SETTLEMENT AGREEMENT
SETTLEMENT AGREEMENT (the "Settlement Agreement"), dated as of February
25, 2000, between AM Products Company, formerly known as AM Cosmetics, Inc.
("AM"), a corporation duly organized and existing pursuant to the laws of the
State of Delaware with its principal place of business located in North
Arlington, New Jersey, AM Cosmetics Corp., formerly known as XXX Acquisition
Corp. ("AM Cosmetics"), a corporation duly organized and existing pursuant to
the laws of the State of Delaware with its principal place of business in North
Arlington, New Jersey, and Xxxxxx Products Company ("Xxxxxx"), a corporation
duly organized and existing pursuant to the laws of the State of Delaware with
its principal place of business located in Savannah, Georgia.
WHEREAS, AM commenced an arbitration proceeding against Xxxxxx before
the American Arbitration Association, entitled AM Cosmetics, Inc. x. Xxxxxx
Products Company, Case No. 13-181-01123-98 (the "Arbitration"); and
WHEREAS, Xxxxxx commenced a lawsuit against AM in the Superior Court of
Xxxxxx County, State of Georgia, entitled Xxxxxx Products Company, a Delaware
Corporation v. AM Cosmetics, Inc., a Delaware Corporation, Civil Action No.
1999CV08276 (the "Lawsuit"); and
WHEREAS, Xxxxxx filed a Verified Complaint for Declaratory Judgment
against AM Cosmetics and AM in the Superior Court of the State of New Jersey,
Chancery Division, for Bergen County on or about May 13, 1999, entitled Xxxxxx
Products Company v. AM Cosmetics Corp. and AM Products Company, (the "New Jersey
Action"); and
WHEREAS, AM, AM Cosmetics and Xxxxxx have now agreed to settle and
resolve all disputes, claims and counterclaims of any kind whatsoever asserted
by each of them in, or otherwise arising out of, the Lawsuit, the New Jersey
Action and the Arbitration;
NOW, THEREFORE, the parties hereby agree as follows:
1. Xxxxxx shall pay to AM, by wire transfer, the sum of two million
dollars ($2,000,000.00) as follows: (a) one million dollars ($1,000,000.00) on
or before February 25, 2000, and (b) one million dollars ($1,000,000.00) (the
"Second Payment") on or before the Second Payment Date (as defined below).
"Second Payment Date" means the earlier of July 31, 2000 or the closing of the
merger (the "Merger") whereby Crayon Acquisition Corp. ("Sub"), a wholly-owned
subsidiary of Cosmair, Inc. ("Parent"), will merge with and into Xxxxxx'x parent
corporation, Xxxxxx, Inc. ("CIC"), pursuant to an Agreement and Plan of Merger
dated as of February 25, 2000 by and among Parent, Sub and CIC (the "Merger
Agreement").
2. Concurrently with the execution and delivery of this Settlement
Agreement, as a condition to the performance by AM and AM Cosmetics of their
obligations hereunder, six directors of CIC have caused GrandBank (the "Bank")
to issue an irrevocable letter of credit for the benefit of AM, a copy of which
is attached hereto as Annex A (the "Letter of Credit"), providing for the
payment by the Bank of up to $690,000 to AM upon presentation of the documents
described in the Letter of Credit to the Bank no sooner than March 31, 2000 in
the event that, as of March 31, 2000 at 5:00 P.M., AM has not received full and
final payment of the $2 million settlement amount described in paragraph 1
hereinabove. In that event, AM shall be entitled to demand payment from the Bank
under the Letter of Credit for any and all portion(s) of such $2 million owed to
AM by Xxxxxx that AM has not received as of March 31, 2000 at 5:00 P.M. up to
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the maximum amount of $690,000. Nothing contained herein is intended to limit or
affect, nor should it be construed to limit or affect, the provisions of the
Letter of Credit.
3. Xxxxxx is presently the owner of 358.679399 shares of Payment In Kind
Preferred Shares (the "Preferred Shares") of AM Cosmetics. Xxxxxx purchased
certain preferred shares pursuant to an agreement entitled "Subscription
Agreement dated as of June 26, 1996 by and among MORNINGSIDE AM ACQUISITION
CORP. and XXXXXX PRODUCTS COMPANY with respect to the shares of the capital
stock of MORNINGSIDE AM ACQUISITION CORP." ("Subscription Agreement"), and on or
about June 27, 1997, exchanged such shares for the Preferred Shares issued by AM
Cosmetics. Pursuant to this Settlement Agreement, on or before February 25,
2000, Xxxxxx shall deliver and surrender to AM Cosmetics for cancellation
(without further payment of any consideration by AM Cosmetics or AM to Xxxxxx)
stock certificates evidencing its ownership of certain of the Preferred Shares
together with a stock transfer form duly executed in blank, together with a
Certificate and Agreement Covering Lost Stock Certificates with respect to the
remainder of its Preferred Shares in form and substance reasonably satisfactory
to AM with respect to any certificates for the Preferred Shares which cannot be
located by Xxxxxx. Xxxxxx agrees to waive and relinquish, and hereby does waive
and relinquish, any and all of its rights and remedies with respect to and/or in
connection with the Preferred Shares, whether set forth in the Subscription
Agreement, under the Certificate of Incorporation of AM Cosmetics or otherwise.
4. AM shall transfer to Xxxxxx all of the "Cutex" brand products in AM's
custody or possession as of the date of this Settlement Agreement that are in
containers that bear "Cutex" trademarks or trade names (the "Cutex products").
In exchange, Xxxxxx shall pay to AM, on or before March 2, 2000, by certified or
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bank check or by wire transfer, the sum of one dollar ($1.00). Delivery of all
the Cutex products shall be effective upon Xxxxxx or its carrier picking up said
products at AM's warehouse at 0000 Xxxxx Xxxxxx, Xxxxxxxx, Xxx Xxxx 00000 ("AM's
warehouse"), during normal business hours, and the risk of loss of said products
shall be borne by AM until such delivery. Xxxxxx shall bear the risk of loss
upon delivery of the aforesaid inventory and products to the carrier. Xxxxxx
agrees to cause the Cutex products to be picked up by March 2, 2000, after which
AM's obligation to transfer said products to Xxxxxx, and Xxxxxx'x right to
delivery of, possession of and/or title to the Cutex products, shall terminate.
Xxxxxx acknowledges and agrees that the Cutex products that AM transfers to
Xxxxxx pursuant to this Settlement Agreement represents and constitutes all of
the Cutex products in AM's possession.
5. AM shall transfer to Xxxxxx all of the "Dark & Lovely" brand products
in AM's custody or possession as of the date of this Settlement Agreement that
are in containers that bear "Dark & Lovely" trademarks or trade names (the "Dark
& Lovely products"). In exchange, Xxxxxx shall pay to AM, on or before March 2,
2000, by certified or bank check or by wire transfer, the sum of one dollar
($1.00). Delivery of all the Dark & Lovely products shall be effective upon
Xxxxxx or its carrier picking up said products at AM's warehouse during normal
business hours, and the risk of loss of said products shall be borne by AM until
such delivery. Xxxxxx shall bear the risk of loss upon delivery of the aforesaid
inventory and products to the carrier. Xxxxxx agrees to cause the Dark & Lovely
products to be picked up March 2, 2000, after which AM's obligation to transfer
the Dark & Lovely products to Xxxxxx, and Xxxxxx'x right to delivery of,
possession of and/or title to the Dark & Lovely products, shall terminate.
Xxxxxx acknowledges and agrees that the Dark & Lovely products that AM transfers
to Xxxxxx pursuant to this Settlement Agreement represents and constitutes all
of the Dark & Lovely products in AM's possession.
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6. AM shall bear no responsibility for any costs relating to, arising from
or associated with returns by customers of any of the Cutex products or the Dark
& Lovely products after February 25, 2000, including, without limitation,
reimbursement to said customers for returned Cutex or Dark & Lovely products.
Although Xxxxxx bears responsibility for all costs relating to, arising from or
associated with returns by customers of any of the Cutex products or the Dark &
Lovely products prior to February 25, 2000, including, without limitation,
reimbursement to said customers for returned Cutex or Dark & Lovely products, AM
shall not seek reimbursement from Xxxxxx for any such costs arising from or
associated with returns of the Cutex products or Dark & Lovely products that
occurred prior to February 25, 2000.
7. Simultaneously with the exchange between the parties of executed copies
of this Settlement Agreement, the parties shall, in addition, execute, or cause
their respective counsel to execute, and exchange the following documents: (i) a
Consent Order of Dismissal With Prejudice, a copy of which is annexed hereto as
Exh. A, terminating the Lawsuit with prejudice; (ii) a Stipulation of Dismissal
With Prejudice, a copy of which is annexed hereto as Exh. B, terminating the
Arbitration with prejudice; (iii) a Notice of Voluntary Dismissal With
Prejudice, a copy of which is annexed hereto as Exh. C, terminating the New
Jersey Action with prejudice; and (iv) Releases, copies of which are annexed
collectively hereto as Exh. D (the "Releases").
8. Simultaneously with or immediately following the exchange between the
parties of executed copies of this Settlement Agreement, AM's attorneys, Xxxxx &
XxXxxxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 will cause to be filed the
Consent Order of Dismissal With Prejudice, terminating the Lawsuit with
prejudice; the Stipulation of Dismissal With Prejudice, terminating the
Arbitration with prejudice; and the Notice of Voluntary Dismissal With
Prejudice, terminating the New Jersey Action with prejudice, copies of which are
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annexed hereto as Exhs. A, B and C, respectively (collectively, the
"Stipulations of Dismissal"), in the appropriate fora.
9. The following agreements between AM and/or AM Cosmetics, on the one
hand, and Xxxxxx, on the other, are hereby cancelled and terminated as of the
date of this Settlement Agreement (to the extent that any of them has not
already been terminated prior thereto): (i) Management Agreement dated as of
June 26, 1996, as amended, a copy of which is annexed hereto as Exh. E, (ii)
Manufacturing Agreement dated as of April 30, 1997, a copy of which is annexed
hereto as Exh. F, (iii) Broker Agreement dated as of September 19, 1997, a copy
of which is annexed as Exh. G, (iv) Subscription Agreement, a copy of which is
annexed hereto as Exh. H, and (v) Commission Agreement dated as of August 1,
1996, a copy of which is annexed hereto as Exh. I, and (vi) any and all other or
further agreements (excluding this Settlement Agreement) between Xxxxxx, CIC
and/or any of their parents, subsidiaries, affiliates, divisions, joint venture
partners, predecessors, successors, assignees or grantees, on the one hand, and
AM, AM Cosmetics and/or any of their parents, subsidiaries, affiliates,
divisions, joint venture partners, predecessors, successors, assignees or
grantees, on the other.
10. Xxxxxx represents and warrants to AM and AM Cosmetics that: (a) (i)
Xxxxxx is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to enter into this Settlement Agreement and the Release to be
issued by Xxxxxx to AM (the "Xxxxxx Release") and to carry out its obligations
hereunder and thereunder, (ii) the execution and delivery of this Settlement
Agreement and the Xxxxxx Release by Xxxxxx and the consummation by Xxxxxx of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Xxxxxx and CIC and no other corporate
proceedings on the part of Xxxxxx or CIC are necessary to authorize this
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Settlement Agreement or the Xxxxxx Release or any of the transactions
contemplated hereby or thereby and (iii) each of this Settlement Agreement and
the Xxxxxx Release has been duly executed and delivered by Xxxxxx and
constitutes a legal, valid and binding obligation of Xxxxxx, enforceable against
Xxxxxx in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws relating to or affecting creditors' rights and remedies generally,
and except as the enforceability thereof is subject to the application of
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
(b) Neither the execution and delivery of this Settlement
Agreement or the Xxxxxx Release by Xxxxxx nor the consummation of the
transactions contemplated hereby or thereby will: (i) conflict with or violate
any provision of the certificate of incorporation or bylaws of Xxxxxx, CIC or
any of their respective subsidiaries, (ii) conflict with or violate any statute,
law, rule, regulation, order, writ, injunction, judgment or decree applicable to
Xxxxxx, CIC or any of their respective subsidiaries or any of their respective
assets or (iii) conflict with or result in any violation or breach of,
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in or give to any person any right of
payment or reimbursement (other than reimbursement arrangements entered into in
connection with the issuance of the Letter of Credit), termination,
cancellation, modification or acceleration of, or result in the creation of any
lien pursuant to, any note, bond, mortgage, security agreement, indenture,
contract, agreement or other instrument or obligation to which Xxxxxx, CIC or
any of their respective subsidiaries is a party or by which any of their
respective assets is bound.
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(c) Except for the filings expressly contemplated by this
Settlement Agreement, no notice, declaration, report or other filing or
registration with, and no waiver, consent, approval or authorization of, any
governmental or regulatory authority or instrumentality or any other public or
private third party, including any stockholder or creditor, is required to be
given, made or obtained by Xxxxxx, CIC or any of their respective subsidiaries
in connection with the execution, delivery or performance of this Settlement
Agreement or the Xxxxxx Release.
(d) Pursuant to the Merger Agreement and the applicable
provisions of the General Corporation Law of the State of Delaware, upon the
consummation of the Merger, Sub will be merged with and into CIC, the corporate
existence of CIC and Xxxxxx will continue and Xxxxxx'x obligations under this
Settlement Agreement, the Xxxxxx Release and the Confession of Judgment (as
defined below in paragraph 16) will not be limited or otherwise affected by the
Merger.
11. AM and AM Cosmetics each represents and warrants to Xxxxxx that: (a)
(i)each of AM and AM Cosmetics is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to enter into this Settlement Agreement
and the Release to be issued by AM to Xxxxxx (the "AM Release") and to carry out
its obligations hereunder and thereunder, (ii) the execution and delivery of
this Settlement Agreement and the AM Release and the consummation by AM and AM
Cosmetics of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of AM and AM Cosmetics
and no other corporate proceedings on the part of AM and AM Cosmetics are
necessary to authorize this Settlement Agreement or the AM Release or any of the
transactions contemplated hereby or thereby and (iii) each of this Settlement
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Agreement and the AM Release has been duly executed and delivered by each of AM
and AM Cosmetics and constitutes a legal, valid and binding obligation of AM and
AM Cosmetics, enforceable against AM and AM Cosmetics in accordance with their
terms, except as may be limited by applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws relating to or affecting
creditors' rights and remedies generally, and except as the enforceability
thereof is subject to the application of general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity).
(b) Neither the execution and delivery of this Settlement
Agreement or the AM Release by AM or AM Cosmetics nor the consummation of the
transactions contemplated hereby or thereby will: (i) conflict with or violate
any provision of the certificate of incorporation or bylaws of AM, AM Cosmetics
or any of their respective subsidiaries, (ii) conflict with or violate any
statute, law, rule, regulation, order, writ, injunction, judgment or decree
applicable to AM, AM Cosmetics or any of their respective subsidiaries or any of
their respective assets, or (iii) conflict with or result in any violation or
breach of, constitute a default (or an event that with notice or lapse of time
or both would become a default) under, result in or give to any person any right
of payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation of any lien pursuant to, any note,
bond, mortgage, security agreement, indenture, contract, agreement or other
instrument or obligation to which AM, AM Cosmetics or any of their respective
subsidiaries is a party or by which any of their respective assets is bound.
(c) Except for the filings expressly contemplated by this
Settlement Agreement, no notice, declaration, report or other filing or
registration with, and no waiver, consent, approval or authorization of, any
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governmental or regulatory authority or instrumentality or any other public or
private third party, including any stockholder or creditor, is required to be
given, made or obtained by AM, AM Cosmetics or any of their respective
subsidiaries in connection with the execution, delivery or performance of this
Settlement Agreement or the AM Release, except for the consent of holders of
shares of common stock of AM Cosmetics representing a majority of the voting
power of the outstanding shares of common stock, voting together as a single
class, which has been obtained.
12. Concurrently with the execution and delivery of this Settlement
Agreement, (a) Milbank, Tweed, Xxxxxx & XxXxxx LLP, counsel to Xxxxxx, has
delivered a written opinion to AM in the form attached as Annex B hereto
(together with a reliance letter addressed to Parent); and (b) Xxxxx & XxXxxxxx,
counsel to AM and AM Cosmetics, has delivered a written opinion to Xxxxxx and
Cosmair, Inc., a Delaware corporation, in the form attached as Annex C hereto.
13. Neither AM nor Xxxxxx owes any past, present or future obligations
and/or duties over to the other under or pursuant to any of the agreements
described in paragraph 9 hereinabove, copies of which are annexed hereto as
Exhs. E, F, G, H and I.
14. Nothing contained in this Settlement Agreement, and no act undertaken
in contemplation or pursuant to this Settlement Agreement, should be construed
as, nor is intended to be, an admission of fault or liability by any party
hereto.
15. This Settlement Agreement and the documents annexed hereto constitute
the entire agreement between the parties hereto and supersede any and all prior
agreements or understandings between the parties hereto, whether written or
oral.
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16. As security for Xxxxxx'x payments to AM described in paragraph 1
hereinabove, Xxxxxx, simultaneously with the execution of this Settlement
Agreement, shall execute and deliver to AM a confession of judgment with an
accompanying affidavit, a copy of which is annexed hereto as Exh. J (the
"Confession of Judgment"), in the amount of $325,500, representing the amount of
the Second Payment less the original face amount of the Letter of Credit (the
"Remainder"), plus a five percent addition as the agreed reasonable costs of
collection. In the event that AM has not received the Remainder on or before the
Second Payment Date, then, and in that event, AM shall be entitled to file,
record and enforce the Confession of Judgment at any time following the Second
Payment Date. The judgment shall bear interest at the rate of 12 percent per
annum beginning on the date set forth in the Confession of Judgment until AM
receives from Xxxxxx full payment of the amount of the judgment, including said
interest. In the event that AM has received the Remainder on or before the
Second Payment Date, then , and in that event, AM shall forthwith return to
Xxxxxx the original Confession of Judgment (and all executed copies thereof).
17. This Settlement Agreement may not be modified, altered, amended or
changed, except by written agreement signed by the parties hereto.
18. This Settlement Agreement shall inure to the benefit of, and shall be
binding upon, the parties hereto and their respective parents, subsidiaries and
affiliates.
19. This Settlement Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York without reference to
conflicts of laws principles.
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20. This Settlement Agreement may be executed in counterparts, each
executed counterpart constituting an original but all counterparts together
constituting only one instrument.
21. Each of the parties hereto agrees to keep confidential and not to
disclose (and to cause its officers, directors, employees, agents and
representatives to keep confidential and not to disclose) the contents of this
Settlement Agreement and each of the documents executed in connection herewith
(collectively, the "Information"). Notwithstanding the foregoing, each of the
parties hereto shall be permitted to disclose Information (i) to the extent
required by applicable laws and regulations (including in connection with any
filings required under the rules and regulations of the Securities and Exchange
Commission with respect to the tender offer contemplated by the Merger Agreement
or the Merger) or by any subpoena or similar process, provided, however, that it
is agreed and understood that (x) Xxxxxx may deliver the Information to Parent
and its agents and representatives and Parent may also disclose the information
as permitted by clause (i) above and (y) each of the parties hereto may, on ten
(10) business days' prior written notice to the other parties hereto, disclose
any Information in any legal or court proceeding in which it is or may become a
party or party-in-interest; (ii) to the extent such Information (A) becomes
publicly available other than as a result of a breach of this Settlement
Agreement or (B) was available to such party on a non-confidential basis as of
the date hereof, or (iii) to the extent the parties hereto shall have consented
to such disclosure in writing.
IN WITNESS WHEREOF, the parties have executed this Settlement Agreement
as of the date first above written.
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AM COSMETICS CORP.
formerly known as XXX ACQUISITION CORP.
By: /s/Xxxxxxx X. Xxxx
Xxxxxxx X. Xxxx, Executive Vice
President and Chief Financial Officer
Dated: February 25, 2000
AM PRODUCTS COMPANY
formerly known as AM COSMETICS, INC.
By: /s/Xxxxxxx X. Xxxx
Xxxxxxx X. Xxxx, Executive Vice
President and Chief Financial Officer
Dated: February 25, 0000
XXXXX XX XXX XXXX )
COUNTY OF NEW YORK ) ss.:
On the 25th day of February, 2000, before me personally came Xxxxxxx X.
Xxxx to me known, who, being by me duly sworn, did depose and say that he
resides at 00 Xxxx Xxxx Xxxx, Xxxxxx, Xxxxxxxxxxx 00000; that he is the
Executive Vice President and Chief Financial Officer of AM COSMETICS CORP.,
formerly known as XXX ACQUISITION CORP., and of AM PRODUCTS COMPANY, formerly
known as AM COSMETICS, INC., the corporations described in and which executed
the foregoing instrument; and that deponent is authorized to execute the
foregoing instrument.
Sworn to before me this
25th day of February, 2000
/s/Xxxxxx X. Xxxxx
Notary Public
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XXXXXX PRODUCTS COMPANY
By: /s/Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx, Chief Executive Officer
Dated: February 25, 0000
XXXXX XX XXX XXXX )
COUNTY OF NEW YORK ) ss.:
On the 25th day February, 2000, before me personally came Xxxxxxx X.
Xxxxxx, to me known, who, being by me duty sworn, did depose and say that he
resides at 0 Xxxxxx Xxxx, Xxxxxxxx, Xxxxxxx 00000; that he is Chief Executive
Officer of XXXXXX PRODUCTS COMPANY, the corporation described in and which
executed the foregoing instrument; and that deponent is authorized to execute
the foregoing instrument.
Sworn to before me this
25th day of February, 2000
/s/Xxx X. Xxxxx
Notary Public
