Exchange
Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 14th day of February 1997.
/s/ Ronald O. Perelman
---------------------------
RONALD O. PERELMAN
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Joram C. Salig and Laurence
Winoker or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
POWER CONTROL TECHNOLOGIES INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of
1934, as amended, including, without limiting the generality of the foregoing,
to sign the Form 10-K in the name and on behalf of the Corporation or on
behalf of the undersigned as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract, document or other
writing, of or in connection with the Form 10-K or amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the Securities and Exchange
Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 14th day of February 1997.
/s/ Jaymie A.Durnan
---------------------------
JAYMIE A. DURNAN
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Joram C. Salig and Laurence
Winoker or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
POWER CONTROL TECHNOLOGIES INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of
1934, as amended, including, without limiting the generality of the foregoing,
to sign the Form 10-K in the name and on behalf of the Corporation or on
behalf of the undersigned as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract, document or other
writing, of or in connection with the Form 10-K or amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the Securities and Exchange
Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 14th day of February 1997.
/s/Theo W. Folz
---------------------------
THEO W. FOLZ
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Joram C. Salig and Laurence
Winoker or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
POWER CONTROL TECHNOLOGIES INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of
1934, as amended, including, without limiting the generality of the foregoing,
to sign the Form 10-K in the name and on behalf of the Corporation or on
behalf of the undersigned as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract, document or other
writing, of or in connection with the Form 10-K or amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the Securities and Exchange
Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 14th day of February 1997.
/s/ Howard Gittis
---------------------------
HOWARD GITTIS
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Joram C. Salig and Laurence
Winoker or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
POWER CONTROL TECHNOLOGIES INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of
1934, as amended, including, without limiting the generality of the foregoing,
to sign the Form 10-K in the name and on behalf of the Corporation or on
behalf of the undersigned as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract, document or other
writing, of or in connection with the Form 10-K or amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the Securities and Exchange
Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 14th day of February 1997.
/s/ J. Eric Hanson
---------------------------
J. ERIC HANSON
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Joram C. Salig and Laurence
Winoker or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
POWER CONTROL TECHNOLOGIES INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of
1934, as amended, including, without limiting the generality of the foregoing,
to sign the Form 10-K in the name and on behalf of the Corporation or on
behalf of the undersigned as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract, document or other
writing, of or in connection with the Form 10-K or amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the Securities and Exchange
Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 14th day of February 1997.
/s/ Lance A. Liebman
---------------------------
LANCE A. LIEBMAN
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Joram C. Salig and Laurence
Winoker or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
POWER CONTROL TECHNOLOGIES INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of
1934, as amended, including, without limiting the generality of the foregoing,
to sign the Form 10-K in the name and on behalf of the Corporation or on
behalf of the undersigned as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract, document or other
writing, of or in connection with the Form 10-K or amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the Securities and Exchange
Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 14th day of February 1997.
/s/ Paul M. Meister
---------------------------
PAUL M. MEISTER
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Joram C. Salig and Laurence
Winoker or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
POWER CONTROL TECHNOLOGIES INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of
1934, as amended, including, without limiting the generality of the foregoing,
to sign the Form 10-K in the name and on behalf of the Corporation or on
behalf of the undersigned as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract, document or other
writing, of or in connection with the Form 10-K or amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the Securities and Exchange
Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 14th day of February 1997.
/s/ James G. Roche
---------------------------
JAMES G. ROCHE
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Joram C. Salig and Laurence
Winoker or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
POWER CONTROL TECHNOLOGIES INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of
1934, as amended, including, without limiting the generality of the foregoing,
to sign the Form 10-K in the name and on behalf of the Corporation or on
behalf of the undersigned as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract, document or other
writing, of or in connection with the Form 10-K or amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the Securities and Exchange
Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 14th day of February 1997.
/s/ Bruce Slovin
---------------------------
BRUCE SLOVIN
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Power
Control Technologies Inc. Consolidated Balance Sheets and Statements of
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6
<SECURITIES> 0
<RECEIVABLES> 11
<ALLOWANCES> 0
<INVENTORY> 46
<CURRENT-ASSETS> 66
<PP&E> 26<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 318
<CURRENT-LIABILITIES> 24
<BONDS> 0
20
0
<COMMON> 0
<OTHER-SE> 166
<TOTAL-LIABILITY-AND-EQUITY> 318
<SALES> 10
<TOTAL-REVENUES> 18
<CGS> 7
<TOTAL-COSTS> 7
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 11
<INCOME-TAX> 0
<INCOME-CONTINUING> 10
<DISCONTINUED> 158
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169
<EPS-PRIMARY> 8.07
<EPS-DILUTED> 7.27
<FN>
<F1>
Amounts inapplicable or not disclosed as a separate line on the Consolidated
Balance Sheets or Consolidated Statements of Operations are reported as 0
herein.
Property, plant and equipment is reported net of accumulated depreciation in
the Consolidated Balance Sheets.
</FN>
</TABLE>
